Socializing a Free Market Europe through Accounting Standards-Part One

Europe faced a long uphill battle in 2002 when the Euro was introduced as the new currency that was meant to supplant the many currencies in use in the multiple nations. Ideally, it would have made trade easier, in reality it has brought its share of trouble with it. Each nation had their own currency, their own laws and their own methods and regulations governing accounting standards. Some of these standards were contradictory to the standards in other nations planning on using the Euro. The introduction of the IASB, or International Accounting Standards Board was for the purpose of bringing all the accounting standards of these European nations under one set of standards. While many of these have yet to be accepted or adopted the recent publication of the IASB’s ED/2013/5 is set in place.

Entitled the “Regulatory Deferral Accounts”, this publication is meant to allow those European countries which have not as yet accepted the IFRS’s to adopt an interim set of standards if they meet certain criteria. Many have not done so because of the socialist-bent on some of these regulations and laws which will interfere in what remains in those nations that are mostly free-market economies. These criteria include the requirement of a rate regulator. In other words, there has to be an individual or agency not associated with a company, most likely a government run agency, who will restrict the price that company can charge customers for goods or services. No longer will companies in nations under the IFRS be able to decide what to charge for their products without putting the matter before a government official.

While the IFRS states that the prices it will allow through regulation will ensure the company will receive their allowable costs of goods and services, there is still an intervention of an extreme nature that amounts to dictating to a company the amount of profit they can make. Only if these nations undertake this radical step will they be allowed to use this interim standard. What this doesn’t take into account is the desire of a company to not only recoup their costs, but to make a profit from the products and services they sell. The free market economies that still exist, and thrive, in Europe will falter and fail under these new standards. So what does this interim standard mean then?

To Be Continued...