(January 14) – “In a move expected to influence corporate bookkeeping world-wide, Arthur Levitt, chairman of the Securities and Exchange Commission, is stepping in to help overhaul the International Accounting Standards Committee, which recently has come under fire,” writes Eliazbeth MacDonald in today’s Wall Street Journal.

“Mr. Levitt will oversee a nominating committee that will begin selecting 19 trustees to supervise a revamped international rule-making group “whose independence and commitment to the public interest are unquestioned,” the SEC said. So far, James Wolfensohn, president of the World Bank, Howard Davies, chairman of the U.K. Financial Services Authority, and James E. Copeland Jr., chief executive of Deloitte Touche Tohmatsu, among others, were named to the panel.

“‘The all-star cast of the nominating committee reflects the significance of this issue,’ SEC chief accountant Lynn Turner said. Mr. Copeland said the process, similar to the U.S. approach, will help international standards avoid being “unduly influenced by any particular interest.”

“The changes are widely viewed by market observers as coming at a critical time, when cross-border mergers have increased in number, and global markets have become more tightly linked. As capital flows zip around the planet with lightning speed, some of that capital has been lost in economic meltdowns, partly triggered by poor accounting, in places such as Asia and Russia. The London-based International Accounting Standards Committee has been trying to address these problems by drafting one set of global rules, which it said it hopes companies anywhere in the world will use to list on the world’s stock markets, including in the U.S.

“Officials at the U.S. Financial Accounting Standards Board have decried the rules and the drafting process that leads to them for being weaker than U.S. practices. Among other criticisms, many members of the international accounting group work on a part-time basis and thus aren’t viewed as sufficiently independent of their company or government bosses. (FASB board positions are full-time jobs.) Recently, the FASB issued a report detailing at least 250 differences between U.S. and international rules.

“Such differences have resulted in huge earnings swings. For example, Mexican Maritime Transportation SA’s fiscal 1998 loss under international rules quadrupled under U.S. standards after it listed on the New York Stock Exchange. Likewise, Rostelecom JSC, a Russian telecommunications concern, took a 16% cut in reported earnings under U.S. rules as opposed to international standards after listing on the NYSE a few years ago.

“The FASB also says the international rules don’t go far enough to stop reserve-accounting abuses, rampant in places such as France, Italy and Germany. For example, in fiscal 1993, before Daimler-Benz merged with Chrysler, the German auto maker relied on reserves to report a $346 million profit under German rules. Under U.S. accounting rules, the company would have reported a $1 billion loss.