The Securities and Exchange Commission kicked up a hornets’ nest in February, when it unveiled a “concept release” seeking comments on a proposal to allow foreign corporations to register on American stock exchanges using international accounting standards instead of U.S. standards.
American exchanges have cheered the proposal, which will swell their ranks and pocketbooks. But domestic corporations say the move would warp the investment playing field. They assert that international accounting standards, which aren’t as detailed as U.S. stan-dards, will give the foreign firms larger bottom lines than if they’d used U.S. rules.
“The glitch is, if a U.S. company wants to register its securities in the United States, it must continue to use American standards,” observes Walter O’Connor, chairman of the accounting department at Fordham University, in New York.
The accounting community contends that the international rules lack the strong disclosure provisions found in domestic standards, which makes them inadequate for registering a company on an American exchange, according to Edmund Jenkins, chairman of the Financial Accounting Standards Board, in Norwalk, Conn.
“We don’t believe that the international standards are of sufficient quality on an overall basis to be used without reconciliation in our U.S. capital markets,” he says.
Using two standards may also create some bewilderment in the markets. “Are investors going to be confused?” O’Connor asks rhetorically. “I think at the end of the day, the answer can only be yes.”
According to Jenkins, the SEC has several alternatives. It can reject the substitution of international standards for American ones, it can allow the substitution of some international standards and not others, or it can allow the use of international standards with supplemental material that would be short of a full reconciliation with American standards.
The comment period for the concept release ends May 23.