With the United States and Europe moving toward converging financial reporting standards globally, regulators worldwide are scrambling to harmonize their efforts, too.
Like Robert Herz and Sir David Tweedie, of the Financial Accounting Standards Board and the International Accounting Standards Board, the heads of the Securities and Exchange Commission and the Committee of European Securities Regulators (CESR) have begun making joint statements for public consumption. Can an international standards setter finance be far behind?
On Tuesday, in fact, the SEC and the CESR jointly published a work plan that they say will be put into effect immediately, according to a press release issued by the SEC. The main focus of the plan is to get internationally operating companies to adopt International Financial Reporting Standards (IFRS) as well as U.S. Generally Accepted Accounting Principles (GAAP) in the United States and the European Union, respectively, according to an announcement issue by the SEC.
The commission and CESR staffs also said they would forge a closer dialogue on the modernization of financial reporting information technology, and regulatory platforms for risk management, according to a press release issued by the commission..
The work plan, a direct output of a December 2005 meeting between SEC Chairman Christopher Cox and CESR Chairman Arthur Docters van Leeuwen, covers three key issues:
• Implementation of IFRS and US GAAP by internationally active issuers.
• Modernization of financial reporting and disclosure.
• Discussion of risk management practices.
The SEC and CESR said they hope to develop high-quality accounting standards, foster consistent application of IFRS around the world, and avoid conflicting regulatory decisions regarding the application of IFRS and US GAAP.
The SEC staff and the CESR Expert Groups and Secretariat have identified credit rating agencies (CRA) and the proposed amendments to the SEC’s rules on deregistration of foreign private issuers, as other areas to follow up on.
The two groups emphasized that these and new issues can at any time be added to the work program if developments call for more attention to these issues. “As our markets grow more sophisticated, so must the relationships among regulators,” said Cox, in a statement. “The work plan demonstrates the intention of the SEC and CESR to have a forward-looking dialogue on key emerging issues, as well as take practical steps to encourage high-quality and consistent application of IFRS. The result will be greater protection and better disclosure for investors, particularly as they seek investment opportunities across the Atlantic.”
For his part, Leeuwen said: “This work plan takes forward the relationship that the SEC and CESR have developed in a proactive and transparent manner. The introduction of IFRS in Europe provides a dynamic opportunity for convergence in the EU and a benefit to global financial markets.”