SEC Concept Release on International Accounting Standards

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01 Jan 2001

In February 2000, the United States Securities and Exchange Commission issued a Concept Release on International Accounting Standards (File No.S7-04-00).

The comment period closed on 23 May 2000. A key issue for the SEC is to determine under what conditions the Commission should "accept financial statements of foreign private issuers that are prepared using the standards promulgated by the International Accounting Standards Committee". One outcome may be issuance of a rule proposal for public comment, which may include modifications of the financial statement requirements for registration and reporting forms utilised by foreign private issuers, such as Forms F-1 and 20-F. Another outcome could be retention of the status quo.

The response of Deloitte Touche Tohmatsu to the SEC Concept Release on International Accounting Standards can be summarised as follows:


We believe the immediate requirement for high quality and transparency can be substantially achieved without hindering the long-term objective of harmonization by providing:
  • narrative disclosure of significant areas of difference,
  • partial reconciliation by quantifying the impact of specified important areas of differences, and
  • an emphasis paragraph in the auditors' report.
The proposed emphasis paragraph is the following:

As described more fully in Note X to the financial statements, International Accounting Standards differ in some respects from accounting principles generally accepted in the United States of America. The impact on net income and equity is disclosed in Note X for specified areas of differences. A complete reconciliation to US GAAP is not presented. These differences may affect comparisons of these financial statements prepared in accordance with International Accounting Standards and financial statements prepared in accordance with accounting principles generally accepted in the United States of America.

The Deloitte Touche Tohmatsu approach is based on the view that use of IFRS by foreign registrants in the United States will promote its use globally. It also will provide an impetus to reduce differences in accounting standards between US GAAP and IFRS, and lead to greater harmonisation of accounting standards throughout the world.

A single set of high quality global accounting standards promotes confidence in capital markets, decreases cost of capital, and promotes efficiency of the markets. Until such single set of global accounting standards exists, a judgement will have to be made about the extent to which reconciliation to US GAAP will be required for entities that list in the United States and report their financial results using IFRS. Differences between IFRS and US GAAP can be identified objectively. However, the consequences of those differences are subject to considerable debate. For example, IFRS do not contain as much detailed guidance as US GAAP, which contains so much detailed guidance that the concepts underlying the standards can be circumvented by structuring transactions to achieve desired accounting results.

For details on the specific implementation of our recommendations for balancing the different objectives, please see the Deloitte Touche Tohmatsu comment letter to the SEC.

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