November 01, 2007
IFRS Gaining Momentum in North America
With the SEC's efforts to keep and attract new foreign listings, the interest in not only allowing foreign filers to use International Financial Reporting Standards (IFRS) to file their financial statements.
October 9, 2007 Christopher Cox, Chairman of the SEC, spoke to the 2007 US-EU Corporate Governance Conference at SEC headquarters.
Excerpts from the speech are here:
"Today, when investors look across the Atlantic, it is possible to see bonds between our markets that are stronger than ever before in history. The combined NYSE and Euronext comprise a transatlantic company that operates six different exchanges catering to many different types of issuers. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have for years been working on a convergence project to eliminate needless regulatory friction between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles. And that has made possible the SEC's announcement that we are taking the next steps on our Roadmap to eliminate the reconciliation requirement in the United States, and that we are even considering allowing U.S. issuers to use IFRS."
He goes on to say:
"The European Union itself is a vivid demonstration of why differences in markets can sometimes justify differences in regulation. In the United Kingdom and the Netherlands, for example, ownership of most public companies is widely diffused. There are few, if any, shareholders that own a controlling block of a public company's shares. In Germany, many public companies have controlling shareholders. Traditionally, those have been large banks. In Italy, the controlling shareholders are often entrepreneurial families. Even in markets that seem similar, we often see differences that profoundly affect how our markets work.
For example, like the United States, the United Kingdom has many companies owned by large numbers of shareholders, none of whom owns enough to constitute control. But unlike the United States, the UK market historically has not had a very large retail component. Over the past few decades, the investors that predominate are not retail investors but large financial institutions, all located within a few blocks of each other in the City of London."
Regarding IFRS in particular, Cox notes:
" Let's consider a concrete example: the move that's afoot throughout Europe and around the world for a truly global set of high quality accounting standards. The vision behind International Financial Reporting Standards is that a single worldwide set of standards will permit investors around the world to benefit from a high level of comparability and a consistently high level of quality in financial reporting. It would eliminate the need for investors and analysts to try to understand financial statements that are prepared using the different accounting standards of many jurisdictions.
It would eliminate one of the significant barriers to raising capital outside one's borders. And it would provide a globally enforceable check on corporate governance practices, including executive compensation — where lately the SEC has done so much work.
IFRS promises to integrate our markets.
But that promise is jeopardized if IFRS isn't applied faithfully and consistently across jurisdictions. Regulators must beware the impulse to develop nationally-tailored versions of IFRS, and we must cooperate with one another in implementing a set of standards that is faithfully and consistently applied."
It will be interesting to see how much convergence there will be among the current IFRS "flavors" around the world. Public companies want convergence of accounting standards, but what standard is the right one. And if IFRS is the standard to converge with: then what IFRS? UK, Germany, Poland, South Africa, etc.
This will be an interesting journey to say the least. Canada is working toward IFRS conversion by 2011. US registrants will most likely have choices much sooner than that. These are huge changes for public companies, investors and the very educational institutions which must provide graduates for this upcoming challenge. It is a worthy goal but much more formidable than many realize.
According to an article by FEI Canada, today: The following issues are ones where IFRS will cause huge upheaval:
"Key differences exist in:
October 9, 2007 Christopher Cox, Chairman of the SEC, spoke to the 2007 US-EU Corporate Governance Conference at SEC headquarters.
Excerpts from the speech are here:
"Today, when investors look across the Atlantic, it is possible to see bonds between our markets that are stronger than ever before in history. The combined NYSE and Euronext comprise a transatlantic company that operates six different exchanges catering to many different types of issuers. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have for years been working on a convergence project to eliminate needless regulatory friction between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles. And that has made possible the SEC's announcement that we are taking the next steps on our Roadmap to eliminate the reconciliation requirement in the United States, and that we are even considering allowing U.S. issuers to use IFRS."
He goes on to say:
"The European Union itself is a vivid demonstration of why differences in markets can sometimes justify differences in regulation. In the United Kingdom and the Netherlands, for example, ownership of most public companies is widely diffused. There are few, if any, shareholders that own a controlling block of a public company's shares. In Germany, many public companies have controlling shareholders. Traditionally, those have been large banks. In Italy, the controlling shareholders are often entrepreneurial families. Even in markets that seem similar, we often see differences that profoundly affect how our markets work.
For example, like the United States, the United Kingdom has many companies owned by large numbers of shareholders, none of whom owns enough to constitute control. But unlike the United States, the UK market historically has not had a very large retail component. Over the past few decades, the investors that predominate are not retail investors but large financial institutions, all located within a few blocks of each other in the City of London."
Regarding IFRS in particular, Cox notes:
" Let's consider a concrete example: the move that's afoot throughout Europe and around the world for a truly global set of high quality accounting standards. The vision behind International Financial Reporting Standards is that a single worldwide set of standards will permit investors around the world to benefit from a high level of comparability and a consistently high level of quality in financial reporting. It would eliminate the need for investors and analysts to try to understand financial statements that are prepared using the different accounting standards of many jurisdictions.
It would eliminate one of the significant barriers to raising capital outside one's borders. And it would provide a globally enforceable check on corporate governance practices, including executive compensation — where lately the SEC has done so much work.
IFRS promises to integrate our markets.
But that promise is jeopardized if IFRS isn't applied faithfully and consistently across jurisdictions. Regulators must beware the impulse to develop nationally-tailored versions of IFRS, and we must cooperate with one another in implementing a set of standards that is faithfully and consistently applied."
It will be interesting to see how much convergence there will be among the current IFRS "flavors" around the world. Public companies want convergence of accounting standards, but what standard is the right one. And if IFRS is the standard to converge with: then what IFRS? UK, Germany, Poland, South Africa, etc.
This will be an interesting journey to say the least. Canada is working toward IFRS conversion by 2011. US registrants will most likely have choices much sooner than that. These are huge changes for public companies, investors and the very educational institutions which must provide graduates for this upcoming challenge. It is a worthy goal but much more formidable than many realize.
According to an article by FEI Canada, today: The following issues are ones where IFRS will cause huge upheaval:
"Key differences exist in:
- insurance contracts,
- financial instruments,
- full cost versus successful efforts,
- de-recognition of financial assets and liabilities,
- consolidation - variable interest entities and special purpose entities,
- stock-based compensation,
- impairment of non-financial assets,
- employee future benefits, and
- income taxes."
This will be an interesting ride. Hold on to your seats.
