A Plan To Let S.E.C. Accept Foreign Rules Is Opposed

A proposal to allow foreign companies to use international accounting standards in filings with United States regulators has run into opposition from two disparate groups — European companies that believe the plan does not go far enough, and American investors who believe it is premature.

In a letter released yesterday, the European Association of Listed Companies said the Securities and Exchange Commission should allow the use of international accounting standards but should not insist that companies follow all the standards. Instead, the group said, the S.E.C. should accept modifications imposed by the European Commission.

Such a change, if approved by the S.E.C., would reduce the power of the International Accounting Standards Board, which is based in London and sets rules now used in many countries.

The European Commission, in mandating the use of international rules by European companies, made compliance with part of one rule optional. That rule concerned accounting for derivatives. The letter, signed by officials from corporate groups in 11 European countries, including Britain, France, Germany and Italy, argued that investors would be confused if companies that followed the European version of the international standards were forced to redo them to conform with I.A.S.B. standards, and that such a requirement might encourage more European companies to give up American registration of their securities.

Currently, companies whose securities are registered in the United States must either prepare their financial statements in accordance with American rules (known as generally accepted accounting principles, or GAAP), or reconcile them to those rules. The proposed S.E.C. rule would eliminate that requirement starting next year.

Opposition to the proposal came on behalf of investors from the Investors Technical Advisory Committee, an organization that advises the Financial Accounting Standards Board, which sets American rules.

That group, in a letter signed by Jack Ciesielski, a member and the publisher of the Analysts Accounting Observer, said there was not yet sufficient similarity between international financial reporting standards, known as I.F.R.S., and American standards, adding that there remain many highly material differences in the results produced by the two systems. In the absence of the required reconciliation, those important differences could not be quantified or even reasonably estimated.

Mr. Ciesielski also said the group was concerned about whether there was consistent auditing and enforcement of international rules.

He said the S.E.C. should undertake an evaluation of the differences in the auditing and enforcement disciplines of I.F.R.S. versus the auditing and enforcement of U.S. GAAP and how those differences may affect the comparability and credibility of the resulting financial reports before concluding that the reconciliation may be omitted.

The international group in London has aroused some opposition in Europe because it has insisted that it should set its accounting rules. At the behest of some banks, the European Commission carved out an exemption to the derivatives rule, which did not prevent European companies from complying with the rule but gave them the alternative of not doing so.

The European companies said that if the S.E.C. accepted the European version of I.F.R.S., this would be a positive factor that would lead to a more harmonious convergence process through cooperative dialogue and mutual accommodation.

The investor group opposed allowing the use of the European Commission version of international rules, saying it feared a political, Euro-centric bias.

The European companies also said they opposed a part of the S.E.C. proposal that required foreign companies using international standards to file their reports with the S.E.C. as soon as they filed them with their home country. They said other issues, such as the need for reviews of internal controls, made earlier deadlines impractical.

Tag Cloud

External Information

Additional Information

Where Am I?