Accounting Observer > Public Blog - ITAC: Comment Letter On SEC Proposal To Drop IFRS-to-GAAP Reconciliation

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

ITAC: Comment Letter On SEC Proposal To Drop IFRS-to-GAAP Reconciliation

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	9/7/2007 7:15 AM
The Investors Technical Advisory Committee is an advisory group composed of a dozen individuals who are associated with the investment world, usually by employment. What they share in their backgrounds is that they have some decent accounting chops. The twelve of us have put together a comment letter to the SEC on their proposal to eliminate the IFRS-to-GAAP reconciliation requirement for foreign filers who report on a pure IFRS basis. ("Pure IFRS" means that the financials are prepared in accordance with the International Financial Reporting Standards as published by the International Accounting Standards Board. Any "country-flavored" versions of IFRS - where IFRS have been adopted with exceptions to particular standards - don't qualify for the reconciliation waiver.) When confronted with the question of whether or not the reconciliation should continue, I think the knee-jerk reflex of many investors is that it should be trashed. There are two things wrong with this (aside from being a knee-jerk reflex in the first place): As a matter of course, investors might not go to that reconciliation and immediately make a buy-sell-hold decision based on what they see in it. For those who actually read financial statements and try to understand the workings of a foreign company in the context of something they're already familiar (US GAAP), that reconciliation provides a useful environment. "Then what?" Those are two of the most under-rated words in the investment world. Eliminate the reconciliation and crow that you've "simplified" the system. Then what? Will convergence of accounting standards still take place the way it should? Is there still a reason for standard setters to work together on problems if there's no visible display of what makes their results different? In writing this letter, we asked ourselves "then what?" many times - and I think we've come up with some issues that go beyond merely looking like something has been accomplished by eliminating this reconciliation. I hope you'll take a look at it and think about the issues we've raised - and write your own letter. It would be a complete embarrassment to the US financial reporting regime to see this reconciliation be yanked - only to see it return years later once it becomes apparent that it was too early to do away with it.

Permalink \| Trackback