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US Chamber of Commerce report addresses IFRSs, ISAs

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15 Mar 2007

A bipartisan Commission on the Regulation of United States Capital Markets has released its report calling for streamlining regulation of the US capital markets, ensuring the viability of the auditing profession, and improving implementation of the Sarbanes-Oxley Act, among other recommendations.

The Commission was formed by the US Chamber of Commerce. Jim Copeland, former Deloitte CEO, is a member of the Commission. A number of the Commission's recommendations address convergence of US accounting and auditing standards with international standards and elimination of the SEC's reconciliation requirement for foreign registrants. Click for: The report and executive summary are posted with the kind permission of the US Chamber of Commerce. Here are the Commission's recommendations in the areas of international accounting and auditing:

Continued Convergence – Accounting

The Commission supports and encourages the efforts currently underway by the IASB and the U.S. FASB to converge IFRS and U.S. GAAP. Recognizing that IFRS are principles-based standards, the Commission recommends that foreign regulators give full consideration to the positions of their international counterparts regarding application and enforcement of IFRS, and seriously endeavor to avoid conflicting conclusions, such as the divergent standards applicable to derivatives.

At the same time, the Commission acknowledges and respects the authority of IFRS countries to sort out amongst themselves the agreeable method for interpreting IFRS principles. The SEC should not involve itself unnecessarily in this process. In this regard, the Commission applauds recent public statements by the SEC director of Corporate Finance that the SEC does not intend to become the arbiter of IFRS, and encourages the SEC to apply faithfully IFRIC interpretations of IFRS and to defer to home-country regulators where appropriate in reviewing financial statements filed by foreign private issuers under IFRS.

In addition, the Commission would further encourage the SEC to continue and redouble its efforts to work within the IOSCO toward the convergence of international disclosure standards, particularly with respect to financial disclosure. Modifying home-country disclosure to comply with similar but different SEC standards merely adds costs for foreign private issuers.

Continued Convergence – Auditing

The Commission also recommends that the SEC and PCAOB work with their international counterparts and the IAASB toward global convergence of U.S. and international auditing standards. The Commission strongly believes that it is imperative that international convergence of accounting standards be accompanied by convergence of audit standards.

The Commission believes that U.S. and international regulators and standards-setting bodies should accomplish accounting and auditing convergence within five years.

Elimination of the Reconciliation Requirement

The Commission also recommends that the SEC immediately consider an alternative approach for eliminating the reconciliation requirement. Specifically, the Commission proposes that the SEC establish a process by which it could, on a case-by-case basis, determine that a foreign country's accounting standards are sufficiently equivalent to U.S. GAAP that foreign companies from that jurisdiction would not be required to reconcile their financial statements to U.S. GAAP for SEC financial reporting purposes. The foreign country would be required to provide reciprocity for U.S. companies. As a potential model, the Commission suggests consideration of an approach similar to that set forth above in the subsection 'Substituted Compliance – Foreign Brokers and Exchanges'.

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