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Thursday, Mar 28, 2024

Unified Reporting Standards Sought

For the past several years, most U.S. companies have been busy dealing with the complexities of complying with Sarbanes-Oxley legislation. But while SOX has taken center stage, other groups are trying to untangle an even more complex problem: Creating a uniform international financial reporting standard. Globalization has meant that multinational companies must often translate financial reports from around the world into the customary reporting standards of each individual nation where divisions are located in effect they may count twice or more to suit the requirements of the different nations where they operate. And investment professionals, who are increasingly looking at a global arena to make decisions, are finding comparisons between companies difficult to make. As a result, several groups have partnered to find a way to unify reporting standards. “What happened was the accounting profession started setting standards that were primarily aimed at developing nations to enable them to have a set of standards,” said Ian Ball, chief executive at the International Federation of Accountants (IFAC), an umbrella group that represents 160 institutes including the American Institute of CPAs (AICPA) from 120 countries and promotes international standards in auditing, education and other areas. “With globalization, the realization came that it wasn’t just the developing nations, we needed them in all countries, particularly as cross-border investments became easier.” But gaining consensus is easier said than done. IFAC, which has been working at the effort for some 30 years, has gained acceptance for its auditing and other practice guidelines, for instance, from many countries, but not yet from the European Union or the U.S. Earlier this month, the Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board (IASB) in London, published a first draft of a framework to develop a single, uniform method for financial reporting. The FASB, based in Norwalk, Conn., is recognized by the Securities and Exchange Commission as well as the AICPA for establishing U.S. standards of financial reporting and accounting. The IASB consists of 14 members drawn from nine countries. The draft represents the tiniest of baby steps, beginning with such basic questions as what is financial reporting intended to achieve. And even that question is likely not to be answered until 2007 when the two boards have received and reviewed responses to their first draft. The U.S. has adhered to GAAP (Generally Accepted Accounting Principles), a model that has become all the more important in the post-Enron era. At the same time, with Sarbanes-Oxley came the establishment of another board, the Public Company Accounting Oversight Board (PCAOB), which now governs auditing standards for publicly-held companies. The alphabet soup of overseers may help to ensure that U.S. firms all follow the same rules, but it has made establishing a single standard all the more complicated. “The only downside for U.S. companies is they would then have to make the adjustment from U.S. GAAP to IFRS, and that’s a significant adjustment,” said Ball.

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