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SEC promotes new accounting system

August 28, 2008|From the Associated Press

WASHINGTON — Federal regulators Wednesday proposed a plan to allow public companies to begin using international accounting standards for reporting financial results in two years, and may require them to do so starting in 2014.

The push by the Securities and Exchange Commission toward acceptance of a single, global accounting standard has raised objections from some investor advocates and key lawmakers. Supporters of the change say it makes sense in an era of increasingly globalized financial markets and would help lure foreign companies to U.S. markets.

The five SEC commissioners voted unanimously to propose a timetable for the switch to international financial reporting standards, or IFRS, to replace the U.S. standards known as generally accepted accounting principles, or GAAP.

Under the proposal, U.S. companies could adopt the international standards starting in 2010. The SEC then would assess the results and decide the following year whether to make it mandatory for all U.S. public companies beginning in 2014 with a completion date of 2016.

The SEC could formally adopt the proposal after a 60-day public comment period.

Wall Street interests and the accounting industry welcomed the plan Wednesday.

"We believe the capital markets ultimately will insist on IFRS for public companies," said Barry Melancon, president and chief executive of the American Institute of Certified Public Accountants.

The SEC in November eliminated a rule that required foreign companies with U.S.-traded shares to report their financial results in line with U.S. accounting standards.

Many foreign companies comply with the international standards, and some had argued that the U.S. mandate was burdensome and costly.

Among companies expressing support for the move were Wall Street powerhouses Goldman Sachs Group Inc., Morgan Stanley, Citigroup, Deutsche Bank and Merrill Lynch & Co., as well as Microsoft Corp., Colgate-Palmolive Co. and German insurer Allianz.

But Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, and Sen. Jack Reed (D-R.I.), who heads the panel's securities subcommittee, criticized the change. They contended that it was premature because the convergence of GAAP and international standards isn't expected to be achieved until 2011.

The IFRS system is generally considered more flexible, and allowing companies to choose which system they use could spell the end of GAAP, experts believe. The international standards are deemed especially desirable for large U.S. companies with foreign subsidiaries, which now maintain two sets of books.

Critics of the move say that investors will lose an important source of information used in making decisions and that it will be harder to compare the results of companies that use different standards.

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