I recently had a chat with Warren McGregor who is a member of the International Accounting Standards Board. Here is the interview.

SOX FIRST: Last year, the IASB got rolled by the Europeans and was forced to change the rules to help banks avoid taking a hit. Are you still coming under pressure?

MCGREGOR: It's still happening. It's a reflection of the difficulties that banks find at the moment in an an environment where their asset values are becoming just under continual downward pressure. There is a feeling amongst those banks that they need to be treated fairly in terms of financial reporting requirements and if they look to financial reporting requirements in place in the United States and form the view that banks over there are getting a better run, then they make a case to us that we should do something about it. The one they are talking about at the moment is technical area is embedded derivatives, embedded in synthetic CDOs. In respect of a very limited circumstance, US GAAP does not require the embedded derivative to be separated and accounted for at fair value whereas under IFRS, it requires the embedded derivative to be separated and accounted for at fair value.

SOX FIRST: Which way will you go on this?

MCGREGOR: We don't resile from the requirements in our standard in terms of the appropriate accounting for these things. We think it's essential that embedded derivatives are accounted for at fair value. Otherwise, it's not showing the true value of those investments and anyone looking at those accounts would not be fully informed of the risk to which they are exposed.

SOX FIRST: How do we know you won't be rolled again?

MCGREGOR:All I can say is that that decision was taken with extreme reluctance and based on whats happened since then, not at only our own organization but also our constituents and their concern that they have expressed to us, I personally cannot see that happening again From this board members' view point, I certainly wouldn't want to be part of that again. Our constituents in their own way sent a message to the European Commission saying what you engaged in last year was not fair play and not in the best interest of capital markets. There is no doubt the European banks want to see us opening up these issues and re-debate them and come up decisions that they prefer but I don't think holding us to hostage will happen again. What happened last was an extreme form of politicization.

SOX FIRST:So how would respond to pressure for regulatory arbitrage?

MCGREGOR: We have established a monitoring group of the International Accounting Standards Committee Foundation. That monitoring group comprises the SEC, Japan's FSA, the International Organization of Security Commissions and the European Commission. I would have no doubt he monitoring group would have something to say if we came under pressure.

SOX FIRST:
What about global accounting standards? How close are we to getting that?

MCGREGOR:I would say its inevitable. In my view, we are 80% there. There are 113 countries using IFRS at the moment. Japan, Canada, India, Korea and Brazil have said 2011 is the date they will adopt. The US has a road map it's said it said will make a decision in 2011. As globalization has accelerated money flowing around the world, the market is calling for a common language. It's been heavily endorsed.

SOX FIRST: That might be but the new head of the SEC Mary Schapiro has expressed concerns about the world's biggest market adopting global standards and about the independence of the IASB. Isn't that a problem for the IASB and doesn't it mean we are less likely to have global standards.

MCGREGOR: Don't read too much into what she said. I have always been of the view that the US would come on board because of market forces. We are in regular contact with the SEC, both at the overall administration level and at the chairman level and also on the staff level.