PricewaterhouseCoopers LLP
500 Campus Drive
P.O. Box 805
Florham Park, NJ 07932
Telephone (973) 236 7000
Facsimile (973) 236 7200

May 23, 2000

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

Dear Mr. Katz:

PricewaterhouseCoopers (PwC) appreciates the opportunity to comment on the SEC's Concept Release, International Accounting Standards (the "Concept Release"). This letter (1) offers our views on the SEC's acceptance of financial statements that have been prepared under international accounting standards (IAS) without being reconciled to United States' generally accepted accounting principles (U.S. GAAP) and (2) expands on our call for urgent action in developing a global-capital-markets regime and global accounting standards.

Acceptance of financial statements prepared under IAS without reconciliation to U.S. GAAP

The SEC's mandate is to protect U.S. investors through its regulatory framework and oversight of domestic securities markets. It has achieved this objective, in part, by requiring all companies that enter those markets to report key data in accordance with a single accounting framework - U.S. GAAP. We do not believe that a solid case has been presented for relaxing the reconciliation requirement. In recent years, U.S. markets have shown themselves to be significantly focused on a single figure of earnings. Bringing IAS into the domestic marketplace at this point means that there would be two (and quite different) measures of earnings, which is apt to lead to confusion.

Further, a "partial-acceptance approach" would not be a satisfactory solution and we would strongly object to such an approach. Full reconciliation makes measurement differences between IAS and U.S. GAAP apparent to U.S. investors. Partial acceptance would (1) limit comparability, (2) require investors to track "acceptance" status, and (3) make partially reconciled financial statements more difficult to interpret.

The urgent need for convergence to global accounting standards

Protection of the U.S. investor in the domestic markets is key. Nonetheless, we believe that protection of the U.S. investor when investing abroad must be made a far greater priority. Today's economic environment is increasingly global. Companies compete for capital investors in international capital markets. U.S. investors are increasingly at risk as a result of the investments they make, directly and indirectly, outside the United States. There is an urgent need to encourage the improvement and convergence of financial reporting standards across the world. Encouraging the development of one set of accounting standards that can be used globally will improve the financial reporting in many countries in which Americans invest. Currently, there are approximately 40 different accounting standards used in filings with the Commission and many more that are used by companies in which Americans invest, but are not registered with the Commission. The U.S. investor would be in a better position to evaluate investment decisions if these differences were eliminated and there was one set of global accounting standards. We strongly support the development and implementation of a high-quality, global accounting framework.

We believe that the International Accounting Standards Committee (IASC), with its new structure, is the best forum in which to create a comprehensive set of global accounting standards quickly. National standard setters should focus on working with and through the IASC to achieve a rapid convergence of accounting principles throughout the world. The Financial Accounting Standards Board (FASB) should take a leadership role in this process.

The development of global accounting standards will involve the convergence of different cultural approaches to accounting. Harmonization efforts will be best served by a concentration on principles rather than rules. A principles-based approach should include sufficient and reasonably detailed guidance to ensure consistent interpretation and application, and to enable appropriate compliance and enforcement efforts.

We have consistently expressed our concerns about the FASB's continued focus on narrowly defined topics within U.S. GAAP. We believe that the FASB should focus on the fundamental issues associated with harmonization and the overall financial reporting model. In our view, the FASB should limit new projects in order to steer available resources towards the development of global accounting standards that would apply in the United States.

We strongly believe that, in its oversight capacity for U.S. GAAP, the SEC should orient the FASB towards this goal. We believe that it should set a target date for eliminating the major differences between U.S. GAAP and IAS (which will involve amending both sets of standards).

The need for a suitable regulatory climate and global corporate governance standards

The principles-based approach to accounting standards that we advocate for the global marketplace should of course be supported by a mechanism that will ensure consistent regulatory enforcement and oversight. In addition, there needs to be a global corporate governance framework in place. The current absence of such mechanisms at a global level has tended to result in a divergence (rather than convergence) of financial reporting in practice.

The IASC will work towards getting the national standard setters to agree to the global standards. We believe that the SEC has a responsibility to take a leadership role in developing global regulatory and corporate governance mechanisms that will ensure that the market regulators take a consistent approach to enforcing the global framework. We believe that with such frameworks in place, IAS should be acceptable in all markets and to all regulators.

* * *

We have provided responses to the specific questions raised in the Concept Release in the attachment to this letter.

We appreciate the opportunity to express our views. If you have any questions regarding our comments, please contact Wayne Carnall (973-236-7233) or Dave Sharpe (973-236-7206).

PricewaterhouseCoopers LLP


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?

PwC has supported the International Accounting Standards Committee (IASC) in its efforts to develop a set of core standards and applauds it for completing the project. We believe that the core standards provide a framework for addressing fundamental accounting issues.

However, we urge the IASC to continue its effort to provide guidance on a broad range of industry issues and certain transactions that are currently not addressed by international accounting standards (IAS). For example, IAS do not provide specific guidance on the following types of transactions:

To account for such transactions, entities often look to other recognized accounting standards or industry guidance, as described by International Accounting Standard No. 1 (IAS 1) (revised), Presentation of Financial Statements. We recommend that the IASC address gaps in its current guidance. Although we believe that this should be pursued with some urgency, we recognize that the needs of constituents will evolve over time.

Q.2: 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?

We do not believe that non-U.S. companies should be required to refer to U.S. generally accepted accounting principles (GAAP) in this regard. We are concerned that such an approach could (1) contribute to the evolution of various sets of "modified IAS" and (2) result in the application of certain U.S. GAAP standards that are inconsistent with the IAS framework. In addition, non-U.S. companies should not be permitted to apply home-country standards related to specialized industry issues, unless such standards are consistent with the IAS framework.

In our view, IAS 1 established an appropriate protocol for referring to other applicable guidance regarding situations about which IAS is silent. We believe, however, that a preferable approach would be for the IASC to fill the gap by developing additional guidance, referring to existing national standards and industry guidance where appropriate.

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

While we believe that IAS currently represents a comprehensive basis of accounting, we think that a number of other areas must be addressed before entities can apply IAS without having to reconcile their financial statements to U.S. GAAP (as described in our response to question 1).

Q.4: 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. 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.

As discussed in our cover letter, we do not believe that at this time it is in the interests of U.S. investors to have entities apply IAS without having to reconcile their financial statements to U.S. GAAP. However, we strongly support the ultimate globalization of accounting standards.

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

The second edition of the FASB's IASC-U.S. Comparison Project provides a thorough listing of differences between IAS and U.S. GAAP. It should be noted that any analysis of differences in practice that has been based on a review of filings made with the SEC might be affected by the efforts of many IAS preparers to apply IAS in a manner that eliminates or minimizes the need to reconcile differences.

If IAS were accepted without a requirement that financial statements prepared under IAS be reconciled to U.S. GAAP, the differences between the two sets of standards would affect the degree to which a U.S. investor would find a foreign issuer's reporting package useful.

We do not believe that, within the United States, analysts have extensive experience with IAS. The U.S. GAAP reconciliation, therefore, continues to be of use to them.

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?

We do not support partial acceptance of IAS and believe that it could undermine the continuing development of IAS. When appropriate, IAS should be accepted in totality.

We are unable to say whether the market would provide a premium for U.S. GAAP reporting or discount IAS reporting in the absence of reconciliation. As a result, it is somewhat difficult to determine whether U.S. companies may potentially be at a competitive disadvantage. However, it can be generally concluded that U.S. GAAP-compliance costs may exceed those associated with IAS.

A fundamental element of financial reporting is comparability. If non-U.S. companies were to report under IAS without reconciling their financial statements with U.S. GAAP, U.S. investors would lose this comparability.

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?

Although we believe that certain IAS standards result in what is perceived to be better financial reporting than that which results under U.S. GAAP, we are strongly opposed to a "partial-acceptance approach" to IAS standards as we described in our cover letter.

Q.8: 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?

While there has been significant improvement in IAS over the past several years, we do not believe that IAS (in its current form) provides sufficient guidance that will result in a rigorous and consistent application and ensure consistent, comparable, and transparent reporting in all cases.

We believe that one of the reasons for this is the lack of detailed guidance related to certain provisions of IAS. Additionally, given the alternatives available in various IAS standards, similar transactions may be reported differently (as described in our response to question 11).

Further, while guidance is important to rigorous and consistent application, appropriate enforcement is also crucial. In the absence of a global regulatory mechanism, the application of standards suffers from different interpretations and practices among the diverse users of IAS.

In our opinion, there is a need for further guidance on difficult and emerging issues. We believe that the alternatives currently allowed in the standards should be eliminated by the restructured IASC.

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.

Our response covers four elements that we consider crucial to a consistent interpretation of IASC standards. Those elements are (1) the Standing Interpretations Committee, (2) a global corporate governance framework, (3) the efforts of the international auditing firms, and (4) the need for a global enforcement mechanism.

The Standing Interpretations Committee

In 1997, the IASC board approved the formation of the Standing Interpretations Committee (SIC). The SIC's purpose has been to consider, on a timely basis, accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance. Its focus has been within the context of existing IAS and the IASC framework. The SIC deals with issues of reasonably widespread importance and has made a positive contribution since its inception. Its interpretations cover both

We believe that both the IASC and the SIC are under-resourced and require additional professional staff if those organizations are to perform more effectively and build institutional knowledge. Accordingly, the IASC reorganization and funding are critical to the ongoing SIC processes. We believe that the SIC should streamline its existing process in order to produce interpretations more quickly.

Global Corporate Governance Framework

The primary responsibility for preparing and issuing complete and accurate financial statements lies with management. There must be a global corporate governance framework in place to provide independent oversight and monitoring of an entities external reporting.

The International Auditing Firms

We believe that professional-services firms have a responsibility to ensure that there is consistent interpretation and application of IAS on a worldwide basis. Firms should carry out this responsibility by

Although we have made significant progress at PwC with respect to such initiatives, our efforts continue.

Global Enforcement and Regulation

The IASC and international firms have made significant efforts to improve the consistency of the interpretation of IAS, although more work is needed. We believe that the major market regulators should make similar efforts to establish a global standard, as well as efforts to devise a consistent process for reviewing offering documents (and financial statements included in offering documents) that are prepared in accordance with IAS. This global process would reduce the risk of there being a number of regulators that interpret IAS differently.

Q.10: 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?

We have encountered certain application and interpretation issues, some of which have been addressed by the core-standards project.

The SIC has made significant efforts to address these issues (see question 9). We have seen the IASC also make tremendous strides in its completion of the core-standards project and the restructuring of the IASC board.

However, a number of the recently completed core standards are only now being implemented; it remains to be seen what implementation and application issues may arise.

There are also variations in how different enterprises apply the IAS standards from country to country. These variations result from cultural differences, which are often reflected in the ways that practices and interpretations of market regulators vary from one nation to the next.

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

The efforts of the IASC and SIC have contributed to a reduction in potential variations. However, because some of these efforts have recently been completed, it will take time for the full benefits to be realized. But yes, as we've already noted, the manner in which IAS standards are interpreted may vary (see question 10).

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?

Our vision of a sound, global, financial-reporting network would focus on the following:

We do not believe that all of these elements exist at this time and recognize that migration to the desired framework will require significant efforts on the part of each constituency involved.

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?

We believe that the SIC has been effective in reducing inconsistent interpretations and applications of IASC standards regarding the issues it has identified to date. We do not believe, however, that the SIC has addressed enough issues (see question 9).

Two specific examples of effective interpretive guidance issued by the SIC are (1) SIC 9, Business Combinations - Classification Either As Acquisitions or Unitings of Interests, and (2) SIC 12, Consolidation - Special Purpose Entities.

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

We support the IASC's restructuring efforts and note that both the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) have expressed support for the restructured IASC.

Given the proposed timeframe for the IASC's restructuring, we do not believe that the acceptance of IAS should be contingent upon the ability of the IASC to restructure itself. However, we recognize that there will probably be an opportunity to consider the results of the restructuring effort before the completion of the assessment process.

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

We believe that professional-services firms have a responsibility to

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, we do not believe that acceptance of IAS should be conditioned in the manner as suggested above. However, we support the harmonization of global auditing practices and the efforts of the International Federation of Accountants to develop international standards on auditing. We also support, as a short-term measure, the effort of the American Institute of Certified Public Accountants' (AICPA's) International Auditing Practices Committee to develop a bridging tool that can help auditors identify additional procedures that need to be performed under U.S. generally accepted auditing standards (GAAS) when reference is being made to international standards on auditing and to local standards. In addition, we support the work of the International Forum on Accountancy Development.

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 or auditors certifying financial statements using those standards?

While we recognize that the profession has a responsibility to provide its staff with continuing education, efforts in this area must be continually expanded. Further, we believe that additional programs for preparers should be developed independently of the audit firms.

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 have extensive experience with variations in how different regulators interpret IAS standards. Nonetheless, we think that, as IAS gains wider acceptance, there will certainly be the potential for an increasing incidence of such variations.

We believe that regulators should establish a global mechanism for minimizing the potential for inconsistent interpretation.

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 do not believe that further recognition of IAS would significantly affect the SEC's current enforcement powers.

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?

We do not believe that this issue is relevant in the context of the assessment process. As we discussed in our cover letter, an appropriate enforcement mechanism is a critical component of a global financial-reporting framework.

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.

Our experience has been that reconciliation has placed a greater focus on IAS / U.S. GAAP differences and the robustness of the application of IAS in the primary financial statements. We believe that the analyst community in the United States finds reconciliation and the additional disclosures required by U.S. GAAP useful.

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?

We do not believe that there should be any such distinctions.

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 IASC standards in their current form should be used in the U.S. capital markets at this time without having to reconcile their financial statements to U.S. GAAP.

The current reconciliation requirements call for both quantitative and qualitative information that is relevant to the users of the financial statements in the United States.

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

We believe that there should be a continual assessment of the existing requirement that IAS be reconciled to U.S. GAAP.

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?

We do not believe that there should be a retroactive application of the revised standards, as this would not be practical for preparers. However, we recognize that this may not be an issue depending on the timing of the assessment process.

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 affiliate of the accounting firm that conducts the audit?

We do not believe that the reconciliation requirement will affect the audit approach.