"Better financial disclosure by commercial banks might have given some early warning signals with regard to the financial crisis in East Asia", Mr. Rubens Ricupero, Secretary-General of UNCTAD, stated this morning, in an address to experts in accounting and reporting from over 50 countries and about 20 professional associations. They are gathered for a three-day (11-13 February) meeting of the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting, better known as ISAR. At its current session, ISAR, which discusses and promulgates best practices, will focus in particular on green accounting.
In his opening address, Mr. Ricupero offered his reflections on the Asian crisis, which, "according to many experts", he stated "is essentially a banking crisis, at least in some aspects, which started with an ill-performing banking system, was compounded by excessive overseas borrowing, an unsustainable property and equity boom and ended with massive short-term outflow, a free fall in the currency and general loss of confidence." He argued that ,"the worst might have been avoided, or at least contained, if there had been some early warning signals."
He recalled that, at its Banking Forum in 1996, ISAR had given the following message to policy-makers, which is now being echoed by a number of financial experts - after the crisis has broken out: Accounting rules drive disclosure and better disclosure stimulates better management and provides more adequate information to deal with risks. The use of international standards can contribute to financial stability and a sound banking sector.
Turning to the main topic on the agenda, Mr. Ricupero stressed the importance of ISAR’s work on environmental financial accounting and reporting at the corporate level. He expressed the hope that the group would capture the attention of policy-makers before another crisis erupted because of lack of disclosure of environmental risks.
This topic was timely and needed because the users of financial statements, particularly the banking community, wanted to know how companies were managing environmental risks and what their risk exposure was, as well as how this was reflected in the financial statements. Some corporations were responding to this pressure. For example, Monsanto had recently announced that it intended to introduce an environmental accounting system to assess the environmental costs of its activities.
Monsanto´s CEO, Robert Shapiro, said "there is still no consensus on corporate environmental accounting but Monsanto hopes to start publishing its own version as part of its 1998 corporate accounts."
Mr. Ricupero said that while Monsanto´s commitment was laudable, its decision to devise its own brand of environmental accounting would not be useful to the users of financial statements. Hence the importance of the current meeting aimed at developing a framework or a guideline for environmental accounting so that member States would not feel pressed to develop their own solutions which would later be difficult to reconcile with those of other member States. Mr. Ricupero referred to a review (TD/B/COM.2/ISAR/2) by the UNCTAD secretariat of the rules, standards and guidance on environmental issues which are scattered throughout national regulations. From this review, the secretariat has culled the very best practices which will be discussed by the experts.
Noting that so far there is no consensus on the use of standardized environmental performance indicators, Mr. Ricupero suggested that eco-efficient indicators, such as energy consumption per unit of value-added, be standardized so that they can be used to link financial and environmental performance.
The Group elected Professor Nelson de Carvalho of the University of Sao Paulo (Brazil) as Chairman. Mr. de Carvalho is a member of the Brazilian Accounting Association and serves on the International Accounting Standard Committee. Professor Alfred Stettler of the University of Lausanne (Switzerland) was named Vice-Chairman/Rapporteur.
Mr. de Carvalho, as well as the outgoing Chairman, Mr. Herbert Biener (Germany), stressed the importance for this highly technical group of bringing its results to the attention of policy-makers. Mr. Ricupero this morning paid tribute to Mr. Tala Abu-Ghazaleh, President of the Arab Society of Certified Accountants, who had brought ISAR’s work to the attention of senior United Nations officials, led by Mr. Kofi Annan, the United Nations Secretary-General, and CEOs of major companies at a meeting in New York on 9 February (see TAD/INF/PR/9804).
ISAR, which was created in 1982, is the only intergovernmental working group devoted to accounting and auditing at the corporate level. Its mandate is to promote the harmonization of national accounting standards for enterprises. As a result of harmonization, the financial statements of enterprises will contain more reliable, comparable and transparent financial information, necessary for the efficient functioning of stock markets, banks and foreign investors.