SEC Furthers Strides Toward Global Accounting Standard

Furthering its efforts to establish a global accounting standard, the SEC plans to issue a proposed rule this summer allowing foreign private issuers to choose between International Financial Accounting Standards (IFRS) and U.S. GAAP. To create a level playing field, the Commission plans to issue simultaneously a concept release to garner feedback on whether it should adopt a standard allowing U.S. companies to use IFRS. Comments on both releases are due in the fall.

The SEC is proposing that by 2009, "foreign companies who prepare financial statements in accordance with International Financial Reporting Standards who file those financial statements in the U.S. do not have to include a reconciliation to U.S. GAAP," which is costly, says Fred Gill, senior technical manager, accounting standards at the AICPA. It's important to note that foreign companies registered with the SEC already have the ability to file with the Commission on either IFRS or U.S. GAAP, or any other comprehensive basis of accounting, says David Kaplan, head of international accounting and SEC services at PricewaterhouseCoopers. But as it stands now, if a foreign issuer registered with the SEC files under international standards, and not U.S. GAAP, the SEC requires that the company reconcile their financial statements to U.S. accounting standards, Kaplan explains. The proposed rule, however, would exempt these companies from reconciling to U.S. GAAP.

The idea of eliminating the reconciliation requirement between International Accounting Standards and U.S. GAAP was first proposed in a 2005 Roadmap by the SEC's then chief accountant, Don Nicoliason. Since then, American companies have questioned whether they, too, would be given the same latitude as foreign registrants in reconciling their financial statements to IFRS, Gill says. Some analysts, Kaplan says, may prefer to see the reconciliation "to compare and contrast companies on a U.S. accounting basis," Kaplan says. But comments made by those who attended a recent SEC roundtable on the subject showed "pretty widespread support" of eliminating reconciliation.