Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-04-00

Dear Mr. Katz:

This letter responds to the Securities and Exchange Commission (SEC) request for comment in its Concept Release (the Release) on International Accounting Standards (IAS).

The American Institute of Certified Public Accountants (AICPA) fully supports the development of a single set of high quality, comprehensive accounting standards to be used in the preparation of transparent and comparable financial reports throughout the world. As a founding member of the International Accounting Standards Committee (IASC), the AICPA has used its best efforts to support the IASC's work since 1973. Through its Accounting Standards Executive Committee (AcSEC), the AICPA has commented on all IASC proposals in the core standards work program. In addition, the AICPA appoints one of two U.S. delegates to the IASC, provides a technical adviser to the U.S. delegation, and has provided members of IASC steering committees.

The AICPA appreciates the efforts of the IASC, and we recognize the significant progress that has been made since the International Organization of Securities Commissions (IOSCO) and the IASC initiated the core standards work program. We recognize the effectiveness of the IASC's Framework for the Preparation of Financial Statements (IASC Framework) as a sound basis for the development of the core standards. However, because of the concerns about the current body of IAS and interpretations described in our responses to the specific questions in the Release, we believe that a reconciliation to U.S. GAAP for foreign filers should continue as an interim measure. All accounting regimes, including U.S. GAAP, evolve over time and require further improvement. With convergence of IAS and national regimes around high quality standards, fewer reconciling items will exist over time and, at a future date, a reconciliation will become unnecessary. By convergence, we mean a movement toward higher quality standards from all jurisdictions, not simply a movement only toward IAS or only toward U.S. GAAP or some other existing regime.

The restructuring of the IASC, supported by the AICPA, will result in a more efficient and effective standards-setting process. We are confident that, under the restructured IASC, high quality IAS will be promulgated and that existing IAS will continue to be improved. The restructured IASC is designed to promote closer working relationships with national standards setters, resulting in more progress toward convergence of IAS and national standards. The marketplace also will continue to press for a single set of standards to be used worldwide.

The process of convergence will occur most effectively if national standards setters assume an active role in the international standards-setting process. The process will fall short of producing a comprehensive set of international standards that are mutually acceptable by all jurisdictions if international standards setters are essentially required to conform international standards to predominant national accounting standards and practices. A commitment by national standards setters to consider and incorporate promulgated international standards as appropriate is an essential element of the convergence process. The AICPA fully supports a private sector standards-setting process. We understand that the U.S. standard setters will develop processes to work more closely with the restructured IASC. AICPA, through AcSEC and other means, will continue to actively participate in the IASC process in the future. The SEC should encourage, promote, and support private sector standards setters in the U.S. and international efforts working toward convergence.

If the SEC concludes that foreign companies may use IAS without reconciliation to U.S. GAAP in cross-border filings in the U.S., there will be questions about whether U.S.-based companies should also be permitted to use IAS for filings in the U.S. The AICPA does not support the use of IAS by U.S.-based companies at this time.

The decision about which basis of accounting should be permitted or required for filings in the U.S. is not only a technical debate about the quality of certain accounting standards but also about the effectiveness and efficiency of the U.S. capital markets. Information provided to markets has direct effects on the cost of capital. It is generally acknowledged that greater uncertainty about information increases the cost of capital. We believe that the markets would recognize greater information risk if the current body of IAS is used for all U.S. filings, and that would raise the cost of capital for all participants.

We believe that progress has been made in the establishment of an infrastructure to support IAS, as well as in the development of IAS themselves. Recent initiatives taken by the International Federation of Accountants (IFAC) in establishing a Forum of Firms and Compliance Committee, and the creation of the International Forum on Accountancy Development (IFAD), are directed toward the timely formation of processes to improve international standards setting in auditing and compliance with international standards. The AICPA's SEC Practice Section has voluntarily adopted measures to strengthen the accounting and auditing quality of filings by foreign companies in the U.S.

We view action by the SEC on international accounting standards to be independent of the much broader infrastructure issues unrelated to the process of setting accounting standards. Those infrastructure issues exist with or without acceptance of IAS. Accordingly, the substance of the comments that follow are directed primarily toward international accounting standards. Attached are our responses to the specific questions in the Release.

The AICPA appreciates the opportunity to submit its comments and would be pleased to discuss them with you at your convenience.

Sincerely,

Barry Melancon
President

Robert Elliott
Chairman


ATTACHMENT

Q. 1 Do the core standards provide a sufficiently comprehensive accounting framework to provide a basis to address the fundamental accounting issues that are encountered in a broad range of industries and a variety of transactions without the need to look to other accounting regimes? Why or why not?

Although we believe the IASC core standards (IAS) address most fundamental accounting issues, additional guidance should be developed to complete a sufficiently comprehensive set of standards. One topic not covered in IAS is the accounting for stock-based compensation. We have listed in our response to question 3 some additional specialized-industry topics that should be addressed in order to provide a comprehensive set of standards.

In addition, IAS are written broadly, incorporating little detailed guidance, and contain significant recognition and measurement alternatives. IAS also do not address a number of industry-specific issues and other issues that may be encountered when the standards are applied to specific transactions. Although industry-specific guidance was not within the scope of the core standards work program, until industry-specific accounting principles are established, companies will need to look to other accounting regimes for guidance.

We further believe that a critical component of a comprehensive accounting framework that supports consistent application of its standards is a robust set of interpretive guidance. Our response to question 9 provides further discussion of the need for interpretive guidance on IAS.

Q. 2a Should we require use of U.S. GAAP for specialized industry issues in the primary financial statements or permit use of home country standards with reconciliation to U.S. GAAP?

No. We do not believe that the SEC should require use of U.S. GAAP in areas that are not addressed by IAS. IAS 1, Accounting Policies, states that, in the absence of specific guidance under IAS or the IASC Framework, management should consider the pronouncements of other standard setting bodies and accepted industry practices to the extent that those standards or practices are consistent with IAS and the IASC Framework. We believe that IAS 1 guidance is appropriate and that the foreign registrant should consider U.S. GAAP or the pronouncements of other standard setting bodies to the extent, but only to the extent, those pronouncements are consistent with IAS dealing with similar and related issues and the IASC Framework.

A requirement to use U.S. GAAP for specialized industry issues in financial statements prepared in accordance with IAS (assuming that the U.S. GAAP specialized industry guidance is consistent with IAS and the IASC Framework) may be perceived to be what U.S. investors would prefer. However, we believe that requiring the use of U.S. GAAP in those circumstances would impose a different standard on foreign registrants using IAS than is currently imposed on foreign registrants not using IAS. Under current SEC regulations, a foreign registrant may use either its home country standards or IAS in its primary financial statements and provide a reconciliation to U.S. GAAP.

Additionally, such a requirement might result in the issuance of different sets of financial statements for the same period that purport to be presented in accordance with IAS. For example, the set of financial statements prepared for U.S. purposes would report industry-specific transactions according to U.S. GAAP and all other activity according to IAS. Another set of financial statements for the same company prepared for its home-country purposes may report industry-specific transactions in accordance with home-country GAAP and all other activity according to IAS. Both sets of financial statements could be represented as being in accordance with IAS (if the industry-specific guidance in both the U.S. and the home country are consistent with IAS and the IASC Framework). That would dilute the benefits that acceptance of IAS for cross-border offerings would provide, and it might confuse users of the enterprise's financial statements.

We also note that U.S. industry-specific standards evolved over time and are not necessarily consistent with the IASC Framework and IAS in all respects. If the SEC were to mandate the use of U.S. GAAP industry-specific standards within IAS, the SEC or preferably a private-sector standards-setter would need to identify the situations in which U. S. GAAP industry-specific standards may be inconsistent with the IASC Framework and provide another alternative for such situations. We do not believe that would be a useful process for users of the financial statements.

In summary, we believe that a foreign registrant should not be required to use U.S. GAAP for specialized industry issues in its primary financial statements. Rather, registrants should apply IAS in accordance with IAS 1 as discussed above.

Q. 2b Which approach would produce the most meaningful primary financial statements?

In instances for which specialized industry guidance does not exist in IAS, the application of U.S. GAAP in the primary financial statements of foreign registrants would likely result in greater comparability to financial statements prepared on a U.S. GAAP basis and may be more meaningful to U.S. investors. That approach also would decrease the number of differences that require reconciliation. However, as discussed in our response to question 2a, it could lead to the issuance of different sets of financial statements for the same period that purport to be presented in accordance with IAS. That would dilute the benefits that acceptance of IAS for cross-border offerings would provide and may be confusing to some users of the enterprise's financial statements.

The current SEC regulation requiring reconciliation and disclosure of differences in the notes to the financial statements is preferable to requiring U.S. GAAP for some transactions in primary financial statements prepared using IAS.

Q. 2c Is the approach of having the host country specify treatment for topics not addressed by the core standards a workable approach? Is there a better approach?

We believe that having the host country (the SEC for foreign private issuers filing in the U.S.) specify treatment in the primary financial statements for topics not addressed by the core standards might require a company that files in several countries to prepare multiple sets of financial statements, each purporting to be presented in conformity with IAS. That likely would create significant reporting inefficiencies to the reporting enterprise and confusion among users of the enterprise's financial statements as discussed above. We believe a better approach would be for registrants to apply IAS in accordance with paragraph 22 of IAS 1.

However, this question is moot if the SEC accepts our recommendation that the requirement to include a reconciliation to U.S. GAAP be retained as an interim solution until convergence with national standards setters occurs. We believe the reconciliation requirement at present adequately protects investors. By highlighting differences between IAS and U.S. GAAP, a requirement to reconcile to U.S. GAAP might act as a catalyst for convergence of IAS and U.S. GAAP.

Q. 3 Are there any additional topics that need to be addressed in order to provide a comprehensive set of standards?

Additional topics that should be addressed include the accounting for stock compensation and standards for specialized industries, such as computer software, financial institutions, insurance, motion pictures, oil and gas and other extractive industries, and regulated utilities. Stock compensation arrangements continue to become more complex and common among global companies. Likewise, specialized industry accounting standards, including guidance on specific revenue recognition issues, are essential to comparable financial reporting.

Q. 4a Are the IASC standards of sufficiently high quality to be used without reconciliation to U.S. GAAP in cross-border filings in the United States? Why or why not?

Although individual IAS may be of high quality, we do not believe the body of IAS is of sufficiently high quality to be used without reconciliation to U.S. GAAP in cross-border filings in the U.S at this time. As described in our response to earlier questions, we believe that a reconciliation to U.S. GAAP best serves investors in U.S. markets at the present time. We agree with the criteria the Staff has identified for assessing the quality of IAS. One of those criteria requires that application of the standards results in comparable accounting by registrants for similar transactions, by avoiding or minimizing alternative accounting treatments. The existing core standards contain significant recognition and measurement alternatives and are, as a whole, written generally and are susceptible to varied interpretation. As a result, different companies following IAS might apply IAS differently for similar transactions. Therefore, we believe that the requirement to include a reconciliation to U.S. GAAP should be retained until industry-specific guidance and interpretive guidance that reduces inconsistent application can be promulgated by the IASC. As convergence is achieved and the gap between U.S. GAAP and IAS narrows, the number of differences that require reconciliation should decrease naturally.

Although our response is not based on this consideration, it is worth noting that, if the SEC concludes that foreign companies may use IAS without reconciliation to U.S. GAAP in cross-border filings in the U.S., there will be questions about whether U.S.-based companies should also be permitted to use IAS for filings in the U.S. We believe that U.S.-based companies should not be permitted to apply IAS at this time, and an option to apply either IAS or U.S. GAAP by all companies would undermine the credibility of financial reporting in the U.S. In addition, denying U.S.-based companies the ability to use IAS for filing in the U.S. (if IAS are accepted for foreign filers) might provide an incentive for companies to domicile themselves outside the U.S.

We do not support identification by the SEC of individual IAS that do not require reconciliation to U.S. GAAP while continuing to require reconciliation for others. We believe that the mixed result of a partial reconciliation to U.S. GAAP would introduce additional elements of noncomparability into the financial statements for users to consider and be confusing to users of those statements.

Q. 4b Please provide us with your experience in using, auditing or analyzing the application of such standards. In addressing this issue, please analyze the quality of the standard(s) in terms of the criteria we established in the 1996 press release. If you considered additional criteria, please identify them.

Our experience in using and auditing the application of IAS in the U.S. is limited. There are only a relatively small number of U.S. practitioners who use IAS or audit financial statements prepared in conformity with IAS, and those individuals generally are members of large firms whose non-U.S. clients file with the SEC from foreign countries. Several of the recently issued IAS are not currently effective, or have only recently become effective, and therefore, practitioners don't have experience in using or auditing the application of those IAS.

Q. 5a What are the important differences between U.S. GAAP and the IASC standards? We are particularly interested in investors' and analysts' experience with the IASC standards.

Although there are many differences between U.S. GAAP and IAS, our general observation is that the topics described below represent those differences that are most often cited as having the potential to create difficulty for users in comparing financial statements prepared using U.S. GAAP with those using IAS. In describing these differences, we make no judgment about whether the guidance in IAS is better or poorer than U.S. GAAP. The FASB study, The IASC-U.S. Comparison Project: A Report on the Similarities and Differences between IASC Standards and U.S. GAAP, provides many other citations of differences between the two sets of standards.

Q. 5b Will any of these differences affect the usefulness of a foreign issuer's financial information reporting package? If so, which ones?

The differences, individually or collectively, have the potential to affect the usefulness-especially the comparability-of a foreign issuer's financial statements. The degree of that effect depends on the actual application of the standard and the following:

Q. 6 Would acceptance of some or all of the IASC standards without a requirement to reconcile to U.S. GAAP put U.S. companies required to apply U.S. GAAP at a competitive disadvantage to foreign companies with respect to recognition, measurement or disclosure requirements?

Depending on the individual company and the industry in which it operates, U.S. companies may be at either a competitive disadvantage or a competitive advantage in the capital markets if foreign registrants have the ability to use IAS without reconciliation to U.S. GAAP. For example, one company might view the ability to capitalize development costs as a competitive advantage, while a different company might view expense treatment as more advantageous. Investors in capital markets have the ability to compensate for the potential information risk by charging a cost of capital premium if they perceive that IAS do not provide adequate transparency and disclosures. However, AcSEC is concerned that certain companies may decide that the benefits of less transparency outweigh any information-risk penalty that might be assessed by the capital markets.

We believe that competitive advantages or disadvantages, if any, that may result from acceptance of IAS are not an appropriate basis for evaluating IAS and thus our responses to the questions in the Release focus on achieving improvements in financial reporting through development of high quality accounting standards.

Q. 7 Based on your experience, are there specific aspects of any IASC standards that you believe result in better or poorer financial reporting (recognition, measurement or disclosure) than financial reporting prepared using U.S. GAAP? If so, what are the specific aspects and reason(s) for your conclusion?

As noted in our response to question 5, there are a number of significant differences between IAS and U.S. GAAP. AcSEC's comment letters on the IASC proposals in the core standards work program focused on how to improve the quality of the proposed standard. We have not attempted to determine whether a particular final IAS results in higher or lower quality financial reporting than its U.S. counterpart. We believe the SEC should likewise focus instead on continuous improvement of both U.S. GAAP and IAS leading to convergence toward high quality standards.

Q. 8a Is the level of guidance provided in IASC standards sufficient to result in a rigorous and consistent application?

Taken as a whole body of standards, we believe that the level of guidance in IAS is not sufficient to result in a rigorous and consistent application. Some IAS contain significantly different alternative accounting (benchmark and allowed alternative treatments), and some IAS are written in a broad, general manner. Rigorous and consistent application of the standards will be enhanced as existing and future accounting standards are further supported by interpretive guidance. As experience in the U.S. has demonstrated, implementation guidance is frequently necessary for companies to adequately address the many questions that arise in adopting new standards. The present lack of sufficient interpretive and implementation guidance for IAS allows for different applications of the same standard to similar transactions. The risk of inconsistent application is particularly acute given the natural differences in backgrounds, experiences, and perspectives of management of global companies and other participants in the financial reporting process that will be involved in the application of IAS.

Q. 8b Do the IASC standards provide sufficient guidance to ensure consistent, comparable and transparent reporting of similar transactions by different enterprises? Why or why not?

As noted above and in our response to question 1, there is currently not a sufficient level of detail in IAS, especially in light of the different financial reporting environments where the guidance will be applied. Until adequate interpretive guidance is available, the standards will be interpreted based on the background and experience of the preparer, allowing for varied interpretations of the same IAS in different jurisdictions. In addition, the option under IAS to select between the benchmark treatment or the allowed alternative treatment may impair the ability of the financial statement user to effectively compare and evaluate the financial statements of different companies within an industry.

Q. 9 Are there mechanisms or structures in place that will promote consistent interpretations of the IASC standards where those standards do not provide explicit implementation guidance? Please provide specific examples.

The role of the Standing Interpretations Committee (SIC) of the IASC is to provide interpretive guidance on accounting issues that are likely to receive divergent treatment in the absence of authoritative guidance. It was a significant achievement for the IASC to establish the SIC, and we are encouraged by its progress to date. However, only a relatively small number of interpretations have been finalized. For IAS to further promote consistent application of IAS, a number of interpretations must be developed and the process must be accelerated.

We are confident that the SIC will continue to address issues and develop a more comprehensive body of interpretive guidance. However, we believe that, as the new IASC structure develops, adequate staff resources must be allocated to the SIC and a mechanism for bringing issues to the SIC must be developed to accelerate the identification of issues.

Q. 10 In your experience with current IASC standards, what application and interpretation practice issues have you identified? Are there issues that have been addressed by new or revised standards issued in the core standards project?

Experience among U.S. practitioners generally has been limited to individuals who review or advise on reconciliations to U.S. GAAP for foreign filers in the U.S. Apart from those individuals, U.S. practitioners or preparers have little experience in applying or interpreting IAS. One practice issue that has come to our attention is whether some portion of foreign exchange losses on translation of borrowings should be considered interest and capitalized. Another issue is the interpretation of IAS 22 related to how great the difference in the size of two companies may be for them to be considered equals for purposes of a uniting of interests (poolings). We also believe issues arise because there has been no clear statement by IASC about whether "gray-letter" paragraphs of IAS must be followed.

Q. 11 Is there significant variation in the way enterprises apply the current IASC standards? If so, in what areas does this occur?

We have not undertaken a study to evaluate current practice in applying IAS. Many of the recently issued standards have not yet become effective or have only recently become effective. As more experience is gained in applying IAS, areas of potential diversity in practice might become apparent.

Q. 12 After considering the issues discussed in (i) through (iv) below, what do you believe are the essential elements of an effective financial reporting infrastructure? Do you believe that an effective infrastructure exists to ensure consistent application of the IASC standards? If so, why? If not, what key elements of that infrastructure are missing? Who should be responsible for development of those elements? What is your estimate of how long it may take to develop each element?

You have identified many of the essential elements of an effective financial reporting infrastructure. We would add to your list: high quality education of financial professionals, continuing professional education, professional ethics standards, and a professional system of review and discipline.

Professional infrastructures vary widely from jurisdiction to jurisdiction. We believe, however, that progress has been made in the establishment of an infrastructure to support IAS and that recent initiatives, such as establishing a Forum of Firms and Compliance Committee and the creation of the International Forum on Accountancy Development (IFAD), are directed toward the timely formation of processes to improve international accounting standards setting in auditing and compliance with international standards.

As noted in an earlier response, infrastructure issues exist whether the basis of accounting is IAS or home country GAAP.

Q. 13 What has your experience been with the effectiveness of the SIC in reducing inconsistent interpretations and applications of IASC standards? Has the SIC been effective at identifying areas where interpretive guidance is necessary? Has the SIC provided useful interpretations in a timely fashion? Are there any additional steps the IASC should take in this respect? If so, what are they?

As discussed in our response to question 9, the SIC has made advances in reducing inconsistency in the application of IAS for the issues it has addressed to date. We believe that process and the work of the SIC need to continue. It would be helpful if the SIC could meet more often to address more issues in a timely manner. Moreover, as the new IASC structure develops, adequate staff resources must be allocated to the SIC, and a mechanism for bringing issues to the SIC must be developed to accelerate the identification of issues. Furthermore, the IASC should consider whether the efficiency of the SIC would be improved by appointing a full-time IASC Board member or staff person to chair the SIC.

Q. 14 Do you believe that we should condition acceptance of IASC standards on the ability of the IASC to restructure itself successfully based on the above characteristics? Why or why not?

The restructuring of IASC, as proposed, will result in significant improvements to the standards-setting process. We fully support the proposed changes, particularly as the structure will encourage national standard setters to work more closely with the IASC, leading to convergence of standards worldwide. However, we believe that acceptance of IAS should not be conditioned on successful restructuring of the IASC. Rather, acceptance of IAS should be the outcome of convergence around high quality accounting standards, which the restructuring of the IASC will promote.

Q. 15 What are the specific practice guidelines and quality control standards accounting firms use to ensure full compliance with non-U.S. accounting standards? Will those practice guidelines and quality control standards ensure application of the IASC standards in a consistent fashion worldwide? Do they include (a) internal working paper inspection programs and (b) external peer reviews for audit work? If not, are there are other ways we can ensure the rigorous implementation of IASC standards for cross-border filings in the United States? If so, what are they?

Although we are unable to comment on all aspects of the questions, it is important to note certain initiatives the AICPA has recently undertaken concerning foreign registrants and their auditors. The approximately 1,300 public accounting firms that belong to the AICPA's SEC Practice Section (SECPS), which audit the financial statements of approximately 99 percent of U.S. SEC registrants, must meet certain membership requirements concerning cross-border filings by companies audited by foreign-associated audit firms. The SECPS membership requirement, which was effective January 1, 2000, requires that the U.S. member firm have certain quality control policies to ensure that its foreign-associated firm's audit of the foreign registrant meets U.S. requirements for accounting, auditing, and independence standards. That goal is accomplished by assigning as a "filing reviewer" an individual who is knowledgeable in U.S. GAAP, Generally Accepted Auditing Standards, and independence requirements to assist the audit partner-in-charge of the engagement for the foreign-associated firm. The filing reviewer reads the document to be filed with the SEC with particular attention given to compliance as to the form of the financial statements with applicable accounting and financial reporting requirements for such filings. In addition, the U.S. firm should address, in its inspection procedures, the review of a sample of audit engagements performed by the foreign-associated firm for clients that are SEC registrants. Compliance with this membership requirement is tested during the peer review of the U.S. member firm. In addition, the U.S. member firm must list on its annual report to the SECPS the foreign-associated firms for which the U.S. member firm will undertake the actions that are noted in the preceding narrative.

Q. 16 Should acceptance of financial statements prepared using the IASC standards be conditioned on certification by the auditors that they are subject to quality control requirements comparable to those imposed on U.S. auditors by the AICPA SEC Practice Section, such as peer review and mandatory rotation of audit partners? Why or why not? If not, should there be disclosure that the audit firm is not subject to such standards?

No. As noted in our cover letter and the response to question 15, we believe that the issues in this question should be addressed separate and apart from the acceptability of IAS. The SEC should evaluate the acceptance of financial statements prepared using IAS based on the quality of IAS.

Q. 17 Is there, at this time, enough expertise globally with IASC standards to support rigorous interpretation and application of those standards? What training have audit firms conducted with respect to the IASC standards on a worldwide basis? What training with respect to the IASC standards is required of, or available, to preparers of financial statements of auditors certifying financial statements using those standards?

As noted in our introductory comments and responses to questions 12, 15 and 16, we are not addressing the infrastructures that exist worldwide to support IASC standards.

Q. 18 Is there significant variation in the interpretation and application of IASC standards permitted or required by different regulators? How can the risk of any conflicting practices and interpretations in the application of the IASC standards and the resulting need for preparers and users to adjust for those differences be mitigated without affecting the rigorous implementation of the standards?

We do not know what issues non-U.S. regulators may have regarding specific areas of variation in the interpretation and application of IAS. We believe that there is, as noted in earlier responses, a need for more robust interpretative guidance of IAS.

Q.19 Would further recognition of the IASC standards impair or enhance our ability to take effective enforcement action against financial reporting violations and fraud involving foreign companies and their auditors? If so, how?

We know of no reasons why further recognition of IAS would either impair or enhance the SEC's ability to effectively carry out its enforcement responsibilities.

Q.20 We request comment with respect to ways to assure access to foreign working
papers and testimony of auditors who are located outside the United States. For
example, should we amend Regulation S-X to require a representation by the auditor that, to the extent it relied on auditors, working papers, or information from outside the United States, the auditor will make the working papers and testimony available through an agent appointed for service of process? If not, should we require that the lack of access to auditors' workpapers be disclosed to investors? Is there another mechanism for enhancing our access to audit working papers?

Access to working papers and testimony of auditors located outside the U.S. is a complicated legal question that would need further study because of the number of countries that could be involved and the varying rules in each country. However, if a U.S. auditor relied on the working papers or the work of an auditor outside the U.S. in its opinion on financial statements filed with the SEC, we believe that the U.S. firm currently has a responsibility to maintain adequate information in its files to support that opinion. That process occurs with U.S.-based multinational companies with subsidiaries or operations outside the U.S., and is unrelated to the issue of IAS as a basis of accounting. Also, we are not in a position to comment on the interaction of regulation S-X with foreign jurisdictions. In any event, we would not support the establishment of any additional auditing performance requirements in the U.S. securities laws and regulations. We believe the private sector is in the best position to establish such requirements.

Q.21 What has been your experience with the quality and usefulness of the information included in U.S. GAAP reconciliations? Please explain, from your viewpoint as a preparer, user, or auditor of non U.S. GAAP financial statements, whether the reconciliation process has enhanced the usefulness or reliability of the financial information and how you have used the information provided by the reconciliation. Please identify any consequences, including quantification of any decrease or increase in costs or benefits that could result from reducing or eliminating the reconciliation requirement.

As described in earlier responses, we believe that a reconciliation should continue to be required as an interim measure to ensure transparency and comparability in financial reports filed by foreign entities in the U.S. The usefulness of the information included in the U.S. GAAP reconciliations varies significantly based on the specific industry and the particular registrant. For example, in certain global industries, entities are compared based on U.S. GAAP earnings, regardless of whether the entities provide U.S. GAAP information in their primary financial statements or in a reconciliation. When IAS and national standards converge, there clearly will be a cost reduction to preparers of financial statements due to the elimination of multiple reporting formats. Until that time, it is difficult to judge the costs or benefits of eliminating the reconciliation requirement. On balance, we believe that the benefits of providing the reconciliation to users of financial statements outweigh the costs of preparing the reconciliation.

Q.22 Should any requirements for reconciliation differ based on the type of transaction (e.g., listing, debt or equity financing, rights offering, or acquisition) or the type of security (e.g., ordinary shares, convertible securities, investment grade or high yield debt)? Are there any other appropriate bases for distinction?

No, we do not believe that filing requirements should be different based on the type of listing.

Q.23 If the current reconciliation requirements are reduced further, do you believe that reconciliation of a "bottom line" figure would still be relevant ( e.g., presenting net income and total equity in accordance with U.S. GAAP)?

We do not believe that the reporting of only a reconciled "bottom line" figure would be relevant without the corresponding detail reconciliation requirements, and, in some cases, that bottom line reconciliation without the detail could be misleading to users of the financial statements.

Q.24 Should any continuing need for reconciliation be assessed periodically, based on an assessment of the quality of the IASC standards?

The SEC should continually strive to improve the U.S. GAAP reconciliation process. We support a periodic reassessment of the reconciliation requirement in that context, especially as IAS and national standards converge toward a single set of high quality global standards.

Q.25 The IASC standards finalized as part of the core standards project include prospective adoption dates. Most standards are not required to be applied until fiscal years beginning on or after January 1, 1998, at the earliest. Should we retain existing reconciliation requirements with respect to the reporting of any fiscal year results that were not prepared in accordance with the revised standards or simply require retroactive application of all revised standards regardless of their effective dates? If not, why not?

IAS 8, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies, and new IAS as they are published, prescribe the accounting for transition to new accounting standards. The SEC should look to those standards for guidance on transition. IAS 8's benchmark treatment is restatement to provide the greatest comparability. However, some individual IAS do not permit retroactive application for appropriate reasons. For example, IAS 39, Financial Instruments: Recognition and Measurement, requires prospective application for hedging transactions because of the requirements for designation of hedges.

Q. 26 Does the existence of a reconciliation requirement change the way in which auditors approach financial statements of foreign private issuers? Also, will other procedures develop to ensure that auditors fully versed in U.S. auditing requirements, as well as the IASC standards, are provided an opportunity to review the financial reporting practices for consistency with those standards? If so, please describe these procedures. Alternatively, will the quality of the audit and the consistency of the application of the IASC standards depend on the skill and expertise of the local office of the affiliated of the accounting firm that conducts the audit?

We do not believe the existence of the reconciliation requirement should affect the audit approach. As noted in our cover letter and the response to question 15, a requirement for membership in the AICPA's SEC Practice Section is that the U.S. member firm adopt certain quality control policies and procedures regarding a foreign-associated firm being auditor-of-record for a foreign registrant.