International Accounting Standards Reform

Revenue Watch is working with the Tax Justice Network, Save the Children UK, Global Witness and Care International to draft and institutionalize an international accounting standard that requires extractive companies to report payments to governments and other key information on a country-by-country basis.

Mandatory per country reporting by companies was the first rallying call of the Publish What You Pay (PWYP) coalition, who mobilized lobbying letter-writing by members from across an international network of activists. RWI is leading the current working group, under a proposal co-authored by the Tax Justice Network who also have co-lobbied extensively on this issue. Investors who share in PWYP's goals have also provided intellectual input and lobbying efforts.

To improve transparency in the extractives sector, companies must regularly disclose their own data, both for comparison to information disclosed by host governments, and as the only significant source of information when governments are not yet offering any disclosures. Citizens in producing countries need the opportunities both to understand how governments and companies gain from their natural resources and to hold their leaders to account for the revenues received.

In key areas such as revenue payments, voluntary reporting by extractive companies to date has been extremely limited. Even in broader, multi-industry voluntary initiatives, such as the Global Compact and the Global Reporting Initiative, coverage to date remains partial.

International accounting standards (IAS) offer a powerful tool to secure disclosure of essential company information. International Financial Reporting Standards (IFRS) as set by the International Accounting Standards Board in London are employed by numerous countries in the extractive sector, including the EU, South Africa, Russia, Australia, and Hong Kong. Companies raising capital on stock exchanges that require use of IAS must also adhere to these requirements. Other key countries like China are moving toward the adoption of IASB requirements. With countries including Canada and the US in the process of convergence, a minimum standard for disclosure shared among key countries would have a systematic, nearly global impact.

An international accounting standard would also benefit a range of other actors, by protecting companies who support transparency and good governance from under-cutting by less ethical companies; by allowing investors to better judge value and risk in specific country contexts; and by giving European and other government tax authorities more operational information on multi-national companies, to help determine where profit is generated, what taxes are owed and what is actually paid.

There is currently no major grant relating to work on this topic which has rather been funded on a responsive basis. RWI and its partners will be working with the IASB to put the issue on the official agenda for reform, to develop the content of a possible standard and a mechanism for its inclusion in IFRS, for instance by combining it with the planned review of IFRS6, the standard for valuing extractive reserves. Our efforts will include collaboration with supportive investors and progressive companies, and coordination with legislative efforts and other regulatory approaches within the US.

¹ See "Beyond the Rhetoric: Measuring Revenue Transparency in the Extractive Industries XXXX (2005) and the upcoming report on company performance in the Promoting Revenue Transparency project (TI and RWI).