The Great Debate

Volcker referees the fight over global accounting standards.

Olli-Pekka Kallasvuo, CFO and executive vice president of Nokia Corp., seems a prince of transparency as he sits in Nokia House, a steel and glass corporate temple in Helsinki, Finland. The 47-year-old talks with confidence of Nokia’s information disclosure practices under international accounting standards (IAS), a body of accounting rules now under consideration by the U.S. Securities and Exchange Commission (SEC). Critics say the rules aren’t stringent enough and would give powerhouses like Nokia a lower bar than U.S. generally accepted accounting principles (GAAP) to raise capital in America–and therefore an unfair competitive advantage.

But Kallasvuo is a staunch defender of IAS. Seventy percent of Nokia is owned outside of Finland; it has more than 1 million U.S. shareholders; and it has long disclosed discounted cash flow figures and economic value added. The company listed on the Big Board in 1993, then decided that its global ownership merited a conversion to IAS.

“Realizing that our shareholders would always be largely outside of Finland,” says Kallasvuo, “we decided to primarily report in IAS.”

Across the Atlantic, Lynn Turner, the SEC’s chief accountant, sits in the agency’s drab and workaday Washington, D.C., headquarters mulling the SEC’s initiative to open the door for IAS. The decision, expected by the first half of 2001, isn’t one he’s taking lightly. Allowing IAS without its current requirement of lengthy reconciliations to U.S. GAAP would greatly expand foreign companies’ access to the U.S. market. And Turner is wary because of companies like Nokia.

With reason. The SEC asked for comment on the quality of IAS last February, and one letter, which complained of companies claiming to disclose fully in IAS in reports to investors but actually omitting crucial details, cited Nokia. “Nokia claims full compliance with IAS in a statement of its accounting policies, but does not disclose geographical segment information or many of the required disclosures of retirement benefits,” contends the letter’s author, one Kenneth Blair, citing a study published in the Financial Times of London last year by accounting specialist David Cairns.

Cairns, an author as well as a former secretary general of the International Accounting Standards Committee (IASC) in London, is no less harsh. “It’s a serious breach,” he says. But since there’s no global SEC to stop companies from claiming, but failing, to meet IAS, they can do so without suffering any penalty.

In Helsinki, Kallasvuo, who has never seen the letter, reacts with shock. “This can’t be true,” he says, but then concedes that he doesn’t know. He falls back with, “We are among the most transparent companies in the world.” His chief accountant, controller Maija Torrko, admits that Nokia fell short of full geographical segment disclosure in 1998, but was in full compliance in 1999, when the IASC released new guidelines. Cairns disagrees, saying it still didn’t reveal enough. About the pension disclosure, Torrko echoes Kallasvuo’s confusion on the requirements. Nokia has adopted a wait-and-see attitude, because “we don’t know what to disclose.”

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