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February

EC urges US SEC to replace US GAAP with IAS

21 Feb 2002

In an interview with the Financial Times, Frits Bolkestein, European internal market commissioner, urged the US SEC to replace the 'cookery book' approach of US GAAP with the more 'substance over form' approach of IAS.

The Commission plans to require listed European Companies to Use IAS by 2005. Mr. Bolkestein expressed concern about what he felt is a rule-book approach of US GAAP: "You tick the boxes and out come the answers," he is quoted as saying. "Having rules is a good thing, but having rigid rules is not the best thing.... American investors are no more protected than European investors." At a minimum, he will ask the SEC to allow US-listed European companies to submit IAS financial statements without reconciliation to US GAAP. Click for the full Financial Times Story.

 

Notes from the 18-19 February SAC meeting

20 Feb 2002

We have posted Notes from the IASB meeting with the Standards Advisory Council on 18-19 February 2002. .

Notes from the 19-22 February IASB meeting

20 Feb 2002

We have posted notes from the first day of the IASB Meeting on 19-22 February 2002.

That session covered the Improvements Project, specifically issues relating to IAS 19, 21, 27, and 28.

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FT urges IASB approach to accounting standards

19 Feb 2002

The Financial Times has been running a series of special reports, After Enron - Agenda for Reform 2002.

One report, Honest Numbers Require Robust Rules and Policing, suggests replacing US national GAAP with IAS:

The reform that is needed, therefore, leads away from US Generally Accepted Accounting Principles' very detailed prescriptions towards the approach of the new standards devised by the International Accounting Standards Board. The IASB approach, which emphasises substance over form, has been treated with mild suspicion in the US. But the Enron case, by revealing the limits of the prescriptive approach, has given impetus to the case for replacing national standards with IASB ones, or at least with rules sympathetic to the IASB framework.

Fast track for Improvements Exposure Draft

19 Feb 2002

At its meeting with the Standards Advisory Council yesterday, the IASB indicated that it intends to vote on all the proposals for the Improvements Project at its February Board meeting.

The Board expects to publish an Exposure Draft including proposals for all 14 standards addressed in the project in April 2002, with a 90-day comment period. It intends to issue revised standards in December 2002, effective for financial periods beginning on or after 1 January 2003. Revisions to IAS 32 and IAS 39 are a separate project, not part of the Improvements Project.

US Senate hearings on accounting continue 26 February

18 Feb 2002

Former SEC Chief Accountants Walter P.

Schuetze (1992-95), Michael H. Sutton (1995-98), and Lynn E. Turner (1998-2001) will testify, as will former FASB Chairman Dennis R. Beresford (1987-97). Click for Hearing Information.

Accounting/auditing reform legislation introduced in US Congress

17 Feb 2002

Legislation known as the Corporate and Auditing Accountability, Responsibility, and Transparency Act (H.R.3763) has been introduced in the US Congress.

The bill would:
  • Establish a public regulatory organisation to oversee the auditing profession
  • Prohibit auditors from offering financial information system design or implementation services or internal audit services to audit clients
  • Require 'real time' disclosure of off-balance sheet financing, relationships with unconsolidated entities, and insider trading
  • Recommend that the SEC require management to explain, where material, its choice of accounting principles from among the different available accounting principles, the judgments made in their application, and the likelihood of materially different reported results if different assumptions of conditions were to prevail
  • Increase the SEC's budget from $480 million to $700 million
  • Require the SEC to conduct thorough reviews of the audits of the largest and most widely traded companies
  • Require the SEC to consider ways to reduce financial analysts' conflicts of interest.
Click for Press Release (PDF 52k). Click for Full Text of H.R. 3763 (PDF 139k).

Additional item for agenda of upcoming IASB meeting

16 Feb 2002

IASB will discuss proposed improvements to IAS 21, The Effects of Changes in Foreign Exchange Rates, at its meeting on 19 February.

That item has been added to the previously announced Agenda for the 19-22 February 2002 meeting.

Support for IASB from former SEC Chairmen

15 Feb 2002

Five former SEC Chairmen (Roderick M. Hills, Harold M. Williams, David Ruder, Richard C. Breeden, and Arthur Levitt, Jr.) testified at the US Congressional committee hearing on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies".

You can download each Chairman's statement:

Opening Statements of Committee Members:

Among the points made by the former SEC Chairmen:

  • Chairmen Breeden and Levitt supported giving the SEC the authority to adopt other standards when it finds shortcomings in FASB's standards. Chairman Breeden said: "the SEC should be able to adopt International Accounting Standards or standards drafted by other authorities, as well as its own staff, where it finds that FASB standards are not in the interest of investors. The FASB is too slow, standards are too complex, and it is not sufficiently accountable for action."
  • In his oral testimony, Chairman Levitt praised IASB's willingness to tackle expense recognition for stock options.
  • Chairman Breeden expressed a preference for IASB's "Ten Commandments" approach to principle-based standards in contrast to FASB's "cookbook" approach.
  • Chairman Williams noted: "Rule making itself is very difficult particularly as financial activity and economic transactions become increasingly complicated and sophisticated. For example, the FASB has engaged for a number of years in an effort to create a clear standard for disclosing off-the-books transactions and special purpose entities. They have not been able to come up with a rule acceptable to the business community and the profession. That acceptability should not ultimately be the determining factor."

Tweedie and Volcker testify to US Congress

15 Feb 2002

IASB Chairman Sir David Tweedie and IASC Foundation Chairman Paul Volcker testified at a hearing conducted by the US Senate Committee on Banking, Housing, and Urban Affairs on 14 February 2002 on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies: International Accounting Standards and Necessary Reforms to Improve Financial Reporting". Excerpts from Sir David's statement. Click for Full Text (PDF 108k): I do not plan to comment on specific accounting and auditing issues surrounding Enron, although there are many.

None of us knows enough about the specifics of the transactions, the information available to the auditors, and the judgements involved to form a solid professional conclusion. As we learn more, we may find the U.S. accounting standards should be improved. If so, we plan to learn from this case and to make sure that international accounting standards do not have similar problems....

Why have an international standard setter?

  • First, there is a recognised and growing need for international accounting standards.
  • Second, no individual standard setter has a monopoly on the best solutions to accounting problems.
  • Third, no national standard setter is in a position to set accounting standards that can gain acceptance around the world.
  • Lastly, there are many areas of financial reporting in which a national standard setter finds it difficult to act alone.

Excerpts from Mr. Volcker's statement. Click for Full Text (PDF 39k):

We have had too many restatements of earnings, too many doubts about 'pro forma' earnings, too many sudden charges of billions of dollars to 'good will', too many perceived auditing failures accompanying bankruptcies to make us at all comfortable. To the contrary, it has become clear that some fundamental changes and reforms will be required to provide assurance that our financial reporting will be accurate, transparent, and meaningful....

I think of good financial reporting as resting on three pillars:

  • Accounting standards setting out with clarity logically consistent and comprehensive 'rules of the game' that reasonably reflect underlying economic reality.
  • Accounting and auditing practices and policies able to translate those standards into accurate, understandable, and timely reports by individual public companies.
  • A legislative and regulatory framework capable of providing and maintaining needed discipline.

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