Global views.

Turmoil related to accounting and financial reporting is not just a U.S. phenomenon. Indeed, over the past two years, the problems affecting the global markets are not so different from those affecting the U.S. In an interview, Grant Thornton's London-based Chief Executive Worldwide, David McDonnell, cited some of the main issues concerning financial executives around the globe:

The generally flat economic climate, consisting of varying degrees of pessimism; the impact of various countries adopting accounting changes by 2005 (the International Financial Reporting Standards, or IFRS--formerly the International Accounting Standards, IAS); IFRS impact on reported earnings and, thus, capitalizing businesses; the U.S. accounting scandals impacting attitudes, regulations and more; the past few years' currency move to the euro; the erosion of trust in the U.S. auditing profession that has spread overseas; the U.S.'s Sarbanes-Oxley regulations, which could have some negative consequences for global firms, such as to stymie access to the U.S. capital markets as the U.S. Securities and Exchange Commission becomes more involved in regulating overseas markets. To mention just a few.

The U.S. accounting scandals have had a global impact, says McDonnell. He cites three reasons: They happened at extremely large multinational companies; they caused the demise of one of the biggest accounting firms in the world; and the U,S. economy is so big that if anything happens there, if affects others.

By far, the greatest impact is the erosion of trust in the auditing profession, he says. "If you ignore everything else, the auditing profession was clearly called into question, [and] that erosion of trust had a significant impact in Europe." He says it's recently been reversing somewhat, but he believes some long-term damage has been done. "The profession 'sells' one thing: confidence. We are the means by which the market is given confidence. If confidence is called into question, the whole thing is called into question."

The U.S. response--Sarbanes-Oxley, preventing auditors from providing certain services, rotating people involved in the audit and more--and similar regulations passed around the world represent a reaction to only a small part of the problem, the so-called "independence of the auditor," and is not the central problem. "It's very difficult to think of an example where an audit has failed because of lack of independence--whereas perceived lack of independence undermines the confidence people have, so it is a peripheral rather than a fundamental issue," says McDonnell.

Thus, he views Sarbanes-Oxley as a "political response to try to restore confidence in the profession," which, he concedes, it probably has to some extent, and that is positive. It is also placing constraints on the auditing and accounting profession globally and, importantly, threatens to allow the SEC to be involved, to some extent in regulating overseas markets. How this will work out is a concern.

There is also much general concern related to the impact of adopting IFRS, as changes will vary from country to country, depending on what their standards have been; some standards are very close to IFRS, while others are quite different. Moreover, many surveys cite great apprehension about the impact the changes will have on reported earnings.

Also, for European Union (EU) countries, IFRS adoption comes on top of having just gone through a currency change to the euro in the past few years, along with the difficult economy, which followed the monetary change. "In pure technical and accounting terms, the conversion to the euro and then to change their accounting standards is difficult," notes McDonnell, although many have been adopting the IFRS ahead of time, he says, knowing that they've got to do it.

One other issue persists that relates to IFRS standards. The requirements currently apply only to listed companies, while a debate ensues as to whether it will be extended to all companies--even private ones. For example, in Europe, all companies, whether listed or not, are required to audit and publish financial statements.

Should non-listed companies be required to adopt to IFRS? In Europe, at the moment, they aren't, notes McDonnell. "I think, logically, that they should be. If you have a system, as we do here, whereby all companies have to publish their financial information, you should go one step further and say, all the companies must publish in a consistent way, which means adopting IFRS."

While much of this information relates to Europe and EU countries, IFRS adoption is a global issue affecting all countries--Asia, China, Australia and more. While IFRS are being adopted in virtually all countries around the world, McDonnell notes, "Frankly. I think the big issue is whether the U.S. will adopt them or something very similar. Because then they will truly be global reporting standards, and there will be no excuse for any country not adopting them."

Undoubtedly, Sarbanes-Oxley is affecting foreign fliers. Does he think it will be a big factor? No, he says, since others still want to access the biggest capital market in the world--the U.S.--and acknowledge "there is a price to pay."

Now, however, that price will be higher, as the auditing firms of public companies outside the U.S. will have to register with the Public Company Accounting Oversight Board (PCAOB)--making them subject to SEC regulation, SEE oversight, etc. "It is a very intrusive process [that is] time-consuming and expensive," says McDonnell. And, for some companies, it is in conflict with their local country laws. Many will not find it worth it, and will not register, he warns.

However, he says Grant Thornton's major firms around the world have a lot of work to do and assures that they will be registered. No doubt, he opines, it will dissuade some from listing on the New York Stock Exchange or Nasdaq markets. The big question is: to what extent?