Financial Analysis and Accounting - May 20, 2007

Interview with Jean-François Lepetit

In this month's interview we speak to Jean-François Lepetit, Associate Professor at EDHEC, Chairman of the EDHEC Risk and Asset Management Research Centre's International Advisory Board and recently appointed chairman of the CNC (Conseil National de la Comptabilité or National Accounting Council) about the IFRS standards, the role of research in financial analysis and accounting and his strategic goals for the future accounting framework in France.

Jean-François Lepetit

What are the risks of the IFRS standards for long-term investors?

Jean-François Lepetit: The IFRS standards have specifically been designed to allow investors to be able to make a decision at all times about an issuer of financial instruments. On the basis of a present net asset value, it is their role to draw up assumptions on the evolution of the parameters over the short, medium and long term. This is indeed a risk, but it is also their profession.

It is legitimate however to question the usefulness of this approach for parties other than the investors - the stakeholders - and on the consequences of this near-sighted approach on the behaviour of company directors; one could even wonder whether other accounting approaches might in certain cases shed more light on the future evolution of stocks. However, as far as the heart of the matter is concerned, investors should be able to find what they are looking for...

What room to manoeuvre do you think there is at a national level in relation to the international rules?

Jean-François Lepetit: It is clear that it is in the interest of all the actors to ensure that the national and international and public and private accounting rules converge. Having said that, the international rules are not all appropriate for each public and private company in every country. The convergence must therefore be guided in its diversity and complexity by the institutions concerned. We are conscious of the particular obstacles to convergence in our country, which relate to the close links between accounting standards, the tax regime and company law, which governs distributions. It is thus incumbent upon the CNC and the future Autorité des Normes Comptables (Accounting Standards Authority) to play an appropriate role in these developments, in cooperation with the international organisations, with its European counterparts, and with the French authorities.

You have stressed the importance of research for a financial regulator like the AMF (the French Financial Markets Authority), notably with regard to regulation of hedge funds, where your decisions integrated the results of EDHEC-Risk's research. Do you think that accounting research is as important?

Jean-François Lepetit: Like in the area of financial regulation, research is a fundamental contribution in drawing up new accounting rules whose concepts and contents are constantly evolving. Each country, and within each country, regulators, companies and accounting professionals, should contribute to this research in order to favour optimal consistency with the situations and needs of the users of the standards. That is one of the essential goals of the reform of the French accounting standard framework.

Is your nomination a sign that the institution is going to evolve?

Jean-François Lepetit: The minister's letter of engagement upon my appointment and the minister's official statement which accompanied the release of my report and the decree establishing the first stage of the reform of the CNC are indeed very clear in this regard.

What strategic goals have you set yourself?

Jean-François Lepetit: The first is to finalise the implementation of the reform initiated by the April 27 decree. The minister will initially have to proceed with the nominations of the members of the College of the new CNC and the Director General, and this College will have to name the members of the two specialised commissions, national and international. It will then be necessary to prepare a draft law to be submitted to the government and the parliament to merge the CNC and the CRC (Accounting Regulation Committee) in order to create the Accounting Standards Authority, which will be given standard-setting powers and the resources necessary to be able to act independently.

The second is to get these new structures in running order so as to act, in particular in the international domain, in complete concertation with companies and the accounting professions and in close collaboration with our European counterparts.

Finally, it is appropriate to begin to consider closer ties between public accounting and private accounting and international standards so that in this area too, but in different ways, there would be more consistency in the evolution of public and private accounting rules. These closer ties should encourage synergies.

About Jean-François Lepetit

Jean-François Lepetit is a graduate of HEC business school (class of 1963) and also holds a law degree. He began his career in 1963 as a forex and treasury trader at the Banque de Paris et des Pays-Bas before joining the Banque de Suez et de l’Union des Mines, later Indosuez, in 1969. During his career at Indosuez, he acted as Member of the Board for several companies in the Suez group and was notably Vice-chairman of CPR and member of the board of Al Bank Al Saudi Al Fransi, Saudi Arabia. He left the Indosuez Bank in January of 1996 and joined Banque Nationale de Paris in January of 1997 where he was appointed Advisor to the Chairman of the Board, Corporate Management Committee member, in charge of Asset and Liability Management, and Chairman of the BNP Group’s Market Risk Committee.

During his banking career, Jean-François Lepetit was at the same time involved in the following regulatory missions:

He became a member of the Conseil du Marché à Terme (CMT) on its creation in 1986 and became its Chairman in March of 1992. At that time, he monitored general regulation of the newly created futures market, served on the Commission des Opérations de Bourse’s College and, in that capacity, managed a task force on “the protection of minority shareholders in merger and price guarantee operations”. The recommendations contained in this report, made public in September 1996, were for the most part used in establishing new regulations on public offerings.

After the C.M.T. and Conseil des Bourses de Valeurs - C.B.V. - merger, he became a member of the Conseil des Marchés Financiers - C.M.F. – created in October 1996. In 1998, he was elected Chairman and, in October 2000, was appointed a member of the CMF for a second term and re-elected as Chairman of the Board. In 1998, he again served on the C.O.B. College and became a member of the C.E.C.E.I. (Comité des Etablissements de Crédit et des Entreprises d'Investissement – Committee on credit institutions and investment firms) and the C.R.B.F. (Comité de la Réglementation Bancaire et Financière – Regulatory committee on banking and finance).

In his capacity as member of the COB College, he chaired a task force dedicated to “profit warnings” in 1999, then another task force on “new forms of equity lines” in 2002.

Appointed President of the COB College during the October 9, 2002 Conseil des Ministres (Cabinet meeting), Jean-François Lepetit also remained a member of the Conseil des Marchés Financiers. His mission specifically entailed coordinating the COB/CMF merger in association with legislation introducing the new Autorité des Marchés Financiers (Financial Market Authority). As Chairman of the COB, he also was a member of FESCO and IOSCO.

He remained in this function until the creation of the A.M.F. in November 2003, at which time he retired and became an Associate Professor at EDHEC Business School, where he is Chairman of the EDHEC Risk and Asset Management Research Centre's International Advisory Board.

From December 2004 to June 2005, he chaired a task force on behalf of the French Treasury with a mandate to make propositions about the implementation on the European Takeover Directive; these propositions were fully adopted by the French Government, and are included in a bill which was later approved by the French Parliament.

On March 16th, 2007, the Minister of Economy and Finance appointed Jean-François Lepetit Chairman of the Conseil National de la Comptabilité, - C.N.C.-, with a mission to make propositions for an adaptation of this institution to the changes in its national and international business environment. As Chairman of C.N.C., he is also a member of the College of the A.M.F.

Jean-François Lepetit is Officier de l’Ordre de la Légion d’Honneur and Chevalier de l’Ordre du Mérite.

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