I was discussing the International Accounting Standards Board and International Financial Reporting Standards projects with an accountant of high repute this morning. Our discussion was framed within the context of the current economic crisis.

We agreed that the IASB project had the supposed goal of facilitating globalisation and of reducing the cost of capital.

We agreed that it has failed in these aims. In fact we went further. We agreed it was positively harmful to those objectives.

As I put it: I believe in globalisation in the sense that trade on the basis of comparative advantage makes sense. I am a believer in the Ricardian economics of trade. But to deliver the benefits of Ricardian economics I have to understand what is happening locally or I can't spot the local differences that justify trade.

IFRS 8 requires that a group of companies report segment information in its financial statements on the same basis that data is supplied to its board of directors. It provides a perverse incentive to undermine provision of the necessary information to pursue Ricardian advantage as a consequence. Whilst country-by-country reporting is not mandatory the boards of major corporations have gutted the financial reporting submitted to their boards of directors of any geographic content to avoid the need for information on that basis to also be submitted to their shareholders. As a result we have, for example, the perverse notion claim that Google, which relies very heavily on local content, considers itself to be just one operating segment without any local differentiation.

This is absurd. To allocate capital efficiently in a differentiated world where the potential returns upon it will vary it is essential that boards of directors and the shareholders to whom they report have local data on how that capital is used. If not that capital will, beyond a shadow of a doubt, be misallocated. The result will be sub-optimal economic performance. Worse, it might be deliberately sub-optimal as inappropriate goals are pursued.

The message on which we agreed was simple, but blunt: in a global world we have to account locally or we harm the well-being of all people, companies and governments.

It's time the International Accounting Standards Board took real notice.