Transparently Wise

29 August 2008



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SEC Proposes America Adopt International Accounting Standards

The Securities and Exchange Commission has proposed a timetable for American companies to adopt international accounting standards. Currently, the US uses what are called “Generally Accepted Accounting Principles” [GAAP]. In 2010, American companies would have the option of using International Financial Reporting Standards [IFRS] rather than GAAP, and in 2011, the SEC would decide whether to make them mandatory by 2014.

The reasons for the switch are legion. Primarily, though, one set of standards will ensure that apples are not compared with oranges when it’s time for investors to put their money into a firm. In addition, there are stories of foreign companies choosing not to list their stock in the US because they don’t want to have to do two sets of accounts. It is telling to note that Goldman Sachs, Morgan Stanley, Merrill Lynch and Microsoft all back the switch and that most big US companies already keep to the IFRS

The American Institute of Certified Public Accountants is pretty pleased with the SEC’s decision. The organization’s president and chief executive, Barry Melancon, said, “We believe the capital markets ultimately will insist on IFRS for public companies.” He also said, the “action by the SEC continues a robust and thoughtful debate that is critical as the transition occur.”

Colleen Cunningham, regional managing director of Resources Global Professionals, Inc., a multinational provider of professional services that helps companies understand IFRS, said, “As markets become more and more global, and all other major capital markets have embraced IFRS, it is clear that the SEC needed to require companies to begin the complex process of converting their books to IFRS. At Resources, we see the benefits of adoption of IFRS as multi-dimensional. IFRS will better position American companies to access capital in the global marketplace and provide for consistency in financial reporting for the benefit of investors, credit rating agencies and others around the globe.”

There’s just one argument against the switch. Those who oppose the change say that GAAP is a more rigorous system than IFRS. A looser standard makes an Enron fraud that much easier to perpetrate. Of course, there’s one problem with that argument. Enron happened under GAAP.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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