April 2000


The SEC seeks comment from issuers, auditors, and investors on a concept release regarding the use of international accounting standards. The release requests feedback from domestic and foreign parties regarding both acceptance of International Accounting Standards Committee (IASC) standards and the broader issue of shaping a global financial structure for increasingly global capital markets. The deadline for comment is May 23.

The issuance of the concept release implicitly recognizes IASC's work in developing the set of core international standards now under technical study by the SEC and other members of the International Organization of Securities Commissions (IOSCO). It would also seem to acknowledge the satisfactory restructuring of IASC as an independent self-supporting organization along the lines of FASB (for further information, see the article in the upcoming May 2000 CPA Journal).

The issuance also reflects the SEC's broader concern for a global financial reporting infrastructure that goes beyond high-quality financial standards to include high-quality auditing standards, an effective self-regulatory quality control system, and appropriate regulatory oversight.

Thus, the release solicits comment regarding both the quality of the IASC standards and the supporting infrastructure in an environment where issuers and auditors are often multinational organizations providing financial information in many countries. At the accounting standards level, the release seeks to identify important concerns that would be raised by acceptance of IASC standards and whether the SEC should modify its current requirement that all financial statements be reconciled to U.S. GAAP.

The emphasis in the release is on first-hand experience. In particular, it asks about experiences that

1) issuers have had with applying IASC standards when preparing financial statements,
2) public accountants have had when auditing the application of IASC standards, and
3) investors have had when using financial statements prepared using IASC standards.

Major Issues

The release poses questions that concentrate on a number of major areas:

* Quality of the IASC Standards. The acceptance of IASC standards is expected to depend upon the ability of those standards to require the same quality of reporting as U.S. GAAP, even if they are not exactly the same. The SEC seeks comment on whether the core standards are sufficiently comprehensive and whether the IASC standards can be rigorously interpreted and applied.

* A "Level Playing Field" for U.S. Domestic Issuers. The release seeks answers to how the quality of IASC standards compares with U.S. GAAP and whether modifying the SEC's current reconciliation requirements would put domestic registrants at a competitive disadvantage to foreign issuers.

* Infrastructure for Supporting IASC Reporting. The release seeks input on the elements of a financial reporting framework that affect how IASC standards (and other accounting standards) are applied in practice. Comments are sought about the experience of auditors, preparers, and regulators with IASC standards and the IASC's interpretive body.

* The Role of the Regulator in the Interpretation and Enforcement of Accounting Standards. The release seeks comment on the variations in the interpretation and application of IASC standards permitted or required by various regulators. It asks whether further recognition of IASC standards would impair or enhance the SEC's ability to take effective enforcement action against financial reporting violations and fraud involving foreign companies and their auditors.

The concept release represents a serious and comprehensive attempt to give IASC's core standards their day in court. However, it also moves onto the more uncertain ground of whether the world's securities markets are ready to rigorously enforce the application of those standards. *

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