By summer, the Securities and Exchange Commission will issue a proposal allowing foreign private issuers to file financial reports using either international financial reporting standards (IFRS) or U.S. generally accepted accounting principles (U.S. GAAP).
U.S. issuers may soon have the same option.
Only last month, several panelists at an SEC roundtable asked that if foreign companies could report using IFRS, why shouldn’t U.S. companies be allowed to do the same? Tuesday’s announcement of a “concept release” — occasionally floated by the commission “to solicit the public’s views on securities issues so that we can better evaluate the need for future rulemaking” — is a small step in that direction.
“The actions announced today represent critical steps toward a future regulatory framework in which IFRS may be used on a stand-alone basis by foreign private issuers and possibly also by U.S. issuers,” said John White, director of the SEC’s Division of Corporation Finance, in a statement. “The staff will continue our work relating to IFRS so that we are in a position to make a recommendation to the commission with respect to the elimination of the U.S. GAAP reconciliation requirement in time for the annual reports filed by calendar year foreign private issuers in 2009.”
Former SEC chief accountant Donald Nicolaisen, who suggested during last month’s roundtable that U.S. companies and their overseas counterparts should eventually use the same accounting standard, believes that the commission’s acceptance of IFRS will fuel the desire among many U.S. companies to use the international standard, too.
Nicolaisen would take that a step further, it seems. Giving U.S. companies a choice between U.S. GAAP and IFRS would create a “sort of creeping system that would be hard for investors to follow who is using what and where,” he added at the time. “My vision of the future is along the lines of, ‘We ought to adopt a good accounting model, and we ought to do it broadly for all companies.’”
Under current SEC rules, foreign private issuers that report in IFRS, or in any other non-U.S. standard, must reconcile their financial statements to U.S. GAAP when filing reports with the commission. The SEC’s upcoming proposal would remove that requirement for foreign companies beginning in 2009.
Comments on the proposal for foreign issuers, and on the concept release that would affect U.S. companies, would be due in the fall.