Accounting today is like photography in the First World War: there's no colour, the images are grainy and indistinct. Will new rules lead to a clearer picture of company finances?

It sometimes feels as if accountancy is still at a very primitive stage in its development. Seven hundred years after the invention of double-entry bookkeeping by the Florentines, the typical balance sheet and profit and loss account still give only the most imperfect picture of a company's health.

Accounting today is a bit like photography in the First World War. There's no colour; the images are grainy and indistinct; and by the time you've got your prints back, the chances are that the painstakingly photographed landscape has been dramatically altered by shelling.

The other problem is that the photographer, while notionally working to give a "true and fair" picture for the folks back home, is in the pay of, and sometimes in thrall to, the generals. Auditors inevitably come under pressure from company managements who want the best possible gloss put on the company.

All this matters. Accurate accounting is at the heart of effective business. It ensures good management decisions and efficient allocation of capital. It can also help prevent all manner of strategic disasters and fraud.

Name almost any financial collapse - from Enron to Marconi, from Equitable Life to Parmalat - and you can be sure that better accounting would have set alarm bells ringing earlier and perhaps prevented catastrophe altogether.

From 1 January 2005, one long-standing problem with accounting will be removed. Britain and at least 70 other countries - including the entire European Union - are moving to a single set of international accounting standards. For the first time, accountant will speak unto accountant. For the first time, investors (and employees for that matter) will be able to compare companies from different countries on a consistent basis.

As companies and investing institutions become more global, the logic for one set of accounting principles is pretty much unassailable. The new rules should also lead to greater transparency.

But the transition may be distinctly choppy. One problem is the lack of history. Companies will be under no obligation to redo their old accounts under the new rules: 2005 will be year zero and there will be no accounts from prior years for comparison.

Another is the lack of preparedness. City investors and analysts are going to be in for quite a shock. Results will appear much more volatile under the new rules. The headline numbers for companies may veer dramatically from profit to loss and vice versa. A further worry is the sheer subjectivity of the new process. The rules oblige companies to put a figure for the current value of their assets, rather than use historic cost. Tiny changes in long-run assumptions can have a huge impact on the present-day value of, say, a pension fund liability or a derivatives position.

The worry is that accountants, actuaries and other outside consultants may come under pressure from management to choose those assumptions that most flatter the bottom line.

Something has gone drastically wrong if we are having to listen to sermons from the Swiss about our excessive banking secrecy rules. Pierre Mirabaud, president of the Swiss Banking Association, described the City of London the other day as "a money-laundering paradise".

English trust law, apparently, still enables people to conceal their identities and so launder dodgy money. Exchange of information between regulators was "a farce", said Mirabaud. While the Swiss this year succeeded in returning to Nigeria money stolen by Sani Abacha, the former dictator, and laundered through Swiss banks, Britain has failed to do as well. This was, as Mirabaud pointed out, despite a money trail that again and again leads to the Square Mile.

The absurd regulation-by-rote attitude here, meanwhile, means that the most innocent bank transaction from even long-standing customers must be accompanied by a host of utility bills and birth certificates.

Nice to see Temple Bar restored to the City. The Wren-built stone gateway used to sit across Fleet Street until the traffic bottlenecks got so bad that it was removed in 1878. The 17th-century pile has been reassembled in the Paternoster Square development beside St Paul's Cathedral.

It was formally reopened this month and very fine it looks, though it is a bit white and gleamy for my taste. Sooty and soiled by the severed heads of traitors spiked on top would be more appropriate. Just around the corner in the new square, however, is a ten-metre-high metal carbuncle, which proves the City's willingness to play host to some pretty dismal modern sculpture sometimes. For ugly, dehumanising scale, it comes a close second to that hideous tower of rusting slabs between Liverpool Street Station and the Broadgate Centre.

Patrick Hosking is investment editor of the Times

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