Country by country reporting hailed by World Bank, but can it practice what it preaches?
August 25th, 2010
August 25th, 2010
On the International Accounting Standards Board’s (IASB’s) website, many CSOs including Eurodad have contributed to the IASB Discussion Paper on extractive activities, arguing in favor of a comprehensive country by country reporting standard for the extractive industries, a standard currently being reviewed. There are also contributions from other stakeholders that are openly opposed to such a standard.
Interestingly, the World Bank also made a very assertive contribution, which strongly supports a country by country reporting standard in the extractive sector.
World Bank strongly backs PWYP Proposals on country by country reporting
The entire submission from the World Bank defends Publish What You Pay’s (PWYP) demands to the IASB concerning financial disclosure requirements on a country by country basis for extractive industries. The World Bank aligns itself with the PWYP argument stating that the IASB is far too focused on investors’ opinions and, contrary to its constitution, does not pay enoughattention to the public interest. Moreover, the Bank also requests from the IASB the “inclusion in an IFRS of all the PWYP disclosure proposals on a country by country basis, including payments to governments, and we would argue that it is justifiable on cost/benefit grounds”.
The World Bank argues that only by establishing the disclosure requirements advocated by PWYP would it be possible to proceed to reliable comparability analysis and gather comprehensive information in order to assess “financial, political and reputational risks” in a highly instable sector such as the extractive industries.
Benefits of country by country reporting outweigh costs
The World Bank also agrees with PWYP and other CSOs when it states that the cost of introducing a country by country reporting requirement would not be too high. To support this, the World Bank uses two main arguments, also used by CSOs:
Firstly, multinational corporations (MNCs) “are expected to have already data on a national basis for certain financial information”, i.e., for “taxation purposes” and those MNCs “subject to anti-corruption legislation will already have such information”. Secondly, “audited accounting information improves reliability and enhances the ability of shareholders to monitor the activities of the company”.
The World Bank goes even further: to counter the argument that country by country reporting requirement would lead to a loss of competitive advantage by MNCs that apply IASB standards, the World Bank recalls that “more than 100 countries require or permit IFRS, or are seeking convergence”, that mandatory country by country reporting “will level the playing field better than voluntary regimes” and that more transparency will benefit capital providers.
We welcome the World Bank’s open call to the IAB to introduce a country by country reporting requirement in the IFRS-6 revision.
We also hope that this position will be followed by concrete actions within the World Bank group itself. The International Finance Corporation (IFC), member of the World Bank Group, supports private sector investment in developing countries. Some CSO research has recently shown that a number of private sector beneficiaries of IFC funds use offshore financial centers in their investments in developing countries. In order to ensure that these beneficiaries are not using their affiliates for illicit tax purposes, the IFC should require all its beneficiaries to introduce country by country reporting. This should be embedded in stringent IFC guidelines on the use of offshore financial centers.