Statement by SEC Staff:
A Securities Regulator Looks at Convergence
Donald T. Nicolaisen
U.S. Securities and Exchange Commission
Northwestern University Journal of International Law and Business
As a matter of policy, the Securities and Exchange Commission
disclaims responsibility for any private publications or statements of any
SEC employee or Commissioner. This article expresses the author’s views
and does not necessarily reflect those of the Commission, the
Commissioners or other members of the staff.
For many years there has been a dedicated group of practitioners,
standard setters, business leaders and others from around the world who
have worked to establish a single set of globally accepted accounting
standards for the benefit of the capital markets. These people clearly had
their hearts in the right place but, absent a binding mandate to apply the
standards, it seemed largely a labor of love. Now I expect those pioneering
initiatives and the many years of effort to pay off because in 2005 a large
number of companies are joining what up to now has been a limited cadre
who prepare their financial statements using International Financial
Reporting Standards (IFRSs).1 It is fortuitous that this comes at a time when the focus of capital market participants globally and domestically is
on the need for high quality and consistently applied financial reporting.
Thus, this expanded use of IFRSs provides a unique opportunity to provide
investors and creditors around the world with the quality and consistency of
financial reporting that they need, and should rightly expect.
The primary driver behind the significantly expanded use of IFRSs is a
decision made by the European Parliament and the Council of the European
Union that all listed European Union companies (including banks and
insurance companies) must prepare their consolidated financial statements in accordance with IFRSs, generally from 2005 onward.2 That was a bold
and critically important decision. The amount of work involved to make
this happen has been daunting. I strongly commend the European Union
and the International Accounting Standards Board (IASB)3, as well as the
many others involved, for making possible this significant transition toward
a single set of globally accepted accounting standards.
In the U.S. capital markets many, like me, are anxious to capitalize on
the benefits of having a widely used set of accounting standards accepted
and in place. I am excited about this opportunity, but I also want to make
sure we get it right. IFRSs will be with us for a long time, making it all the
more important that we start out on the right foot. Convergence of IFRSs
and U.S. Generally Accepted Accounting Principles (U.S. GAAP) is an
enabler that will allow the United States and other capital markets to
capitalize on the benefits of a single set of globally accepted accounting
standards because convergence bilaterally reduces differences between
IFRSs and U.S. GAAP, while at the same time taking both to the highest
quality level. I look forward to 2006 when a critical mass of non-U.S.
companies who file with the SEC (foreign private issuers) will begin filing
financial statements prepared using IFRSs with the U.S. Securities and
Exchange Commission (SEC or the Commission) and I can actually start to
see convergence in action.
In the pages that follow I explain why I believe the movement towards
use of a single set of globally accepted accounting standards is good for the
global capital markets, and for investors and creditors (collectively,
investors). I also discuss what I believe this movement means for the U.S.
capital markets and, in response to a question I am frequently asked, I
attempt to set out a possible roadmap to elimination of the SEC’s
requirement that foreign private issuers reconcile financial statements
prepared under IFRSs to U.S. GAAP. Further, I describe factors that I
believe can contribute to successful implementation and to increasingly
widespread acceptance and use of IFRSs, or which, if not addressed, could
impede progress. Lastly, I express my view that to maximize the benefits
from a common set of accounting standards—IFRSs—the many involved
parties need to work together on interpretive matters that arise in applying
Before getting into the details, I believe it only fair to express my
personal beliefs regarding a single set of globally accepted accounting
standards. My views should become fairly obvious in the pages which follow but, to be absolutely clear, let me state that I firmly believe the
widespread use of a single set of high quality accounting standards, applied
globally and consistently, will greatly benefit investors. I therefore
staunchly support the efforts of those who contribute to the expanding
development and use of these standards. Now, let me discuss the specifics.
II. The Case for a Single Set of Globally Accepted Accounting Standards
The generations of accountants who worked to develop a set of
accounting standards that could be globally accepted not only had their
hearts in the right place, but their minds as well. There is an intuitive logic
that supports the notion that capital markets benefit from using common
Key forces favoring a single set of globally accepted accounting
standards are the continued strong expansion of the capital markets across
national borders and the desire by countries to achieve strong, stable and
liquid capital markets to fuel economic growth. A thriving capital market
requires a high degree of investor understanding and confidence.
Converging with or embracing a common set of high quality accounting
standards contributes immensely to this investor understanding and
If a company’s financial statements are prepared using accounting
standards which are not viewed as being of high quality or with which the
investor is unfamiliar, then investors may not be able to fully understand a
company’s prospects and thus may insist on a risk premium for an
investment in that company. The relative cost of obtaining capital will
thereby increase for those companies. And, at the extreme, if as a result of
companies using weak or incomplete accounting standards it becomes
excessively time-consuming or difficult for investors to distinguish good
investment opportunities from bad, investors may choose instead to invest
in what they consider to be safer opportunities rather than in particular
securities which may actually offer greater reward.
Financial statements prepared using a common set of accounting
standards help investors better understand investment opportunities as
opposed to financial statements prepared under differing sets of national
accounting standards. Without common standards, global investors must
incur the time and effort to understand and convert the financial statements
so that they can confidently compare opportunities. This process is timeconsuming
and can be difficult, sometimes causing investors to resort to
educated guesses as to content and comparability. Additionally, if investors
are presented with financial information that varies substantially depending
on which accounting standards are employed, that can cause investors to
have doubt about the actual financial results of a company, resulting in a correspondingly adverse effect on investor confidence.
Investor confidence in financial reporting is also likely to be stronger if
the accounting standards used have been subject to appropriate due process
and have gained wide acceptance in practice. Further, in situations in which
differing accounting standards are used—for example, as is the case in the
United States where financial reporting under U.S. GAAP is the norm but
the SEC also accepts financial reports from foreign private issuers using
either IFRSs or national accounting standards accompanied by a
reconciliation to U.S. GAAP4investor confidence is likely greater if the differences between the standards are readily understandable and few in
Embracing a common set of accounting standards can also lower costs
for issuers. When companies access capital markets beyond their home
jurisdiction, they incur additional costs of preparing financial statements
using different sets of accounting standards. These include the costs for
company personnel and auditors to learn, keep current with and comply
with the requirements of multiple jurisdictions. Similarly, use of resources
dedicated to standards writing could potentially be optimized if fewer
separate accounting models are pursued.
I believe that market forces will provide the incentive for the body of
IFRSs to succeed. This is not to say that there will not be implementation
complexities along the way, or some level of natural resistance to change.
Change is often difficult. For example, some will be reluctant to leave the
known commodity of financial statements prepared under their existing
national standards. Others may worry that financial information will be
different under IFRSs. Still others will think of applying IFRSs as an added
chore, not as an important new way to communicate financial results across
geography. But the potential benefits of the use of a common set of
accounting standards are immense. And for that reason, over time, I believe
the obstacles will be overcome. Most things that are worthwhile are not
easy, so I am hopeful that the combination of human motivation and
ingenuity coupled with an appropriate level of national and international
cooperation will prevail in expanding the use of IFRSs.
The case for a single set of globally accepted accounting standards has
resonated in many places. The strong global interest in IFRSs has prompted
many countries to pursue increased convergence of national standards with
IFRSs. I believe these actions strengthen the case for a single set of
globally accepted accounting standards and I welcome them. With regard
to specific tactics, what is emerging is that there are different routes individual jurisdictions might pursue towards convergence between their
national accounting standards with those of IFRSs and, implicitly, other
nations. Some nations have chosen to adopt IFRSs as the officially
mandated financial reporting standards for at least public companies.
Among other jurisdictions, Australia5 and the member countries of the
European Union6 are using this kind of approach. The actual adoption of
the evolving body of IFRSs may, however, be subject to a clearance process
to bring new standards into law or approve them for adoption. Under this
kind of approach, policy makers may also chose to retain their national
standard setter to establish standards for their local private capital markets,
to contribute to the IFRSs standard-setting work, or both.
Other countries have chosen to continue to have their own national
standard setter establish accounting standards applicable to that nation’s
enterprises. If they choose to do so, the national standard setter may also
monitor and consider standard setting work of the IASB and, as deemed
appropriate, adapt national standards so as to conform to some portions of
or all of IFRSs. For example, the U.S. accounting standard setter and the
IASB have adopted a “best efforts” convergence approach,7 while Japan’s accounting standard setter and the IASB have announced “. . . an agreement
to launch a joint project to reduce differences between International
Financial Reporting Standards (IFRSs) and Japanese accounting
standards. . ..”8
As noted above, there are a variety of possible approaches to increased
convergence of accounting standards—and there are no doubt more than I
have described here—but what’s important is that so many securities
regulators and so many standard setters recognize the value of convergence.
This level of involvement by so many different countries all pursuing high
quality standards offers the potential for better standards, more transparent
financial statements and greater global acceptance. I believe the long-term
measure of success of IFRSs will be increasing investor acceptance and
In theory, any of these approaches to converge can lead to capital
markets in various jurisdictions reaching the same destination; that is, comparable high quality financial statements for investors. That is because
jurisdictions which adopt IFRSs or which closely align their national
standards with IFRSs are essentially asking companies to prepare their
financial statements in the same manner. These are but different roads to
the same destination. An obvious drawback, however, of different
jurisdictions traveling different roads is that of unintended detours or of
substantially different arrival times. But, in my view this is acceptable,
providing that progress toward convergence is being made. My sincere
hope is that market demands for comparable and transparent information
will continue to push preparers, auditors, regulators and standard setters to
seek common ground wherever possible, as rapidly as is feasible.
III. The Effect of IFRSs on the U.S. Capital Markets
A. The Situation in the U.S. Capital Markets
The SEC’s mission is to provide investor protection; to maintain fair,
orderly, and efficient markets; and to facilitate capital formation.9 To carry
out these objectives the SEC recently adopted as two of its four goals to
“sustain an effective and flexible regulatory environment” and to
“encourage and promote informed investment decisionmaking.”10
Sustaining an effective and flexible regulatory environment means, among
other things, that “investors are protected by regulations that strengthen
corporate and fund governance and adhere to high quality financial
reporting standards worldwide” and “regulations are clearly written,
flexible, and relevant, and do not impose unnecessary financial or reporting
burdens.”11 Encouraging and promoting informed investment decisions
requires that, among other things, “investors have accurate, adequate, and
timely public access to disclosure materials that are useful, and can be
easily understood and analyzed across companies, industries or funds.”12
Consistent with these goals, it is important to the U.S. capital markets
that we have comparable reporting so that when an investor compares the
financial statements of one company with those of another, the investor can
make an informed capital allocation decision between the two. Thus, for
financial statements prepared under IFRSs and U.S. GAAP to coexist in the
U.S. capital markets, I believe IFRSs and U.S. GAAP requirements and
disclosures should be closely aligned. Otherwise, if the financial position
and operating results reported under IFRSs and U.S. GAAP are difficult to
compare, investors may find analysis and decision making difficult. Assuming both sets of accounting standards are considered to be of high
quality, but they report substantially different results, investors could lose
trust and confidence in financial reporting. The ability to compare
information is important for an investor making a capital allocation decision
regardless of whether a company applies U.S. GAAP or IFRSs.
Comparability is especially useful among companies operating within the
Investments abroad by U.S. investors are significant. The U.S. capital
markets include thousands of U.S. firms which invest in non-U.S.
companies either through acquisition or direct investment. Further, millions
of individuals and trust funds invest in non-U.S. companies either directly
or indirectly through investments in mutual funds. Additionally, today
there are approximately 1,200 foreign private issuers which file with the
SEC; 500 of these are from one country, Canada, which is not moving to
IFRSs in 2005.13 Of the other 700 foreign private issuers, approximately 40
currently prepare the financial statements they file with the Commission
using IFRSs.14 I expect the number of foreign private issuers who use
IFRSs to increase to approximately 300 for 2005 and to nearer 400 by
200715 the end of the phase-in period for certain companies’ transition to
reporting under IFRSs. Thus, a critical mass of SEC filings soon will
contain financial statements prepared under IFRSs. As this occurs and we
see a large number of SEC registrants using IFRSs, the SEC staff will
consider possible changes to our current financial statement filing
requirements in order to ensure that the U.S. capital markets reap the full
benefits of the much anticipated widespread use of IFRSs.
B. Our Current Financial Statement Filing Requirements
Our current approach with respect to the filing of financial statements
is that domestic companies prepare their financial statements under U.S.
GAAP while foreign private issuers reconcile to U.S. GAAP the financial
statements they file with the SEC if those financial statements are prepared
pursuant to another basis of accounting, whether that is IFRSs or national
accounting standards.16 Foreign private issuers, of course, also have the option to prepare their financial statements under U.S. GAAP17 and some do in fact report on this basis.
In 1982, in conjunction with the Commission’s adoption of a separate set of registration statement forms for foreign private issuers and concurrent
with a decision to make other changes so as to more closely align
disclosures between domestic and foreign private issuers, the Commission’s
actions created what are the SEC’s current U.S. GAAP reconciliation
requirements. Specifically, what we know as “Item 17 reconciliations”18 (a
quantitative reconciliation sans certain U.S. GAAP disclosures) and “Item
18 reconciliations”19 (a quantitative reconciliation with all U.S. GAAP
disclosures). Under the SEC rules, foreign private issuers may present Item
17 reconciliations in their periodic reports and in certain offering documents
(those for offerings of nonconvertible securities that are investment grade,
securities related to certain rights offerings, and so forth).20 The
Commission requires Item 18 reconciliations in other offering documents
(those for equity securities, convertible securities, and so forth)21 and allows
this reconciliation in any other foreign private issuer filing. Prior to 1982,
the Commission required foreign private issuers to disclose in their periodic
reports merely narrative information about differences between foreign
accounting principles and U.S. GAAP, with those differences quantified if
practicable.22 In offering documents, however, the Commission had
required a full reconciliation.23
Understanding the reasons for the SEC requirements for foreign
private issuers to reconcile financial statements to U.S. GAAP requires a
brief review of the legislative history of two sections of the Securities Act
of 1933,24 as was described in the following comment from the 1981 SEC
release which proposed the use of different registration statement forms by
foreign private issuers:
The legislative history of the Securities Act indicates an intent to treat
foreign private issuers (as distinct from foreign governments) the same
as domestic issuers. Therefore, the Commission has generally perceived
its function as neither discriminating against nor encouraging foreign
investment in the United States or investments in foreign securities. The
Commission’s rulemaking authority in this area is conditioned upon findings that the relevant rule or form is necessary for the protection of investors and in the public interest.25
The Commission framed its consideration of the foreign private issuer
U.S. GAAP reconciliation requirement as follows:
In considering these findings in the context of the position of neutrality
explained [in the quote] above, the Commission must evaluate two
competing policies. One is the recognition that the investing public in
the United States needs the same type of basic information disclosed for
an investment decision regardless of whether the issuer is foreign or
domestic. This view suggests that foreign registrants be subject to
exactly the same requirements as domestic ones. The other is that the
interests of the public are served by an opportunity to invest in a variety
of securities, including foreign securities. An implication of this policy
is that the imposition on foreign issuers of the same disclosure standards
applicable to domestic issuers could discourage offerings of foreign
securities in the United States, thereby depriving United States investors
of the opportunity to invest in foreign securities. According to this
reasoning, the public interest would be best served by encouraging
foreign issuers to register their securities with the Commission.
The Commission has never formally adopted or endorsed either of these
approaches. Instead, the Commission regularly has sought to balance
the competing policy interests underlying each interpretation using a
principle of voluntarism. According to that principle, the more
voluntary steps a foreign company has taken to enter the United States
capital markets, the degree of regulation and amount of disclosure more
closely approaches the degree of regulation of domestic registrants.26
The few areas in which differences in the disclosure requirements exist
are those in which the domestic disclosure requirements could be a
significant impediment to foreign issuers registering their securities.
The Commission is aware that United States investors, if they are so
inclined, can invest in foreign securities directly in foreign markets.
Therefore, discouraging registration may not be in the public interest
because the disclosure in the foreign market may be less than that
required in filings with the Commission even with the proposed
The Commission desires to administer the Federal Securities laws in a
manner that does not unfairly discriminate against or favor foreign
issuers. Thus, the Commission is attempting to design a system that
parallels the system for domestic issuers but also takes into account the
different circumstances of foreign registrants. In proposing this [filing]
system the Commission has attempted to balance certain competing
A fundamental question confronting the SEC staff as a result of the
anticipated greatly expanded use of IFRSs in filings with the SEC is to
decide how to sustain the principles described in the Commission’s
previous considerations, yet also recognize the effects and benefits of the
greater use of IFRSs and of the increasing convergence of IFRSs and U.S.
GAAP. This leads directly to consideration of whether acceptance of
financial statements prepared under IFRSs from foreign private issuers
without reconciliation to U.S. GAAP can be expected to achieve these
ideals while remaining consistent with the SEC’s objective of maintaining a
parallel system for domestic and foreign issuers which provides essentially
comparable disclosures to investors.
C. Eliminating the Reconciliation Requirement and Convergence Are Interrelated
Let me begin by observing that the SEC has determined that the
Financial Accounting Standards Board’s (FASB) financial accounting and
reporting standards are recognized as “generally accepted” for purposes of
the U.S. federal securities laws.29 And, I personally consider financial
statements prepared in accordance with U.S. GAAP to be of high quality.
The FASB, the body which writes U.S. accounting standards,30 is an
independent, objective, experienced and highly skilled standard setter.
FASB standards are used by all publicly traded entities in the United States
as well as by private industry and not-for-profit organizations.31 For
purposes of this article I have assumed that the FASB will continue as our
country’s GAAP standard setter, although I recognize that over time it is possible to imagine that various other scenarios could develop.
Nonetheless, given the number of times that I have been asked if, and
when, the SEC staff will recommend to the Commission that it eliminate
the requirement for foreign private issuers to reconcile financial statements
prepared under IFRSs to U.S. GAAP, it should be no surprise that my
staff—working in cooperation with staff in other divisions and offices of
the SEC—has been considering what we believe would be necessary in
order for us to be in a position to make that recommendation to the
Commission. In the paragraphs that follow, I express my personal views on
the way forward and I attempt to do so without obscuring the answer with
recitation of the various technical changes and procedural steps that are
necessary to implement such change. I do so because I believe the technical
aspects are just that . . . they are not unique to this issue and I believe they
can be accomplished.
Before I specifically address the reconciliation question, I believe it is
appropriate to first comment on the subject of convergence. I believe that
both the U.S. GAAP and IFRSs models have their place in the U.S. capital
markets, and that convergence is the enabler that will allow them to coexist.
What is essential is that each set of standards be complete, that each
produce financial statements of high quality, that each set of standards
enjoy wide acceptance and use, that the standards be reasonably comparable
to each other and that investors are capable of and comfortable in
understanding the nature of differences between the two sets of standards.
The inclusion in SEC filings of financial statements prepared under IFRSs
should significantly benefit U.S. investors and others who rely on such
financial information. That is because it is reasonable to expect that our
investors will be better able to understand financial statements prepared
using a single set of globally accepted accounting standards than is possible
for them to understand financial statements prepared using dozens of
differing national standards.
D. The Enabler: Convergence of IFRSs and U.S. GAAP
As depicted, convergence involves the provisions of IFRSs and U.S.
GAAP coming together. To make that happen, the IASB and FASB have
adopted a “best efforts” convergence approach which is documented more
fully in a Memorandum of Understanding known as the “Norwalk
Agreement” that was struck between the FASB and the IASB in September
2002. That agreement states that the respective Boards agree to use best
(a) Make their existing financial reporting standards fully compatible as
soon as is practicable, and
(b) Coordinate their future work programs to ensure that once achieved,
compatibility is maintained.32
The then SEC Chairman Harvey Pitt applauded the Norwalk Agreement as
“. . . a positive step for investors in the United States and around the
world.”33 The European Commission indicated that it welcomed the joint
announcement as a “. . . major step towards a global system of accounting
standards . . ..”34
As a result of the IASB’s and FASB’s joint standard setting efforts, the
differences between IFRSs and U.S. GAAP are being reduced. That is
occurring in part by choosing the better standard where differences exist
and in part by joint cooperation in new standard setting initiatives. I believe
convergence requires movement by both the IASB and the FASB. It should
not be viewed as a unilateral undertaking.
Convergence projects can be improvement projects as well as attempts
to minimize differences. Convergence to a lesser accounting model what
is often referred to as “lowest-common denominator convergence” or a
“rush to the bottom” is not in anyone’s best interest and thankfully is not
occurring. I believe that the IASB and FASB, while seeking convergence,
have been able to do so while maintaining high quality accounting
standards. That is critically important and both Boards are to be
commended for their efforts.
When I speak of IFRSs/U.S. GAAP convergence, I do not expect the
two sets of standards will necessarily produce totally identical financial statements. But I do consider it necessary that convergence result in close
alignment of the accounting for the same or essentially the same
transactions, generally comparable results in trends and a continued
cooperative will to reduce differences over time, as well as the transparent
understanding of any significant differences.
The IASB and FASB continue to identify opportunities for further
convergence, which raises the question of how to prioritize those efforts. In
my view, the independent standard setters are best positioned to establish
their own priorities based on an assessment of the expected benefits (level
of importance of the information to investors in their decision making) to
expected costs (the amount of standard setting—and implementation—
effort that will be involved). As progress continues, varying approaches to
recognition and measurement that currently cause the most significant
differences in net income and equity are matters that I believe will continue
to receive priority in convergence work. This is because investors often
base decisions on ratios and trends that involve those amounts.
I also recognize that, over the years, the SEC staff has issued guidance
that registrants are expected to apply in addition to or to supplement the
standards issued by the FASB.35 The continued applicability of this
guidance to foreign private issuers who prepare their financial statements
under IFRSs also needs to be reassessed. Our staff at the SEC will of
course do that.
E. A Possible Roadmap to Elimination of the IFRSs to U.S. GAAP
At the end of this article I set out a possible “roadmap” of the steps
along the way as the SEC staff considers whether to recommend
elimination of the IFRSs to U.S. GAAP reconciliation requirement.36
While readers will note that the roadmap does not end with a date certain, it
is my personal belief that if developments surrounding IFRSs—the
standards, their application, and convergence—continue in the right way,
then within this decade the SEC staff should be in a position to recommend
that the Commission eliminate the requirement for foreign private issuers to
reconcile financial statements prepared under IFRSs to U.S. GAAP. The
precise speed with which we are able to make that recommendation is
dependent on a number of variables. But, in particular, I am hopeful that
the results of our review of foreign private issuer filings for the year 2005
will give us sufficient information to enable us to recommend an accelerated path to elimination of this reconciliation requirement. These
filings, which we expect to receive from foreign private issuers in 2006,
will, for the first time, provide us with a substantially broad array of reports
from which to evaluate the effectiveness, consistency and transparency of
IFRSs. And it is the result of that work and the experience and confidence
we gain as to the consistent application of IFRSs that will be critical to
determining the speed of our journey.
In developing a possible roadmap for eliminating the reconciliation
requirement, I did so with enthusiasm. Because the U.S. capital markets
already have high quality and widely used accounting standards in place in
the form of U.S. GAAP for domestic companies, our markets will not be
wholesale “adopters” of IFRSs. However, since we also have many foreign
private issuers listed on our exchanges that use or will use IFRSs and
because investors in our country invest in those companies either directly
through our exchanges or otherwise, I and many others in the United States
strongly support IFRSs as well.
My approach in taking the next steps to acceptance and understanding
of IFRSs is intentionally pragmatic. What I mean by that is that I support
the broad use of IFRSs but also want to evaluate results of application of
IFRSs before concluding that the reconciliation from IFRSs to U.S. GAAP
will no longer be necessary. I strongly encourage SEC foreign private
issuers who will adopt IFRSs in 2005—and their audit firms—to be
particularly diligent in their initial application of IFRSs. This will assist
investors, standard setters, the SEC staff, other securities regulators and
others to gain insight as to whether the implementation of IFRSs is
consistent when viewed cross-border. Having companies that are
headquartered in different countries but that operate in the same industry all
reporting under IFRSs and all reconciling to U.S. GAAP should be
especially helpful in assessing the consistent application of IFRSs and in
identifying the remaining IFRSs/U.S. GAAP differences. As we evaluate
the results of the 2005 use of IFRSs, the staff of the SEC is also planning to
track areas of accounting not converged and to encourage standard setters to
continue their efforts to reduce such differences.
We plan to begin our review of 2005 annual filings using IFRSs in
earnest in the second half of 2006 as soon as calendar year-end foreign
private issuers have filed their 2005 financial statements with the SEC. The
perspective from which the staff of the SEC intends to conduct such review
will be focused primarily on investor protection, particularly those matters
most likely to affect investor capital allocation decisions. Application of
IFRSs in a manner that is faithful to the standards and consistent across
companies will help expedite the SEC staff’s decision to recommend to the
Commission the elimination of the required reconciliation from IFRSs to
I recognize that the SEC staff will be able to undertake our planned actions effectively and efficiently only if we have sufficient dedicated and
skilled personnel ready to perform this work. To that end I recently added a
third Deputy Chief Accountant, Julie Erhardt, to my staff. Julie is
committed full-time to our international work and has the support of a
strong team of experienced professionals already in place. Her efforts will
be all the better for the work that the Commission staff has for some time
been doing in evaluating the IASB standard setting efforts and the
interpretive guidance of its International Financial Reporting Interpretations
Committee (IFRIC). We track developments in these areas similar to the
manner in which the Commission staff follows the work of the FASB and
its Emerging Issues Task Force.
The comments contained in the following sections are intended to
convey the nature of our considerations along the way as to factors which
strengthen my optimism regarding the use of IFRSs. These are also factors
that potentially may accelerate—or alternatively potentially impede—the
objective of having IFRSs widely used, consistently and faithfully applied,
and our investors reasonably knowledgeable about investment opportunities
based upon financial statements prepared under IFRSs without an on-going
need for reconciliation to U.S. GAAP. Some of these factors are
interrelated; many are generic and the purpose of including a description of
these factors in this article is not to introduce obstacles to elimination of our
IFRSs to U.S. GAAP reconciliation requirement, but rather to point out the
importance of high quality standards and faithful and consistent application
IV. The Base Underlying and Supporting Wide-Spread Acceptance of IFRSs
Moving to a financial reporting environment in which investors are
provided with financial statements prepared pursuant to common global
accounting standards is not simply a matter of flipping a switch. Investors
need to understand the new standards. Additionally, we all know that there
are many things that form the infrastructure that underpins national
accounting standards to keep them viable and functioning effectively. In
our individual national environments, we probably take most of these
underpinnings for granted because we are so accustomed to their existence.
As in our national environments, these underpinnings are also necessary to
keep IFRSs viable and functioning effectively. I am confident that widespread
acceptance of IFRSs will occur but not without the expenditure of
extraordinary effort by many parties across national borders and amongst a
large number of authoritative and securities regulatory bodies. Let me
discuss these matters in the paragraphs that follow.
A. The International Standard Setter
For reasons of appearance and acceptability of the standards, I believe
it is critical to maintain an independent professional accounting standard
setter for IFRSs. If the standard setter is not viewed as being independent,
the quality and acceptability of its output may more easily be undermined
or called into question. In order to independently produce high quality
standards the IASB has to be free to conduct projects needed to improve its
accounting model and to enhance investor understanding. In doing so, it is
desirable for the Board to obtain relevant views from all but to conclude on
the final standards through its own deliberations, without undue external
pressures for—or against—certain answers. It is also important that the
standard setter be able to do this without undue funding pressures. The
IASB should have an assured source of funding so that necessary but
unpopular projects do not undermine its viability. In that regard, I support
the importance of having the International Accounting Standards
Committee Foundation complete its announced work on consideration of
alternative funding mechanisms for the IASB.37
It is my opinion that global standards are likely to have greater
acceptance because the IASB solicits information and views from a wide
variety of interested parties and stakeholders and at the conclusion of its
work uses its best judgment to consider these inputs and to arrive at a final
accounting standard. The investing public’s interest is served best when
accounting standards are developed in an independent manner with the
objective of providing high quality and transparent information.
The development of high quality global accounting standards requires
the efforts of talented people possessing a broad range of individual skills
and a mix of perspectives. The ability to do this work and the credibility of
the IASB is enhanced by engaging Board members who possess the
necessary experience, knowledge, temperament and communication skills
to both listen to others and to explain clearly the reasons why standards are
being developed. I also believe the acceptance of the IASB output is
enhanced by geographic diversity which brings to the process the needs and
perspectives of major stakeholders in the world’s capital markets.
Geographic diversity is desirable, and this hopefully will continue to be
accomplished by the exercise of reasonable judgment without quotas or a
need for fixed allocations of membership.
There will always be forces that put pressure on independent standard
setting undue pressure from special interests, fear of change, lack of
understanding as to why a new approach is an improvement, lack of
recognition of how quality financial information improves investor decisions and thus facilitates economic growth the list is long. For that
reason, it is important that Board members not only be independent in their
decision making, but also be resilient. And global regulators can be a
strong source of support for the IASB in deflecting excessive and
unreasonable pressure. This is not to imply that the standard setters are not
accountable to anyone; quite the opposite. I believe they are accountable to
all in understanding the issues and concerns after considering all the input.
They ultimately are accountable to produce high quality accounting
standards that convey information in a transparent and unbiased manner.
B. High Quality Accounting Standards
In its 2000 Concept Release on International Accounting Standards,
the SEC expressed a view that it is important that accounting standards “. . .
constitute a comprehensive, generally accepted basis of accounting; [be] of
high quality; and can be rigorously interpreted and applied.”38 I believe
these considerations are important on both a standard-by-standard basis as
well as for the body of IFRSs or U.S. GAAP. For a standard to be capable
of being applied consistently, it is important that the standard not be unduly
complex or laden with options. Good standards facilitate financial
understanding and fit within a logical and understandable framework with
key objectives underlying each standard clearly stated and the permitted
departures few in number and complexity.
Pursuant to a requirement of a provision of the Sarbanes-Oxley Act of
2002,39 in 2003 the SEC staff conducted a study addressing a principlesbased
approach to accounting standards.40 Much of what was learned in
this study essentially reconfirmed the thinking in the 2000 Concept Release
regarding accounting standards. In the report on the 2003 study the SEC
staff encouraged use of “objectives-oriented” standards. Such standards
strike an appropriate balance between the extremes of purely principlesbased
and purely rules-based approaches. Some of the attributes cited in
the study of an objectives-oriented standard are:
- A clearly defined scope;
- Minimal scope exceptions;
- Few bright-line tests; and
- Sufficient implementation guidance.
While the SEC staff is on record as to what we consider to be high
quality accounting standards, I am sometimes asked what I expect. On one
point I want to be clear . . . I do not mean perfection. In a way, the search
for perfection is often the enemy of the good. This is because perfection
itself is elusive; the search causes delays and the cost of achieving the final
few improvements may well exceed the benefit. In my view, good
accounting standards will withstand the test of time, and to do that the
objective of the standard has to be clear and readily embraced by those who
prepare, audit and use the financial statements. Good standards result in
transparency of information for all participants in the capital markets.
Since the business world is not static, accounting standards likewise
cannot be established and then forgotten. The IASB must be capable of
reacting to emerging business developments and changing markets.
Standards should be reevaluated as developments warrant. As experience
has demonstrated, significant events such as the major losses and abuses of
the late 1990s and early 2000s can create changes in public expectations
regarding how financial information should be reported and used. Good
standard setting should be timely and should always be aimed at improving
C. Support of the IASB is Required by Many
In commenting on accounting proposals, it is important that input be
provided on the objectives or the purpose of the standard and how well the
proposal might be expected to achieve those objectives. It is also
appropriate that companies weigh in on IASB proposals and especially so if
they do not understand what the proposals would require and why or if they
have feasibility concerns about applying them. Similarly, auditors should
provide objective input during the standard setting process as to any
auditing difficulties they might anticipate that potentially could affect the
operationality or auditability of a proposed standard. Users of financial
statements should likewise clearly state their needs and participate in the
standard setting process by commenting clearly on those needs. In carrying
out the SEC’s mission, my primary responsibility is to serve as an advocate
for investors. And, while I do my best to speak for investors in monitoring
accounting standard setting, I believe investors are far more effective when
they speak for themselves directly to the standard setter.
Accounting standard setting is often controversial. Improvement in
financial information involves change, and constituents frequently have
differing views on the need for, and benefits of, suggested changes. The
best standard setting decisions come from careful, objective, thoughtful, independent professional consideration of the relevant views and
information affecting a given issue. In the end not all parties will be
satisfied with the result. That is in my view acceptable because it is rarely
possible to accommodate everyone’s views. But it is possible for everyone
to respect the standard setting process and correctly apply the accounting
standards once they have been produced.
It is my belief that the IASB has demonstrated an ability to set high
quality standards that provide needed and useful information to investors.
To continue to be effective, a well-informed issuer, auditor and investor
community is necessary to implement and support the standards and to
provide specific and useful input for the standard setting Board’s
consideration as to continued applicability of the standards as business
transactions evolve. This participation not only aids in the acceptance of
standards but it also enables the standard setting Board to consider changes
The widespread implementation of IFRSs in 2005 and beyond
provides a unique need for effective training and education within a tight
time period. Successful implementation of IFRSs will occur only if issuers
and auditors have been thoroughly trained in IFRSs and investors’
education and knowledge is broad. There is only one chance for first-time
implementation and it is important that participants get it right. Making
changes later will be difficult and potentially costly.
Companies, auditors, regulators and investor organizations should be
expected to develop and provide comprehensive training on IFRSs for their
employees and others. Professional associations and industry groups will
undoubtedly integrate IFRSs into their training materials, publications,
testing and certification programs. Colleges and universities will likely
contribute by including IFRSs in their curricula. Investor education is
particularly necessary, so that users of financial statements understand what
they are receiving under IFRSs and how it differs from earlier reporting
and, in our case in the United States, from U.S. GAAP. In addition to
investors and analysts, other financial statement “users” include employees,
customers and vendors. The various groups creating, delivering and
attending training and education programs can contribute to the
effectiveness of the training by identifying areas for improvement. Further
down the road in the United States it will be fair to ask other questions,
such as “At what point will IFRSs become part of the CPA licensing exams
in the United States?”
Companies have the most critical role to play when it comes to applying standards correctly because poor application (due to, for example,
a lack of knowledge about the standards or inconsistent application
approaches) will quickly undo the benefit of having a single set of high
quality globally accepted accounting standards. During the compressed
time frame in 2005 during which many companies will undergo their “first
time through” work to apply IFRSs, I expect that both companies and audit
firms alike will be working through a substantial number of implementation
issues within a relatively short period of time. Without diminishing the
point that companies are indeed responsible for preparing their own
financial statements, I believe there is a need for and I encourage
constructive dialogue between preparers and their audit firm representatives
especially about implementation issues they encounter so that everyone can
expeditiously learn from each other’s experiences.
The transition to IFRSs is a daunting task; IFRSs have not been
broadly used in the past so the transition represents significant change, and
it will take sound execution of a multitude of interrelated steps to
implement IFRSs successfully. Additionally, it is important that internal
controls surrounding these processes be effective. Having breakdowns in
companies’ fundamental controls or processes, albeit unintentional ones,
would potentially undo or delay the benefits of IFRSs that so many are
working so hard to achieve. While the importance of effective controls
cannot be overemphasized, the SEC recognizes that the migration to IFRSs
is such a significant undertaking in and of itself that for foreign private
issuers the Commission extended for an additional year the internal controls
testing and reporting compliance dates under the Sarbanes-Oxley Act
Section 404, “Management Assessment of Internal Controls.”41 The
Commission’s hope is that this deferral will assist with efforts to
successfully convert to IFRSs, and that when Section 404 efforts are
undertaken they too will receive the appropriate level of attention and focus.
I encourage foreign private issuers to continue efforts to strengthen their
internal controls over financial reporting and to use the extended reporting
period to finalize, document and test effectiveness.
Multinational companies should also have in place the policy,
structure, and consultation protocols necessary to ensure that their staff
members know when to raise IFRSs application questions, that there is a
process for resolving those questions, and that there are reasonable controls
in place to ensure that the conclusions drawn are implemented. Ideally,
companies will update their corporate accounting policies so that where
they have choices to make under IFRSs, the various business units will make those choices consistently.
I am concerned that companies that utilize a multiple reconciliation
approach for example, keeping their books and records in accordance with
national accounting standards; reconciling those books and records to
IFRSs to prepare financial statements under IFRSs; and then reconciling the
IFRSs information to U.S. GAAP to prepare the U.S. GAAP
reconciliation inherently run a greater risk of unintentional error than
those companies that are able to embed IFRSs directly into their daily
accounting processes. That is because the simpler the process and the fewer
the conversion stages involved, the less the potential there is for error.
The assurance provided by competent, independent auditors has high
value to investors. Auditors, like company personnel, will be expected to
exercise sound judgment knowing that standards cannot answer every
question. In audits of financial statements prepared under IFRSs, the
auditors will need to make judgments regarding the acceptability of a
particular practice after considering the spirit and intent, as well as the
letter, of the standards. The goal should be to use good judgment, consult
with others and get it right the first time.
While audit quality is perhaps most affected by those conducting and
participating in the audit; that is, by the independence, qualifications,
authority, focus and energy of the auditors themselves, other factors also
matter. First, as is the case with accounting standards, I believe that audit
standards of high quality are enhanced if they are established by an
independent standard setter. Following passage of the Sarbanes-Oxley
Act,42 in the United States we now look to audit standards issued or
endorsed by the Public Company Accounting Oversight Board (PCAOB),43
an independent organization, to provide such standards for audits of
companies with securities trading here. The PCAOB’s mission involves
oversight of the audit profession including registration, inspection, standard
setting and enforcement.44 I am especially appreciative that strong efforts
are being made in many countries to improve audit quality, and that work is
continuing to improve International Standards on Auditing as well as ethics
and independence requirements.45 My staff—along with the staffs of other
national regulators—actively monitors developments in these standards and
supports efforts to improve audit quality.
Yet another element of audit quality involves the quality of a firm’s
audit procedures, which may be affected by the audit firm’s structure,
policies and internal controls. Importantly, the audit firm inspections by the
PCAOB and other national regulators and auditor oversight bodies are
intended to shed additional light on a timely basis as to the effectiveness of
audits. That oversight can be particularly effective in understanding the
degree of success of transition to IFRSs.
V. Maximizing the Benefits of a Common Set of Accounting Standards
A premise for a single set of globally accepted accounting standards is
that investors benefit as more and more companies prepare their financial
statements applying a common set of accounting standards because
investors can then more easily compare information, putting them in a
better position to allocate their capital in accordance with its highest and
best use. But these advantages inure only if financial reporting is, in fact,
consistent. In situations in which there are actual differences in transactions
occurring at a national or industry level the resulting accounting under
IFRSs may indeed be different and this would be fully appropriate. But,
what is not desired is differing interpretations of the accounting standards
for identical or substantially similar transactions. If that were to be the
case, investors could become confused if the financial statements are all
labeled “in accordance with IFRSs” even though different approaches
underlie the numbers. With the same standards being used by so many
different companies in so many different jurisdictions, it is more than
remotely possible that differing views could evolve as to the correct
application of a particular standard. Key to avoiding or minimizing this
phenomenon will be the processes for how potential differences in
interpretations of IFRSs are resolved.
There can only be one first time adoption of IFRSs. Thus, for those
companies doing so in 2005 I believe it is particularly important that
interpretations of IFRSs be thoroughly considered and that differing
interpretations be minimized. In the absence of timely guidance from the
IASB or IFRIC, differing interpretations can potentially evolve and
investors may be subjected to multiple conflicting applications, some of
which may not provide transparent information. Consistent interpretation
practices that are faithful to the standard and that are fostered by open and
forthright dialogue among practitioners, auditors, securities regulators and
others will help as will communications and consultations among reporting
companies. And, where in the interim differing interpretations cannot be
avoided, I believe transparency in the financial statements as to the practice followed is essential.
Additionally, as companies foster consistency of interpretation, they
will likely have to communicate both internally and externally on the
application and use of IFRSs: internally to employees throughout an
organization’s offices and divisions and affiliates and externally with
investors, auditors and regulators as well as with other companies and
industry groups. A natural place to engage in the external dialogue about
the application of IFRSs is among practitioners in the same industry.
Company personnel likely would have ready access to a peer group. The
fact that industry group members may be located in multiple jurisdictions
would also be helpful in promoting consistency of interpretation of IFRSs
across national borders.
The largest global firms are responsible for the audits of a very large
proportion of the foreign private issuers who file with the SEC, making it
particularly important that those firms do their part in fostering the
consistent application of IFRSs across national borders. Because these
firms conduct so much of their work cross-border they are uniquely
positioned to identify implementation issues with IFRSs early and to
develop consistent guidance for their auditors. In evaluating the consistent
application of IFRSs, multinational audit firms will be more effective—
similar to their multinational clients—if they have the policies, structure
and consultation protocols in place to ensure that their staff members know
when to raise application questions, that there is a process for resolving
those questions, and that there are controls in place to ensure that the
conclusions drawn are appropriately implemented.
C. Securities Regulators
Ideally securities regulators would, wherever practical, leave
interpretation of the standards to the standard setter; for example, to the
IASB or IFRIC in the case of IFRSs. However, since standard setters
cannot move as quickly as capital market developments, there will always
be accounting issues that standard setters have not yet addressed. Since the
IASB has a policy of keeping its standards at a “principles based” level
there may be less detail than is the case in applying, for example, U.S.
GAAP. And, because history has made it clear that not everyone always
does the right thing, securities regulators, including the SEC, need to ensure
that compliance is enforced. The SEC, like other national securities
regulators, may find it necessary from time-to-time to weigh-in on
particular accounting interpretations. This is not new, as securities
regulators have long been involved in resolving issues related to national
accounting standards. For example, in the United States, the Commission, generally executed through my office, is the ultimate arbiter of matters
regarding application of U.S. GAAP by public companies.
Within the European Union, I understand the concern for consistency
in application and enforcement of IFRSs is indeed a focus of the Committee
of European Securities Regulators (CESR). CESR Standard No. 2 on
Financial Information, “Coordination of Enforcement Activities,”
specifically addresses the issue of consistent application and enforcement
among the countries of the European Union.46 The International
Organization of Securities Commissions (IOSCO), through its Technical
Committee and its Standing Committee on Multinational Accounting and
Disclosure, is also promoting consistent regulatory interpretation of IFRSs
across jurisdictions by exploring how to facilitate communication among
securities regulators about application issues with IFRSs that each
To achieve consistent application of IFRSs, national securities
regulators will find it necessary to cooperate with their peer authorities
across jurisdictions. I know that I can learn from my non-U.S. counterparts
and this is one of the important reasons why my staff and others at the SEC
participate in activities of IOSCO. IOSCO members regulate more than
90% of the world’s securities markets, making IOSCO the world’s most
significant international cooperative forum for securities regulators.47 I am
hopeful that securities regulators will continue to work closely in
minimizing the degree of variance between interpretations of IFRSs and to
that end I am committed to make my staff available as appropriate to help
contribute to the development of sound and consistent interpretive
As my comments have implied, there is a lot of work to do for
everyone—companies, auditors, investors, educators, standard setters and
regulators—if we are to put into practice a financial reporting environment
that is consistent with a single set of globally accepted accounting
standards. But the harder and smarter we work—and the more we
cooperate—the greater will be the speed and satisfaction of our journey and
the benefits to the global capital markets. In the case of the U.S. capital
markets, I look forward to one result which is having the basis to conclude
that the needs of our investors are adequately fulfilled using IFRSs without
a continuing requirement to reconcile from IFRSs to U.S. GAAP.
Let me close by observing that the streams of activity associated with the standard setting work to converge accounting standards, the
development of an integrated financial services market in the European
Union and with it the need for a common set of high quality accounting
standards, and the global interest of IOSCO in encouraging the use of
IFRSs for cross border securities market activity around the world,4848 are not
unrelated. These separate streams of activity have at their heart a belief that
giving investors high quality financial information prepared using a single
set of globally accepted accounting standards will, in the long run, enhance
investor understanding and confidence and capital market liquidity and
growth, improve decision making and resource allocation, and contribute to
economic betterment for us all.
APPENDIX I: A Possible Roadmap to an SEC Staff Recommendation to
Eliminate the SEC Requirement for Foreign Private Issuers to Reconcile
Financial Statements Prepared Under IFRSs to U.S. GAAP
1 For further information about IFRSs, refer to the IASB website at http://www.iasb.org/
2 Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19
July 2002 on the application of international accounting standards, art. 4, 2002 O.J. (L243),
3 For further information about the IASB, refer to the IASB website at
4 SEC Regulation S-X, art. 4, 17 C.F.R. § 210.4-01(a)(2); SEC Form 20-F, Item 17,
[2004-2005 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 29723; SEC Form 20-F, Item 18
[2004-2005 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 29723.
5 Australia Financial Reporting Council, Bulletin 2002/4 (July 3, 2002); Australia
Financial Reporting Council, Bulletin 2004/3 (Apr. 2004).
6 Regulation (EC) No. 1606/2002, supra note 2.
7 Financial Accounting Standards Board and International Accounting Standards Board,
Memorandum of Understanding, “The Norwalk Agreement,” available at
http://www.fasb.org/intl/convergence_iasb.shtml (Sept. 18, 2002) [hereinafter The Norwalk
8 Press Release, International Accounting Standards Board, IASB and Accounting
Standards Board of Japan Agree to Next Steps in Launching Joint Project for Convergence
(Jan. 21, 2005), at http://www.iasb.org/news.
9 Securities Act of 1933 § 2(b), 15 U.S.C. § 77b(b) (2005).
10 SEC, 2004-2009 STRATEGIC PLAN, at 5 (2004).
11 Id., Outcomes 2.1 & 2.3, at 37-38, 39-40.
12 Id., Outcome 3.1, at 44-45.
13 Estimates are per the SEC staff.
16 SEC Regulation S-X, art. 4, 17 C.F.R. § 210.4-01(a)(1)&(2); SEC Form 20-F, Item 17,
supra note 4; SEC Form 20-F, Item 18, supra note 4.
17 SEC Regulation S-X, art. 4, supra note 4; SEC Form 20-F, Item 17, supra note 4; SEC
Form 20-F, Item 18, supra note 4.
18 SEC Form 20-F, Item 17, supra note 4.
19 SEC Form 20-F, Item 18, supra note 4.
20 See, e.g., SEC Form F-2, 17 C.F.R. § 239.32(d)&(e).
21 See, e.g.,SEC Form F-1, [2004-2005 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 6951,
at ¶ 6953, Item 4.
22 Integrated Disclosure System for Foreign Private Issuers, SEC Release Nos. 33-6360,
34-18274, 39-677, 46 Fed. Reg. 58511, 58515 (Dec. 2, 1981) (codified at 17 C.F.R. pts. 210,
229, 230, 239, 240, 249, & 260).
23 General Revision of Regulation S-X, SEC Release Nos. 33-6233, 34-17116, 35-21699,
IC-11325, AS-280, 45 Fed. Reg. 63660, 63667 (Sept. 25, 1980) (codified at 17 C.F.R. pts.
210, 229, 240, & 249).
24 Securities Act of 1933 §§ 7, 10, 15 U.S.C. §§ 77g, 77j (2005).
25 Integrated Disclosure System for Foreign Private Issuers, supra note 22, at 58513.
27 Id. at 58519.
28 Id. at 58513.
29 Commission Statement of Policy Reaffirming the Status of the FASB as a Designated
Private-Sector Standard Setter, Exchange Act Release Nos. 33-8221, 34-47743, IC-26028,
FR-70, 68 Fed. Reg. 23333 (May 1, 2003).
30 For further information about the FASB, refer to its website at http://www.fasb.org.
31 American Institute of Certified Public Accountants, AICPA Code of Professional
Conduct, ET Section 203 ¶¶ .01-.03, at http://www.aicpa.org/about/code/et_203.html (last
visited Apr. 5, 2005).
32 The Norwalk Agreement, supra note 7.
33 Press Release, Securities and Exchange Commission, Actions by FASB, IASB Praised
(Oct. 29, 2002) (Press Release No. 2002-154, available at http://www.sec.gov/news/press/
34 Press Release, European Commission, Financial Reporting: Commission Welcomes
IASB/FASB Convergence Agreement (Oct. 29, 2002) (Press Release Reference IP/02/1576
available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/02/1576&
35 The SEC staff has given guidance in the form of SEC Staff Accounting Bulletins; Staff
No Action, Interpretive and Exemptive Letters; Staff Frequently Asked Questions
Publications; and so forth.
36 See Roadmap, infra, Appendix I.
37 INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE FOUNDATION, REVIEW OF THE
CONSTITUTION: PROPOSALS FOR CHANGE, ¶ 70 (2004).
38 International Accounting Standards, Exchange Act Release Nos. 33-7801, 34-42430,
International Series No. 1215; 65 Fed. Reg. 8896 (Feb. 23, 2000) (codified at 17 C.F.R. pts.
230 & 240).
39 Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act,
Pub. L. No. 107-204, 116 Stat. 745 (2002) [hereinafter Sarbanes-Oxley].
40 Office of the Chief Accountant and Office of Economic Analysis, U.S. Securities and
Exchange Commission, Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002
on the Adoption by the United States Financial Reporting System of a Principles-Based
Accounting System (2003).
41 Management’s Report on Internal Control over Financial Reporting and Certification
of Disclosure in Exchange Act Periodic Reports of Non-Accelerated Filers and Foreign
Private Issuers, Exchange Act Release Nos. 33-8545, 34-51293, 70 Fed. Reg. 11528 (Mar. 8,
2005) (codified at 17 C.F.R. pts. 210, 228, 229, 240 & 249).
42 Sarbanes-Oxley, supra note 39.
43 For further information about the PCAOB, refer to its website at
45 For further information about International Standards on Auditing, refer to the website
of the International Federation of Accountants at http://www.ifac.org.
46 COORDINATION OF ENFORCEMENT ACTIVITIES, Standard No. 2 on Financial Information
(Committee of European Securities Regulators 2004).
47 For further information about IOSCO, refer to its website at http://www.iosco.org.
48 International Organization of Securities Commissions Technical Committee, Statement
on the Development and Use of International Financial Reporting Standards in 2005 (Feb.
2005), available at http://www.iosco.org/pubdocs/pdf/IOSCOPD182.pdf.