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December 31, 2000

US chamber endorsement of IFRS shows convergence tide is turning

By Nicholas Moody

US chamber endorsement of IFRS shows convergence tide is turning

The US Chamber of Commerce has come out as a major proponent of international accounting standards convergence.

Michael Ryan, senior vice-president and executive director of the chamber’s centre for capital markets competitiveness, said one of the reasons for supporting convergence was the clear sense that IFRS is becoming the global accounting standard. “Our view is that we should try to recognise in the US as quickly as possible that [IFRS is becoming the global standard] and there are a lot of steps that need to be done to achieve that. The first obvious one is to allow companies that are using IFRS outside the US to use it inside the US,” he said.

Ryan’s comments followed a letter from the chamber supporting a recent US Securities and Exchange Commission (SEC) proposal to accept financial statements from foreign companies using IFRS without those companies having to reconcile the statements with US GAAP. The comment period on the SEC proposal ended on 24 September.

Flexibility The SEC should also be more flexible in accepting reasonable variations of IFRS from foreign companies, Ryan said. He noted that “requiring rigid adherence to the International Accounting Standards Board (IASB) version of IFRS would in effect be forcing foreign private issuers to transition from one reconciliation process to another”.

Ryan said another reason for supporting a move toward accepting IFRS is that US market participants are already relying on IFRS because they are already investing in and engaged in capital market activity outside the US, where IFRS is the standard. In the chamber’s letter of support, Ryan noted that nearly 75 percent of the global market capitalisation outside the US is currently subject to IFRS reporting to some degree. “We think that our capital markets are best served when we are able to attract customers from around the world, not just US issuers but also foreign issuers, to access our capital markets, and that’s in our interests. This reconciliation requirement is a hurdle to that so we want to remove that hurdle,” Ryan added.

Ryan said the chamber, which represents more than 3 million businesses and organisations, also supports the SEC proposal because if IFRS is to become the global accounting standard the US wants a hand in its development. “We are only going to be invited to do that if it matters to us, so we have to become engaged in a substantive way in the IFRS debate,” he noted.

High compliance costs Ryan said it is too difficult to estimate how much money the proposal could save US and foreign companies. However, he points to the dramatic increase in the number of overseas companies delisting from the New York Stock Exchange (NYSE) since a new SEC rule made it easier for foreign issuers to delist, and suggests this is one result of high compliance costs. “I’m sure there are a variety of reasons for those delistings, but when you start to see the tide change in this direction there’s a lot of things that need to be addressed. Certainly the GAAP reconciliation requirement has to be one, that’s got to be very costly, not just in direct dollars but in management time,” he said. Fourteen major companies, including British Airways and Bayer, voluntarily delisted from the NYSE between 25 April and 4 September this year.

The business association urged the SEC to make the rule, allowing foreign companies to use IFRS, effective no later than 15 December 2007 so that foreign issuers may realise its cost reduction benefits with their filings due in 2008. “Our point is ‘let’s get going here’ – our capital markets are losing ground to foreign capital markets for a variety of reasons,” Ryan said. The chamber wants to identify the regulations that are easiest to change first and those that need to be changed because more costs are associated with them than benefits, he said.

The chamber also commended the SEC on its concept release to consider whether to afford the same IFRS reporting option to US registrants. However, Ryan stated: “The SEC must maintain a vigorous approach in dealing with the issues of auditing convergence and enforcement of global standards.”

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