The US Securities and Exchange Commission on Wednesday took a step towards allowing foreign public companies to choose international accounting standards or US rules when filing data with the agency.
The SEC proposal sets the stage for foreign companies listed in the United States to issue their financial reports using the English version of International Financial Reporting Standards (IFRS) instead of US Generally Accepted Accounting Principles, or GAAP.
The change is part of the SECs road map to eliminate by 2009 the requirement that foreign companies reconcile their financial statements to US GAAP. It also brings the United States closer to other major financial centres that have embraced international reporting standards.
Global accounting standards would allow investors to draw better and more accurate comparisons among issuers around the world, SEC chairman Christopher Cox said at an agency meeting.
The proposal, approved unanimously by the commission, needs public comment before the SEC finalises the rule. However, it drew quick applause from one of the Big Four accounting firms Deloitte Touche Tohmatsu. Theres no question that foreign private issuers view todays step very positively, said James Quigley, the firms chief executive.
By filing their financial statements in IFRS, which is required by European regulators, companies may avoid the need to keep separate sets of accounting books and retain experts in both local and US accounting on staff.
The commission specified that foreign issuers had to use the English version of the international financial accounting standards a move they said was practical and designed to mitigate risk. Commission staff said they want to have discussions with issuers and that most SEC lawyers and accountants are fluent only in English.
In supporting the proposal, Republican Commissioner Paul Atkins said it may make US markets more attractive for foreign companies.
The commission staff said it expects to issue a paper this summer looking at whether US companies may also be able to file their own financial data under IFRS. Cox said he did not think the same 2009 timetable could apply to US companies. That would seem to be getting way ahead of ourselves, he told reporters after the meeting.
Meanwhile, the EU and United States are already working on converging their accounting rules so cross-border firms can file the same set of accounts on either side of the Atlantic. The vision is to have one set of accounting standards.
Democratic commissioner Annette Nazareth questioned whether the proposed rule would hinder this effort, while fellow Democratic commissioner Roel Campos said while he recognised this as a concern, he did not subscribe to this view. It is in no ones interest to ease up on throttle for convergence, he said.