On June 20, the Securities and Exchange Commission approved a proposal to eliminate the requirement that foreign private issuers reconcile their financial results with United States generally accepted accounting principles, commonly referred to as GAAP. The SEC regulation would apply only to companies using rules approved by the London-based International Accounting Standards Board, which sets international accounting standards. The European Union Financial Services Commissioner, Charles McCreevy, has pledged to recognize United States accounting rules by 2009.
SEC Chairman Christopher Cox stated that the rule change would be a “significant next step on the road toward a single set of globally accepted standards,” which is in accord with one of the SEC’s “overarching” focuses as capital increasingly flows to exchanges in Europe and Asia. Others have commented that allowing foreign companies to use international accounting rules will encourage firms to sell shares in the United States by reducing expenses. The international standards are deemed especially desirable for large United States companies with foreign subsidiaries which now must maintain two different sets of books. Some analysts have warned that eliminating the requirement and perhaps giving all companies their choice of accounting systems would make it more difficult for investors to evaluate and compare financial results of different companies.
If approved, after a 75-day public comment period, such change would apply to 2008 annual reports which are submitted in early 2009.