SEC May Loosen Reins on Foreign Businesses

BOSTON (06/02/2000) - American companies have long worried about foreign competition for customers - now they're increasingly starting to worry about foreign competition for investment dollars as well.

The Securities and Exchange Commission (SEC) recently finished receiving comments about a proposal that would allow foreign companies to be listed on U.S. stock exchanges without having to comply with U.S. accounting rules.

More than 1,200 foreign companies are already listed on U.S. markets, according to the SEC, but they have to comply with the U.S. Generally Accepted Accounting Principles (GAAP).

Under the SEC proposal, foreign companies would only have to comply with the International Accounting Standards (IAS), which are set by the International Accounting Standards Commission (IASC) in London.

Endorsement Unlikely

In general, IAS rules are looser than GAAP rules and give companies more leeway in how they add up their numbers, which would give companies that follow IAS an unfair advantage in shoring up their bottom lines, says Roger Jahnke, director of international accounting standards at New York-based Ernst & Young International.

For example, U.S. GAAP rules require companies to take a charge when granting stock options. However, IAS rules don't, which would make foreign companies look more profitable than domestic ones, according to Alfred Popken, a director in New York-based PricewaterhouseCoopers' global capital markets group.

In fact, Popken adds, the U.S. has the strictest accounting standards on the planet.

As a result, some foreign companies are jumping on the U.S. GAAP bandwagon to gain the credibility that SEC approval gives them, Popken says.

According to Popken, the SEC isn't likely to endorse the IAS until that set of standards becomes as tough and comprehensive as the U.S. GAAP. But international pressure for one set of common rules is increasing.

Last month, at an annual meeting in Sydney, Australia, the International Organization of Securities Commissions said it would back the IAS for cross-border offerings and listings. This worries some American accountants.

"I believe that the SEC should either continue to require companies to reconcile to U.S. GAAP or, if they want to allow foreign companies to come into the U.S. under IAS, they should also allow U.S. companies to choose IAS," Jahnke says. "We ought to have a level playing field."

However, "we consider that the recognition and measurement requirements of IASC standards are sufficiently robust not to require a reconciliation to U.S. GAAP in cross-border filings," says Bryce Denison, national president of the Group of 100 Inc., an Australian organization of senior finance and accounting professionals that monitors international regulatory issues.

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