I 22
N° 509

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

Brussels, 14 June 2000

Subject : File no S7-04-00

Dear Sir,

The EBF represents the interests of 3,000 banks in the 15 Member States of the European Union and in Iceland, Norway and Switzerland, with total assets of more than euro 10,000 billion.

You will find attached the EBF comments on the SEC Concept Release concerning International Accounting Standards.

Yours sincerely,

Nikolaus BÖMCKE

Enclosure : 1

I 22

- Position of the European Banking Federation -

  1. We believe the core set of International Accounting Standards covers the key topics on recognition, measurement and disclosure of transactions encountered by the generality of companies. They do not, however, deal with a number of specialised industry issues.

  2. Specialised accounting principles should conform to the general rules deriving from IAS. Therefore, any reconciliation to US GAAP would only lead to confusion and the resulting financial statements would be difficult to interpret owing to the mix of criteria.

  3. No. The core set of standards is reasonably developed on the fundamental principles of recognition, measurement and disclosure.

  4. In our view IASs are of sufficiently high standard to be used without reconciliation to US GAAP.

  5. This is an issue for US investors and analysts. Where differences exist we believe a further attempt should be made at harmonisation.

  6. This is an issue for US companies.

  7. We are not in a position to make value judgements comparing reporting under US GAAP with that under IASs.

  8. IASs include enough detail to permit consistent application. No body of standards can be so prescriptive as to cover any eventuality. We prefer an approach based on specific principles supported by professional preparers and auditors and supplemented by an effective body to issue formal interpretations in a timely fashion.

  9. Our experience with national standards leads us to believe that efforts by preparers and auditors together with the influence of users of financial statements are key factors in promoting consistent interpretation of standards. Once IASs gain widespread acceptance the growing interest and expertise in their application will accelerate the elimination of any existing inconsistencies of application.

  10. The list of projects for new IASs or those to be revised broadly encompass the significant omissions or shortfalls existing in the rules already issued.

  11. We are not aware of any significant variations in the application of lASs. Should they exist we would expect them to come to light as part of the audit process.

  12. The predominance of global firms providing audit services to large listed companies will considerably assist consistent application of IASs.

  13. The SIC has provided useful interpretation guidance in a timely manner. By definition, as IASs assume a greater significance the IASC will need to consider whether this aspect of its work requires greater resource.

  14. The characteristics identified are key to the IASC becoming an authoritative and respected global accounting standard setter.

  15. Practically all companies recognised by the SEC are audited by international firms of recognised prestige, whose practice are in line with US standards and international recommendations.

  16. The question raises the issue of whether the change in status of IASs merits an equivalent review of international auditing standards.

  17. Expertise in the application of IASs is growing and can be expected to grow further once a timetable for the adoption of IASs is agreed.

  18. The SIC provides the means of resolving conflicting practices in existence. We would expect its activity to increase as IASs come to assume a new relevance and believe the SEC should seek to resolve difficulties with standards through the SIC rather than through domestic guidance.

  19. We see no correlation between the adoption of IASs and the ability to take effective enforcement action.

  20. Preparers would not expect the SEC to conduct routine inspections of auditors' working papers and would expect such inspection only to take place on a basis compatible with European law where there was an identifiable suspicion that auditing standards had not been met.

  21. Insofar as company accounting systems are not specifically designed to evaluate the effects of accounting differences with US GAAP, reconciliation will inevitably be done on the basis of estimations and approximations, and therefore the quality will never be similar to that of the primary financial statements. However, the supervision and review processes (internal and external) ensure an adequate degree or reliability, at high personnel cost.

    Moreover, the use of such information is extremely questionable, insofar as experience indicates that investors place little importance in the results of such reconciliations, even in extreme cases of significant changes in net wealth and reported profits owing to the adjustments to US GAAP.

  22. The objective surely must be to agree and accept IASs without reconciliation. Where, by extreme exception, this is not deemed possible, we believe that any distinct requirements should take the form of note disclosure and not bottom line reconciliation.

  23. Please refer to our answer to question 22.

  24. Yes.

  25. Reconciliation is preferable to retrospective application.

  26. The accounting profession is better placed to comment on this.