EU May Delay Accepting US GAAP as Equivalent Standard

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Speaking at the European Federation of Accounting's Seminar on International Financial Reporting Standards (IFRS) in Brussels last week, Charlie McGreevey, EU Internal Market Commissioner suggested that the EU may defer accepting US Generally Accepted Accounting Standards (GAAP) as equivalent to the IFRS, the International Herald Tribune reports. McGreevy referred to the Securities and Exchange Commission (SEC) “Roadmap” in his address, published on, an agreement made with former SEC Chairman Bill Donaldson that the SEC would remove the requirement that EU countries registered in the US reconcile their financial statements to US GAAP no later than 2009.

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IFRS became mandatory for the EU's listed companies last January, the Tribune reports, and Brussels wants the US to accept these standards as equivalent sooner than 2009. The European Commission is reviewing decisions on equivalency with other major countries, including Canada and Japan, McGreevey said in his speech

Currently, there are about 250 European companies filing in the US that use IFRS, and the cost of reconciling their statements with GAAP ranges from $1 million to $10 million, McGreevey said. “But the story does not end here. There are many companies from other jurisdictions who also have US listings and use IFRS,” he added. US companies filing in the EU and in other countries that require compliance with IFRS face similar costs.

Standing in at the Seminar for Christopher Cox, Chairman of the SEC, Ethiopis Tafara, Director, Office of International Affairs, discussed the efforts underway at the SEC to facilitate the equivalence decision. “Critically, this next year, because of the new EU requirement . . . the SEC staff plans to review the US GAAP reconciled statements of some of these companies. . . . . And these statements will prove vital to evaluating the faithfulness, consistency and resulting transparency of IFRS,” Tafara said in his address, published on the SEC Web site.

Tafara made a clear distinction between the convergence project and equivalent standards. “I am here today to make clear that we do not expect full or even a finite degree of convergence before we are willing to eliminate the reconciliation requirement. What is important is that investors in the United States be able to understand financial statements prepared under IRFS.” In his speech Tafara also spoke to the relatively long history of accounting standards in the US and the role of the SEC, itself.

For some companies in the EU, adopting the IFRS for 2005 resulted in share price volatility, reports. Alan Blewitt, Chief Executive of the Association of Chartered Certified Accountants (ACCA) recommended that Malaysian companies, who will be adopting IFRS a year late, follow the lead of European companies like Air France and Zurich Financial Services and inform stockholders about the possible impact of the new standards on their statements. Blewitt said that volatility in the statements would be the result of reporting changes, not business fundamentals, reports.

Delaying the adoption of IFRS in Malaysia allowed the public the opportunity to express their views, according to Dr. Nordin Mohd Zain, Executive Director of the Malaysian Accounting Standards Board, reports. It also allowed personnel involved in the change to gain awareness and learn about the new standards. But internal staff alone may not be able to manage a successful conversion and assistance may be required from outside audit firms, especially the Big Four (PwC, Deloitte, KPMG, and Ernst & Young). The accounting education sector will need to review their curriculum and bring accounting students closer to the new developments, Dr. Nordin said.

Companies conducting financial services businesses in the Dubai International Financial Centre (DIFC) are required to maintain all financial accounts in compliance with IFRS, Dr. Habib Al Mulla, Chairman Dubai Financial Services Authority said, speaking at the Middle East Accounting Standards and IFRS Summit, reports. “In an effort to make one of the world's youngest financial centres a quick success, we could have allowed a multiplicity of international standards. But we resisted that temptation, as we firmly believed that unless we were benchmarked against the . . . best quality international standards, the integrity . . . and transparency of the financial centre would not be upheld.” Financial institutions operating within an Islamic window must maintain accounts in accordance with the Accounting and Auditing Organization for Islamic Financial Institutions, he said.

International financial organizations currently licensed by the DIFC include Credit Suisse and Merrill Lynch, asset managers like Franklin Templeton, and insurers like AIG.

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