Risk & Compliance

Regulators of the World Unite

The world's securities regulators — notably the SEC — take steps to increase their oversight of international accounting standards.
Tim Reason and Sarah JohnsonJune 18, 2008

Even as participants in U.S. capital markets wonder when American companies may be required to adopt international accounting standards, the world’s securities regulators took steps today to increase their oversight of the body responsible for setting those standards.

A press release issued by the Securities and Exchange Commission announced that the SEC, as well as the European Commission, the Japan Financial Services Agency, and the International Organization of Securities Commissions welcomed an upcoming roundtable to be held by the International Accounting Standards Committee Foundation (IASCF), the parent organization of eponymous board which sets international financial reporting standards.

For some time now, the International Accounting Standards Board has acknowledged that its role as a supranational standard setting body has been a cause for concern, particularly among European countries where accounting standards constitute laws. “They feel slightly disenfranchised…[wondering] what this group is doing floating around in global space just sticking laws onto us?” IASB Chairman Sir David Tweedie told CFO.com late last year.

That concern, in turn, threatened the uniformity of international standards, as European regulators began proposing local or industry-specific exceptions to IFRS, known as “carve-outs.”

The proposed solution, pushed by IASCF itself, is to form an IASCF Monitoring Group. In the announcement issued by the SEC, European Internal Market and Services Commissioner Charlie McCreevy said the goal was to create “a mechanism for interaction between securities authorities and the IASCF that approximates the historical relationship between securities authorities and national standard setters.”

Though much remains to be discussed, the SEC press release says that the IASCF Monitoring Group will provide for “organized interaction between national authorities responsible for the adoption or recognition of accounting standards for listed companies and the IASCF.”

That may assuage concerns among politicians in various countries that, without a formal overseer, IASB members “could go mad and stick laws on us,” as Tweedie quipped to CFO.com last fall.

But mimicking traditional relationships between securities regulators and accounting standard setters could also raise concerns about an increase in global power for the SEC. By almost any definition, the American regulator is the most powerful of the possible participants on the monitoring group — it regulates the world’s largest capital market and, unlike the European Commission, represents the views of a single government.

“The world is scared to death” of being regulated by the U.S. Securities and Exchange Commission, said IASB member James Leisenring at a May conference in New York, saying that was one of the main sticking points to convergence of U.S. and international accounting standards. “They are afraid of the beast in Washington [and the heightened level] of scrutiny” that SEC oversight represents.

Inquiries from the American regulator raised hackles among European companies last fall even as the commission decided to allow those companies to report their results in IFRS without first reconciling them to U.S. GAAP. For example, former AstraZeneca CFO Jonathan Symonds accused the SEC of acting as a “judge and jury” over international companies’ financial statements after he and other European CFOs received extensive queries from the SEC about their IFRS-prepared filings.

But others say any concerns about an increase in SEC influence is unwarranted. Former commissioner Roel Campos, who served as liaison between the U.S. regulator and its international counterparts during his five-year tensure, said the SEC has no aspirations beyond U.S. shores. “For no particular reason, [Europeans] worry that the U.S. is trying to capture IFRS and make it into something that is more like U.S. GAAP, something that is more in U.S. control,” he told CFO.com last fall. “That is not the case.” Instead, he said, the SEC is simply trying to respond to registrants that have a global presence and may find using IFRS more practical.