Foreign Firms Adapt Accounting to List in U.S. : Markets: Easier rules and investor interest has created a boom in foreign stock purchases. More firms are meeting SEC requirements.

Investment in foreign companies is one of the hottest areas of the market today: U.S. investors purchased $13 billion worth of securities in foreign companies in the second quarter alone.

The dramatic flow of investment overseas illustrates the desire of investors to reap higher gains than can be found in domestic markets. But the trend also highlights a key issue in the global role of U.S. stock markets: whether stringent U.S. accounting rules are deterring foreign companies from listing their shares here.

The case of German auto maker Daimler-Benz, which listed its stock on the New York Stock Exchange this month, shows that capital-hungry foreign companies find it worthwhile to have their books conform to U.S. accounting rules.

“The overall cost isn’t significant in the scheme of things,” said Larry A. Leva, a partner in the London office of accounting firm KPMG Peat Marwick who helped Daimler-Benz conform its statements to U.S. standards.

Joseph Hardiman, president and chief executive officer of Nasdaq, said many foreign companies find that the benefits of access to U.S. markets outweighs the costs of accounting changes.

“I really don’t think our accounting standards are a major impediment to anyone who wants to access our capital markets,” Hardiman said.

Ken Lopian, senior vice president at Bank of New York, said his conversations with Latin American companies lead him to the same general conclusion.

“I’m finding that many companies aren’t finding it as difficult as previously thought,” Lopian said.

William Donaldson, the New York Stock Exchange chairman, had sought to liberalize the Securities and Exchange Commission’s requirements that foreign companies strictly adhere to U.S. accounting standards before their shares can be traded on domestic exchanges.

“The issue, in my view, is not a blind adherence to (Generally Accepted Accounting Principles) accounting,” Donaldson said this month, referring to U.S. accounting rules. “It is coming up with methods for getting the right information over to investors, and that’s possible without absolute conformity to GAAP.”

Daimler-Benz reached a compromise with the SEC that meant it didn’t have to fully restate its earnings for five years, as would be required under GAAP, but instead reconciled its statements for the net income and equity balances.

Using U.S. accounting rules, Daimler-Benz reported a first-half loss of $579 million in August. By contrast, German accounting let Daimler report a profit of $102 million for the same period. That’s because German rules allow companies to transfer money from reserves to improve their results.

Non-U.S. companies are reluctant to give up home country accounting rules “because that takes away their ability to massage income statements,” Leva said.

But change is afoot.

“The market is forcing companies to provide more financial information, more disclosure, very much in line with what the SEC requires,” Leva said.

A growing number of companies are trading in flexible accounting in their home countries for access to U.S. markets.

“We’ve probably never had a better time for foreign companies who want to adjust to the American system in order to raise capital,” said James A. Harmon, chairman and chief executive of Wertheim Schroder & Co., a major brokerage firm.

Daimler-Benz was the 26th foreign company to list on the NYSE this year, up from 16 that listed for all of last year. Nasdaq, the electronic stock market, reported 53 foreign listings in the first nine months of 1993, up 11% from 1992.