Federal regulators are considering allowing public companies to choose between international and U.S. accounting standards for reporting their financial results, a move that could bring a seismic shift in corporate reckoning.
First, though, the regulators are proposing a smaller step: easing an accounting requirement for foreign companies that trade on U.S. exchanges. The Securities and Exchange Commission planned to discuss the proposal at a public meeting Wednesday; it would allow foreign companies to file financial statements with the agency using so-called international financial reporting standards, known as IFRS.
They now are required to "reconcile" their financial results with the U.S. standards called generally accepted accounting principles, or GAAP -- a mandate that many companies say is burdensome and costly.
Some observers, however, maintain that eliminating the requirement -- and giving all companies the choice of accounting system -- would make it harder for investors to evaluate companies' financial results and compare them.
The IFRS are generally considered more flexible. They are deemed especially desirable for large U.S. companies with foreign subsidiaries, which now must maintain two different sets of books.
In an age of increasingly globalized financial markets, the SEC commissioners are treading a delicate line between the desired goal of luring foreign companies to U.S. markets and the need to uphold standards and protect investors. Their deliberations come after months of intense public debate over corporate internal-control rules under the Sarbanes-Oxley anti-fraud law that arose from the 2002 business scandals.
In that regard, the SEC last month approved revisions to the rules that are designed to ease the compliance burden on companies and allow them to tailor their internal inspections to the scale of a business.
The agency plans to issue a "concept release" next month that solicits public comment on the broader move of allowing companies to choose their accounting regimen.
"We're very supportive of the SEC taking this issue on because it's an important issue to investors and (companies) and the profession," said Cynthia Fornelli, a former SEC official who is executive director of the Center for Audit Quality, which represents some 800 accounting firms.
An extended comment period would be needed so the SEC could "thoughtfully work through" the issues, Fornelli said. "So long as these investor protection issues are looked at and are worked through, we definitely need to find a way that we don't have a system that has these dual requirements."
Also at their meeting Wednesday, the SEC commissioners were expected to adopt a rule allowing investors to choose between receiving annual proxy materials from companies on paper or electronically.