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Transcript of Panel Debate
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– 345 – Transcript of Panel Debate Klaus J. HOPT, Max Planck Institute, Chair I propose to focus on matters the Commission could take action on or, to the contrary, should not do, as to produce conlusions the future EU Commission could look at. In this manner we are preparing the ground. I have a question for Gerard Hertig on financial reporting: I would like to broaden the question from technical financial reporting to disclosure in general and the role of disclosure in this particular financial crisis. Is disclosure a real panacea, should we leave it to the enlightened self-interest of market participants or do we need mandatory disclosure? Gerard HERTIG, ETH Zürich To answer your first question, which is whether we should make disclosure mandatory, I am rather hesitant since there are costs and benefits with disclosure anyway. Coming back to the discussion in the workshop on financial reporting, we have some data on the costs of financial reporting, no data on the costs of non-mandatory financial reporting. One general point before going into this in more detail: we talk a lot about the fact that we do not have empirical data. That has not stopped lawyers from doing anything and it is not totally serious. In addition, what is hidden behind it is another major issue I would like to throw in, namely the interest group discussion: you never know who exactly is pushing for what at the EU level. For instance, it is always puzzling to hear accountants say that financial accounting is overly complex: they cannot be serious because otherwise they would be out of business. Their reason for saying that is that they want it to become even more complex. So on the disclosure side, in some areas people want to make it simpler, in other areas more complex; we do not know what the end result might be. From the financial crisis point of view, it is really hard because nobody knows. One thing is 100% certain: the whole business about fair value and mark to market being wrong, I cannot even begin to understand. Was hiding the current value of your product or financial situation helping you? It cannot be true, it cannot work. So here the issue is not about disclosure and transparency but the issue is about capital adequacy and capital requirements, which is totally different. And here, probably more transparency will help to build investor confidence as long as they trust the models and you enforce the models. Klaus J. HOPT How about convergence between US GAAP and IFRS? Probably we need it but it is a difficult process. Some people told me that there is a danger that it will be taken too much towards the American side. Is that so, and what are the chances that we could come to a really good compromise? – 346 – Gerard HERTIG Well,Iusedtothinkthatconvergencewasagreatthing,thatweshouldhavemore of it. I have, I think, radically changed my mind. First of all, nothing guarantees that if we have convergence towards IAS/IFRS we will have uniformity; we will have differences as much as before, because we can implement converging rules in different ways; so that does not help you too much. And secondly, despite the current situation which is market oriented, if you have just one system, it does hamper innovation. I have seen some academic papers recently that have taken the reverse position: we need more diversity. It is not accounting that is important, especially for large firms, but analyst coverage in the market. That is what we should look at; it is analysts rather than just the convergence of systems, because you can have software that I believe can make things much more comparable. Philippe PELLE, European Commission Regarding the initial comments on the exemption for micro-entities, i.e. the carve-out from the Accounting Directive, I should stress that whenever the Commission proposes legislation, there has to be an impact assessment, so also for the costs of the proposed exemptions this will have to be performed. is a question from the floor. It is Karel Van Hulle, of course. Karel VAN HULLE, K.U.Leuven and European Commission As to convergence between IAS/IFRS and US GAAP, it seems like after having come a long way, we are now having second thoughts because there would still remain differences in interpretation or implementation, but the question is whether that uniformity is really necessary; what is the difference between comparability and uniformity? Klaus J...