Speech by SEC Commissioner:
Remarks at the SEC Open Meeting: IFRS / U.S. GAAP Reconciliation
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
June 20, 2007
Thank you. I'm also pleased to support today's proposal. I know it is the product of much hard work and diplomacy on the part of many staff members throughout the agency, in particular, the Division of Corporation Finance, the Office of the Chief Accountant, the Office of International Affairs, the Office of the General Counsel and the Office of Economic Analysis. So again, thank you for all of the hard work.
For many years, issuers and regulators in Europe and Asia have requested, rather strongly at times, that the SEC eliminate the U.S. GAAP reconciliation requirement for foreign private issuers. This has been a subject that I also have frequently encountered in my five years as a Commissioner here at the SEC, in my international duties. I'm happy to say that today, we are almost at the end of the road in this regard. These proposed rules, once again, demonstrate that the SEC is committed to facilitating the raising of capital in the U.S. by foreign issuers. Certainly, the SEC is also busily moving our markets into an integrated, global economy to the maximum extent possible — all consistent with protecting U.S. investors. This move toward elimination of reconciliation is just the latest step of this overall process. It follows in the footsteps of other rules designed to achieve similar goals: for example, our recent rules easing the ability of foreign private issuers to deregister and delist from the U.S., and our recent guidance regarding SOX 404, which we believe will help substantially reduce issuer costs. And, as we discussed at one of our many recent roundtables, I also hope that we will be proposing rules this year with respect to mutual recognition. I believe that all of these rules — separately, but especially together — maintain our U.S. market's friendliness to foreign issuers who wish to raise capital in the U.S.
There are those who have raised doubts and expressed concerns that elimination of the reconciliation requirement will remove the incentive for convergence between IFRS and U.S. GAAP. This would obviously make it more difficult to achieve the ultimate goal of having one set of globally accepted accounting principles. While I recognize that this is a concern, and I'm interested in what commenters have to say on this topic, I do not subscribe to this view. I believe that there are huge benefits of convergence. Both U.S. GAAP and IFRS as promulgated by the IASB will both be in wide use for years to come. Thus, it is in nobody's interest to ease up on the throttle of convergence. The need for the IASB and the FASB to essentially create a harmonization of all new accounting standards will remain, and I believe that this will ensure that new accounting standards will be reasonably converged, if not substantially identical. Obviously, significant issues remain, such as accounting for derivatives, fair value accounting for financial instruments, the potential for carve outs, and many others. On all of these issues, I encourage the ongoing transatlantic and transpacific dialogues and the convergence projects of the IASB and the FASB to continue to resolve and create converged standards.
That said, there are still issues that must be resolved. But these are bumps on the road. They are not major barriers to accomplishing the objectives of this proposal. In particular, we would like to see more filings containing financial statements and auditor's reports with respect to IFRS as published by the IASB, and not IFRS as promulgated by a specific jurisdiction. Our promise was always predicated on this — elimination of reconciliation for a single IFRS, not a multitude of them. The long-term goal is one set of accounting standards, not many. But I hope and think that this is an issue that can be readily worked out with the auditors and with foreign private issuers. IFRS as promulgated by the IASB seems to allow for some jurisdictional variants and still be consistent with IFRS as published by the IASB. But in such cases — and to be accepted in the U.S. without reconciliation — the financial statements and auditor's report should comply with and opine on both. Hopefully, this will not be a problem. Based on these goals, I think it is also fair to expect that U.S. GAAP, as converged with IFRS through the IASB and FASB projects, will not need reconciliation into IFRS in Europe or in other countries.
We've all read the Roadmap. Today's proposal is an important destination on that Roadmap. Separately, there is another important roadmap that needs to be worked on. That is the one in which we seek to converge — again, consistent with investor protection — the PCAOB auditing standards and U.S. GAAS with ISAs, the international standards of auditing. There should be no doubt as to what is acceptable for auditing standards, to ensure investors of the proper use of IFRS and US GAAP.
So, I have just a few questions. Do we worry that in Europe, in particular, there may be many different versions of IFRS? Is the world going to have U.S. GAAP and IFRS for the foreseeable future?
I again want to congratulate everyone who has participated and worked on these rules. This is a very significant milestone, and it once again demonstrates that our agency is committed to facilitating cross-border transactions and capital formation by foreign issuers in the U.S. This is good for U.S. investors and our U.S. economy, and it also helps contribute to the economies of other countries around the world.