SEC changes accounting for foreign firms
The Securities and Exchange Commission on Thursday eliminated a rule requiring foreign companies with U.S.-traded shares to explain their financial results in line with U.S. accounting standards.
The move, a push toward acceptance of a single, global accounting standard, has raised objections from investor advocates and some key lawmakers. The critics say investors will lose an important source of information used in making decisions and will find it harder to compare the results of companies that use different standards.
The commission voted 4-0 to drop the requirement that foreign companies “reconcile” their financial results with U.S. standards known as generally accepted accounting principles.
Foreign public companies, which already comply with international financial reporting standards, contended that the mandate was burdensome and costly.
Accounting rule makers are working to merge the U.S. and international standards into a single system, but that isn’t expected to be complete until 2011.
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), and Sen. Jack Reed, (D-R.I.), who heads its securities subcommittee, criticized the change in a letter to SEC Chairman Christopher Cox, calling it “premature and being unduly rushed.”
SEC Commissioner Kathleen Casey said before the vote that “only by taking this step will we be able to make progress toward” the goal of a single set of high-quality accounting standards.
The SEC move opens the way for a related change that would allow all public companies to choose between international and U.S. accounting standards for their financial results.
The international accounting standards are generally considered more flexible, and giving companies the choice could spell the end of the U.S. accounting principles. The international standards are deemed especially desirable for large U.S. companies with foreign subsidiaries, which now must maintain two different sets of books.
Also Thursday, the SEC tentatively agreed to require that all mutual fund investors be provided a summary in plain English of key fund information in the front of prospectuses.
The SEC took the actions at Thursday’s meeting with four commissioners participating rather than the full complement of five. Democrat Roel Campos left the SEC in September. The remaining Democrat, Annette Nazareth, is expected to leave in the coming months.
Senate Democrats on Wednesday recommended that President Bush nominate Luis Aguilar, the former general counsel of investment management firm Invesco, and Elisse Walter, who was a securities industry regulator, to fill the two Democratic vacancies.
