In a letter dated August 31, the Investors Technical Advisory Committee of the Financial Accounting Standards Board urged the Securities and Exchange Commission to revise or abandon a proposed rule change issued by the SEC on July 2 eliminating the requirement that foreign private issuers reconcile financial statements filed with the SEC in accordance with the International Financial Reporting Standards as published by the International Accounting Standards Board to U.S. generally accepted accounting principles.
Even though a number of members of the ITAC have supported harmonizing U.S. and other national accounting standards with a set of high quality comprehensive rules issued by the IASB, the ITAC suggests in its letter that eliminating the reconciliation requirements would actually undercut efforts to achieve convergence between the different accounting standards. Specifically, the ITAC stated several reasons for the SEC to revise or abandon the proposed rule change including statements that:
- “there remain many highly material differences in the results produced by the two systems” and “in the absence of the required reconciliation, those important differences generally could not be quantified or even reasonably estimated”;
- The ITAC would prefer to see “concrete evidence that the two sets of standards are substantially equivalent before the reconciliation is eliminated”; and
- The ITAC, along with its concerns about differences in accounting standards, is “not yet certain that there is consistent auditing and enforcement of the application of IFRS” noting lack of widespread familiarity with international accounting rules both in the auditing profession and among the staff at the SEC.
While the ITAC opposes the proposed rule change, U.S. and foreign companies are expected to voice general support for the proposal to eliminate the reconciliation requirement.
Companies and individuals have until September 24 to comment on the proposed rule change. (Securities Regulation and Law, 9/17/07, Vol 39, p. 1414)