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

Paris, May 31, 2000

SEC Concept Release : International Accounting Standards

Dear Sir,

We have pleasure in submitting to you our comments on the SEC Concept Release.

Despite the fact that we publish our accounts under French gaaps, we are very concerned by improvements made to IAS these last years and by your endeavour to facilitate or even accept the use of IAS in the financial markets of the United States of America for two main reasons :

  • We are aware of the European financial market wish to expand the use of IAS in order to better compare information published by companies listed in Europe ;

  • We are now preparing our listing on the New York Stock Exchange and have a better understanding of the constraints of a double accounting reference.

  • The differences between U.S. GAAP and IAS have been reduced to a large extent over the last few years. Both standards are perceived as high quality standards in the international financial markets, providing full, transparent, reliable and comparable information for the investors. We hope that the comments attached will be helpful; please do not hesitate to contact us if you would like additional information.

    Christelle Martin
    (Senior Vice President, Accounting)


    1. Are the Core Standards Sufficiently Comprehensive?

    Q1. 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?

    A1. We consider that IAS provide a sufficient comprehensive framework because they address all the main recognition, measurement and disclosures issues. Furthermore with the revision and introduction of new standards most of the issues have now been solved. Thus deferred taxes, R&D, financial instruments, as well as retirement benefit assets and liabilities are now subject to well defined rules that agree with the conceptual framework. IAS, as they stand, provide a useful basis for both internal and external reporting.

    Q2. 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? Which approach would produce the most meaningful primary financial statements? 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?

    A2. U.S. GAAP are no doubt more advanced in solving accounting issues for specialised industries (insurance, mining, oil companies, etc). Nevertheless they have been written exclusively in the U.S. context and we consider it would lack conceptual consistency and being therefore less meaningful to use them for specialised industries while IAS are used as a basis for the financial statements. IASC will no doubt continue its work of addressing such issues as it does for insurance, agriculture and extractive industries.

    Q3. Are there any additional topics that need to be addressed in order to provide a comprehensive set of standards?

    A3. No, as the list of core standards has been prepared by IOSCO we think that it provides a comprehensive set of standards. We think that the IASC Standards are of sufficiently high quality and that their quality could only be higher in the future as IASC is restructuring .
    However , additionnal topics always need to be addressed in any comprehensive set of standards , for exemple stock-based compensation should be addressed by IASC .
    You should also consider that although a standard setter produce high quality standards it may experience difficulties with one particular standard . For exemple IASC is experiencing difficulties with IAS 39 , as FASB with FAS 133 .It is important to note that the more the standards become complex the more their application becomes costly to the enterprises. Sometimes additional complexity does not add value to the management of the enterprises or to the investors. The IAS are clear and consistent with their conceptual framework.

    2. Are the IASC standards of sufficiently high quality?

    Q4. 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? Please provide us with your experience in using, auditing or analyzing the application of such standards....

    A4. We consider that the IAS are of sufficiently high quality to be used in the U.S. without any reconciliation. We believe that investors that buy securities on the European stock exchanges are as sophisticated as those in the United States. If such investors are satisfied with IAS, we do not see any reason why it would not be the case of U.S. investors. A reconciliation between IAS and U.S. GAAP is not necessarily a guarantee of "high quality". We consider that differences, which remain between IAS and U.S. GAAP, are not important enough so that a U.S. investor would take a wrong decision in the absence of a reconciliation. We think that the concerns raised by the SEC ( in the release) are minor and could be easily solved .In regards of the ability to override an IAS we think that the consequences should not be emphasized because in view of conditions of application ( refer to § 16,17 and 18 of IAS 1 ) the use of the override possibility should be extremely rare .
    We agree that compliance with both black and gray letter sections of the IASC Standards should be regarded as necessary and we feel that this issue should be easily addressed by IASC as both black and gray sections are approved by the IASC board .We also support the issuance of Basis for Conclusions .

    Q5. What are the important differences between U.S. GAAP and the IASC standards? Will any of these differences affect the usefulness of a foreign issuer's financial information reporting package?

    A5. We do not figure any important differences which may exist between US gaap and IAS standards and affect the usefulness of a foreign issuer's financial information reporting package . Some very important american investors are « present » on the European stock markets on which financial information under US gaap is not available .While we agree that high quality accounting standards should provide information that is useful for investors, lenders and creditors, such information should also reflect the substance of the transactions and management decisions. In this context, we consider that IAS 14 (rev 97) and FAS 131 that require the presentation of segmental information in the way it is submitted to management and directors is the type of information that is beneficial to the users and that also allows the preparers to implement without undue problems.
    We notice that, with the laudable purpose to provide comparable information and to avoid bias, U.S. GAAP generally require more comparative thresholds than IAS, with the result that such thresholds sometimes do not reflect the substance of the transactions. Some examples taken from the differences between IAS and U.S. GAAP related to recognition and measurement are as follows:

    • We consider that the possibility of having useful lives in excess of 20 (or 40) years, especially for intangibles sometimes reflect the substance of the transaction. We think, in particular, of some concessions to operate infrastructures that may be granted for durations in excess of the above fixed lives. Nevertheless we agree that an unlimited useful life for goodwill does not reflect the reality, as this item is normally residual.


    A5. (continued)

    • Also the basis adjustment in IAS 39 reflects the economic behaviour of an enterprise. If the enterprise has entered into a derivative instrument to fix the price of an asset we consider that the fair value of the asset is what the enterprise will pay at the maturity of the derivative and not what it would have hypothetically paid if it had not acquired the derivative.

    • Finally we consider that leasing is a good example where a threshold can be abused and does not provide a useful information. Under FAS 13, it is really easy to construct lease agreements that fail the quantitative tests for capitalisation whereas they are in substance capital leases.

    As far as the disclosures are concerned, we do not consider that disclosures in excess of what IAS currently require would result in a better information. As the objectives of financial statements whether prepared under US GAAP or IASC standards are " to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions" we feel that any significant event should be reported in the financial statements (Statements or disclosures).

    Q6. 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?

    A6. We do not consider that the acceptance of IAS without reconciliation would put the U.S. companies at a disadvantage. We refute the presumption that IAS are less transparent than U.S. GAAP. IAS are equally transparent as U.S. GAAP and provide a sound basis for allowing the investors to project future cash flows. As of today we feel that the disadvantage could be at foreign companies using IAS as some IAS standards (IAS 22, IAS 36) have negative impacts on results compared to US gaap.

    Q7. Based on your experience, are there specific aspects of any IASC standards that you believe result in better or poorer financial reporting ... than financial reporting prepared using U.S. GAAP?

    A7. We do not consider IAS as better or worse than U.S. GAAP. Nevertheless we consider that focusing on the "substance over form" principle rather than on quantitative thresholds results in more transparent and consistent information. We even feel that some IAS standards such as Intangibles or Impairment of Assets do provide analysts with more valuable information on cash-flow projections.

    3. Can IASs be rigorously interpreted and applied
    a) The Experience to Date

    Q8. Is the level of guidance provided in IASC standards sufficient to result in a rigorous and consistent application? Do the IASC standards provide sufficient guidance to ensure consistent, comparable and transparent reporting of similar transactions by different enterprises? Why or why not?

    Q9. 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.

    A8 and A9. We consider that the level of guidance provided in the IAS is sufficient to enable the preparers to rigorously comply with such standards. We also concur with the fact that all the text of the standards is binding and not only the "black" letterhead that is provided for convenience only and that is by no means the evidence of a hierarchy in the requirements. IAS also form a sound basis for auditing the accounts.
    We do not consider that an additional mechanism or structure should be put in place apart form the existing IASC Standing Interpretation Committee (SIC). Nevertheless, professional discussion groups like the IAS Forum, where preparers and their auditors discuss implementation issues, also greatly help to obtain a consistent application of IAS. There are similar groups in France and at European level (European Round Table of Industrialists).
    Thus, the first step of the interpretation falls of course on the preparers and their auditors. Then, the standard setters (the SIC in the case of the IASC) also give additional guidance but this interpretation body should not create new requirements (please see also under question 13).

    Q10. In your experience with current IASC standards, what application and interpretation practice issues have you identified? Are these issues that have been addressed by new or revised standards issued in the core standards project?

    A10. We have identified application and interpretation practice issues with IAS 39 . IASC has appointed in March 2000 a Committee to develop guidance on IAS 39.On May 8, 2000 that Committee issued 77 questions and answers for comments .

    Q11. Is there significant variation in the way enterprises apply the current IASC standards? If so, in what areas does this occur?

    A11. We are not aware of significant differences in the way companies apply IAS apart from those resulting from allowed alternative treatments and which we do not consider as important. Please see also our answer to question 3.

    b) The Need for a Financial Reporting Infrastructure

    Q12. After considering the issues discussed in (i) through (iv) ..., 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?

    A12. We consider that the key "authority" to ensure a consistent application are the company's auditors with their professional expertise as independent observers. Then comes the SIC as stated above in question 9.
    Security regulations also play an important role but their procedures should be kept in proportion from a social cost-effectiveness point of view. We also consider that the enforcement issues should not be left in the hands of the security regulators of one country. Instead there should be a co-ordination between the security regulators of various countries.

    Q13. What has been your experience with the effectiveness of the SIC in reducing inconsistent interpretations and applications of IASC standards? Has the SIC been effective at identifying areas where interpretative guidance is necessary. Have 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?

    A13. As stated above, we welcome the role and the efficient action of the SIC. However, we consider that the role of this committee should be limited in giving additional guidance. Should the SIC identify an issue that might warrant changing a standard, then such issue would have to go into the regular due process of the modification of the standards. Apart from that precision we consider that no additional steps are necessary regarding the role of that body.

    Q14. Do you believe that we should condition the acceptance of the IASC standards on the ability of the IASC to restructure itself successfully based on the above characteristics? Why or why not?

    A14. The actual IASC structure is already a high quality standard setter ( based on the characteristics listed in the release ). IASC has considered structural changes in order to respond to the major changes in the environment . As stated by SEC Chief Accountant ( Nov 17, 1999) , « final acceptance of the restructured IASC will depend on the selection of high quality Trustees and Board members . However ,I believe this structure represents the best opportunity to realize that goal . » Considering the position of the SEC in the Nominating committee we are confident in the quality of the Trustees and consequently of the board members .

    Q15. 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 other ways we can ensure the rigorous implementation of IASC standards for cross-border filings in the United States? If so, what are they?

    A15. As stated in question 12 above, the quality control falls principally on the company's auditors. The issue on how they should perform the quality control and their practical expertise should be dealt with audit firms. Worldwide audit firms are able to « audit » US gaap we do not see any why they would not be able to « audit » IAS standards with a similar quality .

    Q16. 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?

    A16. We consider that the question of worldwide audit and professional standards should be treated as a separate issue independent of judging the acceptability or not of IAS.

    Q17. 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 or auditors certifying financial statements using those standards?

    A17. We consider that the expertise in audit firms we deal with allows a rigorous interpretation of IAS, we understand that these firms have implemented dedicated task forces who have developed technical expertise on IAS. The French qualifications equivalent to CPA and CMA have significant elements on IAS in their syllabus. Training within and outside the companies also increases expertise and we are implementing that in our Group.

    Q18. 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?

    A18. It is difficult to evaluate the effectiveness of certain of the IASC standards at this stage as direct use of IASC standards in developed capital markets is limited and as a number of the new or revised standards may not have been implemented yet. However, we believe that IASC, Sic and regulators have the capacity to provide sufficient guidance to ensure consistent, comparable and transparent reporting of similar transactions by different enterprises. IASC is even restructuring in order to enhance its capacity to meet this objective .
    Anyway any accounting standard ( even as detailed as US gaap) always needs to be interpretated and regulated .

    Q19. 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?

    A19. A further acceptance of IAS would neither impair nor enhance the ability of the SEC to take enforcement actions in the USA.

    Q20. 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 that it relied on auditors, working papers, or information outside the United States, the auditor will make the working papers and testimony available through an agent appointed for service of process?

    A20. We consider that the access to foreign working papers is totally irrelevant to the issue of acceptance of the IAS in the USA. Any attempt from the SEC to extend its jurisdiction further into foreign sovereign areas is unlikely to enhance the attraction of the U.S. capital markets to foreign issuers.


    Q21. 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.

    A21. The usefulness of the reconciliation is only limited to facilitate a comparison between financial statements prepared under US Gaap and those under IAS. Besides the cost in time and money for preparing and auditing the reconciliation, there is a risk of misunderstanding by readers of the financial statements being presented with two different true and fair results of the same company. As accounting standards are not the result of any intrinsic reality but of certain assumptions, it is far better to present in a consistent way only one net result and one equity amount for the same company.

    Q22. 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?

    A22. We consider reconciliation should not be required any more. If such reconciliation disclosure was kept, it would make sense to limit the disclosure of differences depending on which participants of the capital market the issuer wants to reach. For example, it would make sense to tailor the disclosure requirements in accordance with the transaction involved as an investor will have different needs when considering a new listing of equity or a debt offering of an established company.

    Q23. 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)?

    A23. As far as the reconciliation itself is concerned, the work to produce a bottom line figure is the same whether its components are disclosed or not.

    Q24. Should any continuing need for reconciliation be assessed periodically, based on an assessment of the quality of the IASC standards?
    Q25. 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 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?

    A24 and A25. As stated above, we do not consider that, now that the core standards programme has been completed, a reconciliation between IAS and U.S. GAAP makes sense from an information of the investors' standpoint. On the basis of practicability you should not require retroactive application and you should accept the transition dispositions which are included in the IAS standards. IAS disclosures requirements are intended to provide sufficient information.

    Q26. 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 affiliate of the accounting firm that conducts the audit?

    A26. We do not agree that a reconciliation changes the way auditors approach financial statements. The reconciliation only means extra work for both the auditors and the preparers as well as additional costs for the latter.