At the House Financial Services Committee hearing with the five SEC commissioners that I'm listening in on today, Chairman Christopher Cox seemed to drop a piece of red-hot news.
Under questioning from Rep. John Campbell of California—who proudly revealed that he was a CPA— Cox said that the SEC will issue later this summer a concept release exploring the possibility of moving to a principles-based accounting system from the current rules-based system and whether that's possible given the nation's system of tort liability.
The question is, what will this mean? Campbell's question came in the context of a discussion of the accounting required of international companies listing on U.S. exchanges, so it's not a stretch to think that Cox is referring to a move from U.S. GAAP to international financial reporting standards, since the latter is a good deal more principles-based.
Indeed Cox actually said that the question of principles v. rules "is at the center of attention around the world" and observed that foreign companies listing here can now use IFRS. In fact, he recalled that former U.S. Fed Chairman Paul Volcker was a driving force behind the European Commission mandating of IFRS as the single set of standards throughout the EC.
Cox also testified that the SEC has been under pressure from Congress since its enactment of Sarbox in 2002 to explore how fast the country could move toward a principles-based system—on the grounds that it was a rules-based system that enabled Enron to hatch is evil doings.
What seems to have happened is that the deft chairman has arranged things so that the SEC will launch an effort in the next few weeks to put a changeover toward principles—perhaps in a form close to IFRS—on a fast track. More information on that may be coming in a press conference that Cox has called for 11:15 tomorrow. If it's true, that could be really be red-hot news.
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