Risk & Compliance

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While international companies complain that the cost of listing on U.S. exchanges is too high, stateside regulators suspect a different motive.
Rob GarverJanuary 15, 2007

There was a lot of squawking this fall after European CFOs received comment letters from the Securities and Exchange Commission demanding additional information — sometimes lots of it — about how their International Financial Reporting Standards (IFRS)–based filings translate into U.S. generally accepted accounting principles. AstraZeneca CFO Jon Symonds was among the most vocal, accusing the SEC of setting itself up as “judge and jury” over international companies’ financial statements.

The SEC’s actions, says Mark S. Bergman, an attorney in the London office of Paul, Weiss, Rifkind, Wharton & Garrison, further fueled the perception among some Europeans that the compliance costs of listing on U.S. exchanges are just too high. “If companies feel that compliance costs have gotten out of control, they may well be considering delisting and deregistration,” he says.

Back in the United States, however, regulators suspect a different motive for the complaints. Earlier this year, U.S. and European regulators agreed to use the SEC’s comment letters as part of a process aimed at eliminating the reconciliation of accounting standards altogether. It ought not to have caught anyone by surprise. In November, U.S. Financial Accounting Standards Board chairman Bob Herz went so far as to speculate that European firms that protest too much might be trying to “hide” something.

Former SEC chief accountant Lynn E. Turner, now managing director of research for Glass Lewis & Co., agrees that the outrage may have less to do with principled opposition to the SEC’s extraterritorial reach than with concern that its questions could reveal that companies have not been complying with IFRS. “The real issue is whether companies are really going to comply with either international or U.S. rules and provide a clear picture to investors,” says Turner. “This could indicate that some European companies aren’t complying with either set of accounting and disclosure standards.”

Symonds of AstraZeneca, as well as a representative of the Confederation of British Industry, declined to comment, but the impact of the controversy may become apparent soon. The SEC is finalizing a new rule that will make it much simpler for foreign firms to delist from U.S. stock exchanges. The markets will find out how European companies really feel if they start voting with their feet.

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