changes, and the euro will increase the momentum. Although it is arguable that the
individual stock exchanges are themselves the biggest obstacle to a single financial
market in the EU.
This points to another area where the effects of the euro are not yet clear, the ef-
fect on the surrounding countries who are not members of the Eurozone. The idea of
a single price list throughout Europe, if it becomes a reality, could mean that compa-
nies outside are forced to price in euros, and stock exchanges like London are forced
to list both sterling and euro prices, with the consequence that the euro becomes the
effective trading currency, wherever one is based in Europe (just as the U.S. dollar is
the effective currency in a number of countries outside the United States). This kind
of effect can be seen with Swiss companies now wanting to publish group accounts
denominated in euros instead of Swiss francs.
17.8 CONCLUSION. Between 1965 and 1995, the EU conducted probably the
greatest individual experiment in legally based accounting harmonization the world
will ever know, and has now set off on a new cycle. Its initiatives in this area have
affected the accounts of millions of companies, have changed the way accounts are
presented not only within its borders but outside, and have consumed countless mil-
lions of man-hours in discussing, approving, and then implementing these changes.
The cost has never been calculated, but must amount to many billions of dollars.
What does it tell us about harmonization?
First, that changing the rules does not necessarily mean that countries change their
attitudes to accounting, so that what is necessary is not only a rule change but a
“hearts and minds” campaign, which persuades people that the change is useful. In
the case of the EU, it is not certain that changing the way small and medium-sized
companies approach their accounts has been shown to be useful. It may well be that
the Commission should have stuck to its original idea, that the Fourth Directive
should have applied to listed or large companies and left the rest alone.
A second point is that the new regulations in the first cycle were adopted and
adapted to work into existing national regulations, they did not replace the existing
rules, and therefore countries after harmonization had certain points in common, but
also retained many of their old differences. It has always been the case in European
accounting regulation that where countries have borrowed each others’ rules, which
happens frequently, they have then adapted them to suit local circumstances and na-
tional culture, thereby changing them quite substantially. It remains to be seen
whether the approach of using IFRS in the second cycle will succeed in stopping
local variations.
A third point is that changing accounting is in itself not enough. Different ac-
counting rules are only one reason why accounts look different, there are other dif-
ferences such as different accounting objectives, different auditing rules, and differ-
ent taxation. Beyond these technical aspects there are also issues such as corporate
and investor expectations which do not correspond in all countries, with the effect
that management priorities are different and what they prioritize in the annual report
is also different.
Assessed overall, one might come to the conclusion that the initial impetus for ac-
counting harmonization was ideologically based—the construction of a single Eu-
rope for its own sake. It consequently ran into a number of implementation problems
because accountants on the ground saw no reason to change in order to respond to
someone else’s vision of a greater Europe. Subsequently, the mood changed and com-
17 • 16 EUROPEAN HARMONIZATION