EU Wants U.S. to Play by Its Rules: European Union Wants `Convergence' and `Harmonization' of Accounting Standards Based on the Principles Used in Europe-To the Detriment of U.S. Innovation and Success. (the Nation: Corporate Accountancy)

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One of America's most outspoken chief executive officers (CEOs), T.J. Rodgers, is an admirer of radical individualist Ayn Rand, the objectivist philosopher and novelist. He founded Cypress Semiconductors Corp., an $800 million-a-year high-tech company in San Jose, Calif., and regularly sounds off against everything from confiscatory taxes and racial quotas to the government pork that some of his fellow CEOs in Silicon Valley are eager to haul away from the tax-filled trough. But lately there is one target of his ire: attempts by France and Germany to undercut the military and economic leadership of the United States.

A libertarian who frequently works with the Washington-based Cato Institute, Rodgers opposes war with Iraq. But he thinks France and Germany are full of hypocrisy when they criticize the United States as a warmonger because of their roles in helping Saddam Hussein wage war on his own people. "Both France and Germany have huge contracts selling hardware--some of it military-related hardware--to Iraq at astronomical prices," Rodgers tells INSIGHT. "They sit there and talk morality when the fact is they're profiting from Saddam Hussein's government."

Rodgers, like many observers, thinks European opposition has been less about peace than about undermining U.S. leadership. And for the last few years he has seen what he believes to be efforts by France, Germany and other countries in "old Europe" to undercut America's technological prowess and entrepreneurial strength through schemes involving the so-called "convergence" and "harmonization" of accounting standards. The idea, also being promoted by some Washington policymakers and accounting theorists, is to have global accounting rules that all businesses must follow, relieving confusion in globalized business dealings. But Rodgers and others say that playing by European rules could compromise America's record of innovation and success.

"I don't understand why there's any benefit for us to working with them at all" Rodgers says. "Certainly if following French accounting rules hurts Silicon Valley, then screw French accounting rules."

European governments have for years complained about U.S. accounting procedures they claim give U.S. business an unfair advantage in attracting investment in the global economy. They particularly dislike accounting rules and tax policies concerning mergers and stock options, which Rodgers and others see as essential to the U.S. entrepreneurial culture. But rather than emulate U.S. policies, the European Union has insisted the United States be more like them.

The Trade Commissioner of the European Union (EU), Pascal Lamy, is French and, some say, makes France the principal influence on EU policy. The EU recently formed the International Accounting Standards Board (IASB) to set rules for all of Europe. Indeed, in 2001 the IASB announced its intention to set accounting standards for the world. The EU then announced that all companies, including U.S. companies, sold on European stock exchanges must adopt IASB accounting standards by 2005 (or 2007 if they also list on the U.S. exchanges).

The EU now is pressuring the U.S. government not only to allow foreign companies that list on American stock exchanges to report their earnings with IASB standards, but to "harmonize" accounting rules for U.S. companies so that they're more aligned with Europe. Europe's lobbyists have used business scandals in the United States such as those involving Enron and WorldCom to argue that their standards are superior and better for investors. In July, the Wall Street Journal quoted Frits Bolkestein, the EU's top financial commissioner, as saying that America's Generally Accepted Accounting Principles (GAAP) "allow clever financial engineers to weave ways around" the rules.

But now Europe has its own corporate accounting scandal. The enormous Dutch food-service firm Royal Ahold recently ousted its CEO and chief financial officer and announced that it had overstated earnings by at least $500 million. …