US companies are set to switch to international accounting rules in a move that will, for the first time, see all the world’s most important listed groups reporting according to the same set of standards.
The US Securities and Exchange Commission on Wednesday proposed a “roadmap” to manage the migration of US companies from its rules to the international ones. The plans are open to comment for 60 days.
More than 100 countries use, or are adopting, International Financial Reporting Standards, including all 27 European Union members as well as China, Japan, Canada and India. US GAAP, the accounting lingua franca until the sudden rise of IFRS, is the last significant standard to be switched.
Under the SEC’s plans, US groups are likely to adopt IFRS in 2014 providing certain conditions are met, a decision that will be taken in 2011. Some companies may be allowed to adopt IFRS sooner.
Christopher Cox, SEC chairman, said more groups were reporting under IFRS than US GAAP and the number would rise as other large economies made the switch. He said US GAAP would be marginalised if the US did nothing, making it harder for international investors to consider US companies.
A single set of globally understood accounting rules is expected to help cut companies’ cost of capital and better enable cross-border investment. In countries without strong accounting traditions, the rules are expected to raise the quality of reporting, helping inward investment.
Wednesday’s announcement will be welcomed by many big US groups, most of which have been reluctant to push ahead without a firm date.
The change is likely to result in a fee bonanza for the Big Four accounting firms and their rivals. Many companies will seek their expertise to manage a change that includes potentially significant tax effects and the need to adapt whole systems to collect different data.
The SEC last year signalled its support for IFRS when it dropped the requirement for foreign groups that use IFRS to produce a reconciliation of their numbers with US GAAP.
In switching to IFRS, the SEC would in effect hand over authority for accounting rules to the International Accounting Standards Board, which is based in London. Concerns have been raised about the fact that the IASB is a private sector body that sets international law.
This year, trustees of IASB have proposed it be overseen by a committee of regulators including the SEC, the European Commission and the UK’s Financial Services Authority.
