Supplementary News Material:
Concept Release on International Accounting Standards – Chairman Arthur Levitt’s Statement
Open Commission Meeting,
February 16, 2000
Good morning. The Commission today is being asked to consider a concept release on the elements of a high-quality international accounting framework. Such a framework has the potential of developing, in the not too distant future, a universal business language for the global marketplace.
Today, companies here and abroad engage on a daily basis in a global quest for capital. Deep pools of capital at the lowest cost naturally tend to come about in those markets with the greatest transparency; transparency that gives investors the greatest chance of assessing the risks and rewards of a possible investment. History has taught us that what market's fear most is uncertainty; uncertainty about risk and uncertainty about the numbers that form the basis for an investment decision.
For more than a decade, the Commission has been working with similarly interested parties from around the globe to advance the cause of efficient and transparent markets. Recently, enormous strides have been made in converging towards a common underpinning for financial reporting.
The International Accounting Standards Board completed its "core standards" project and announced plans for a major reorganization, providing a framework for a truly international standard-setter grounded in the public interest.
No one can take issue with the need for markets to converge on a common set of accounting standards. At the same time, it is critical to remember that a truly transparent and comparable system of financial reporting necessarily depends on the existence of a sound infrastructure. Accounting standards must rest upon a foundation that includes a quality process for developing those standards. They must be verified by a rigorous audit process conducted by firms covered by profession-wide quality assurance programs and a credible oversight program.
Foreign companies raise capital in our markets to take advantage of the most tangible benefit that our transparent system offers: access to cheap and abundant capital. The success of our system, to a great extent, rests on the development and the continuous process of improving U.S. Generally Accepted Accounting Principles or GAAP.
While GAAP in its application is not without some complexity, the secret of its success is profoundly simple: a determined and vigilant focus on providing useful information to users of financial information. Any set of international accounting standards should subscribe to this same principle by being comprehensive, comparable, transparent and rigorously interpreted and applied.
As time passes, financial centers, whether in New York, in London or in the Ethernet of bits and bytes, will only become more integrated, not less. At the foundation of any truly global financial architecture will be a system of sound financial reporting; a system that must be predicated on a commitment to serving the informational needs of the marketplace.
I'd like to now turn to Lynn Turner for a description of the concept release on developing such a system.