The U.S. Securities and Exchange Commission took a step Wednesday toward considering whether U.S. companies could file their financial data using international accounting standards.
The SEC voted 5-0 in favor of publishing and seeking comment on a paper that examines the future of International Financial Reporting Standards, or IFRS, in the United States.
The agency has already proposed allowing foreign companies to choose between reporting their financial data using the English version of IFRS instead of U.S. Generally Accepted Accounting Principles, or GAAP.
However, the "concept release" approved on Wednesday is a step that may or may not lead to allowing U.S. companies to use international accounting standards. It would require public comment before it moves forward.
The SEC hopes to solicit comment on the benefits, costs, pros and cons of allowing U.S. companies to report data using international standards.
Regardless, both the concept paper and proposal moves the United States closer to other major financial centers that have embraced international reporting standards.
About 100 countries, including European Union members, require or use international accounting standards.
"As more and more countries switch to IFRS, the pressure is likely to build on the U.S. to do the same or at the minimum to permit it as an alternative," said Republican commissioner Paul Atkins. "If IFRS becomes the dominant standard it may not be in our best interest to try to swim against the tide."
However Atkins, along with other commissioners, said they must thoroughly consider the outcome and effects of allowing two accounting standards to coexist.
"We might want to wait until we have gained greater experience with foreign issuers using IFRS before proposing it as an option for U.S. issuers," said Democratic Commissioner Annette Nazareth.
Since the EU mandated the use of the international accounting standard in 2005, the SEC said it has received a significant volume of financial statement filings from foreign companies that use IFRS.
SEC staff pointed out that U.S. investors and analysts who rely on these financial statements are increasingly becoming familiar with the international standard.
Foreign companies would be able to cut costs if the proposal is approved as they may avoid the need to keep separate sets of accounting books and retain experts in both local and U.S. accounting on staff.
The EU and United States are already working on "converging" their accounting rules so cross-border firms can file the same set of accounts on either side of the Atlantic.
The vision is to have one set of accounting standards.
"This commitment to convergence has meant that issuers, markets and investors will someday have a choice because they, not the government, will decide between IFRS and GAAP," said SEC Chairman Christopher Cox.
Giving U.S. companies the choice between the two accounting standards will most likely not happen by 2009 -- the year the SEC hopes to eliminate the requirement that foreign companies reconcile their financial statements to U.S. GAAP.