Accounting Plan Would Allow Use of Foreign Rules

[ladelfina]

Just because the game isn't hinky enough..

The [Securities and Exchange] commission is preparing a timetable that will permit American companies to shift to the international rules, which are set by a foreign organization and give companies greater latitude in reporting earnings. Companies that have used both domestic and overseas rules have, on average, been able to report revenues and earnings that were 6 percent to 8 percent higher under the international standards, according to accounting experts.

Though foreign accounting standards are stronger in some ways than American accounting principles, they are weaker in some important areas. They enable companies, for example, to provide fewer details about mortgage-backed securities, derivatives and other financial instruments at the center of today’s housing crisis and that have troubled many Wall Street firms, including Bear Stearns.

The shift to international standards could also wind up eliminating the conflict-of-interest rules, adopted after the collapse of Arthur Andersen and Enron, that have limited auditors from performing both accounting work and consulting for the same client.

James D. Cox, a securities law expert at Duke Law School who returned this week from teaching corporate law in Europe, said the shift to international rules amounted to “outsourcing safety standards.”

“We would not for a moment tolerate having American auto safety standards set by China or India,” he said. “Why should we do it for financial safety standards? There has to be some accountability.”

The S.E.C. also plans to announce details of a pilot program that would enable foreign brokers to deal directly with American investors, while continuing to be largely regulated by the foreign country. The first country in the program will be Australia, although officials hope to eventually include other countries.

http://www.nytimes.com/2008/07/05/business/05sec.html

 

[OAG]

hey, it if works, change it it will work better! Better for who (or is it whom) is the real question?

 

[Finance Dave]

I am a member of the IMA (Institute of Management Accountants). Actually I was President of a local chapter last year. At our annual meeting in June 2008 we had a speaker from the SEC on this issue.

IMO, this is a long-needed move.

Dave

 

[ladelfina]

Finance Dave, why?
Because it is better for corporations?
Because it is better for investors?
Explain! (please.. thanks!)

 

[Rambler]

Finance Dave, why?
Because it is better for corporations?
Because it is better for investors?
Explain! (please.. thanks!)

one reason is that your comparisons between international and US corps will be more of the apples to apples variety. My megacorp is European, but we use US-GAAP for our accounting. I just think that one worldwide standard would bet better, although I believer that US-GAAP is probably better in most areas (in terms of protecting investors) than IAS...FWIW.

Regardless, all multinational companies use multiple sets of books, because tax law varies so much country by country (one set for US GAAP or IAS and one for tax accounting purposes). However, only one is reported to investors.

R

 

[brewer12345]

Regardless, all multinational companies use multiple sets of books, because tax law varies so much country by country (one set for US GAAP or IAS and one for tax accounting purposes). However, only one is reported to investors.

R

And if you are a regulated entity, you get to keep even more sets of books. A life insurer operating in mulitiple countries gets to keep GAAP, tax and statutory/regulatory sets of books for each entty in each country. Its the full employment for accountants model of doing business.

 

[Texas Proud]

Heck... I tried to post to this last week and it did not take....

Remember that the SEC can change back anytime it wants... but that would be impractical...

They also change the international rules for a number of items the US thought were not sufficient....

And FINALLY... if the investors decide not to invest in a company that does not give full disclosure... they will have to produce the old way also... remember Enron... they did not give full disclosure and people got burned.... then again... people seem to invest in almost anything... so maybe this is my bad thinking...