For the roughly 1,200 non-US companies with stock market listings in New York, today marks the beginning of the end of years of an accounting headache: reconciling their financial statements to US Gaap.
The Securities and Exchange Commission will propose dropping a requirement that companies using International Financial Reporting Standards must go through the extra effort and expense of refiling them with the regulator in conformity with Gaap.
In April, the SEC went as far as to suggest that it was looking at allowing US companies to file their accounts in line with IFRS, an increasingly adopted international accounting standard widely used in Europe.
To accounting standard-setters, audit firms and companies, both moves signal that US authorities are sufficiently comfortable with progress on global accounting convergence to be prepared to drop reconciliation.
The existence of multiple accounting systems makes it harder for investors to compare company financial statements, especially with multinationals.
The UK-based International Accounting Standards Board and its US counterpart, the Financial Accounting Standards Board, have been working on convergence since 2002. Sir David Tweedie, IASB chairman, said yesterday: “One of our major objectives was to get rid of the reconciliation requirement and doing so indicates the SEC’s faith in the convergence process – but this is only one step and convergence needs to continue and we’re determined it will.”
The SEC’s willingness to address the issue is also another sign of its determination to tackle competitiveness issues that are seen as bedeviling the US capital markets.
Dropping reconciliation was a key recommendation in a January report into the threats facing New York as a financial centre, backed by mayor Michael Bloomberg and Democratic senator Chuck Schumer. Ian Dilks, a partner at PwC, said the SEC’s move was “actually quite a big deal” and would make a US listing more attractive.
“For those who aren’t yet listed in the US and have been concerned about the costs of obtaining a listing, while Gaap is not the only element, no doubt this removes one of the obstacles,” he said.
Conrad Hewitt, the SEC’s chief accountant, said last month that “reducing unnecessary complexity” in financial reporting was one of his top priorities.
Tim Martin, a partner at auditing firm McGladrey & Pullen, said going as far as allowing US companies to use IFRS would raise issues over interpretation of IFRS.