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June 21, 2007
Changing accounting rules
In an earlier posting, I mentioned that the US may soon be willing to accept financial statements done in accordance with the rules of the International Accounting Standards Board (IASB). Yesterday, the SEC voted to allow foreign companies listed in the US to report using only the international rules. Technically, what the ruling does is eliminate the need for foreign companies to reconcile their accounts to the US standard of GAAP. While this only applies to foreign companies, it may be the first step toward greater harmonization, as the Wall Street Journal points out:
Adoption of the change could spell the beginning of the end for U.S. GAAP. The SEC will seek public reaction for 75 days, after which a second vote by the five-member commission is required before the rule takes effect.
The proposal doesn't include giving U.S. firms the option of using international accounting rules, although the SEC is expected to raise that question this summer by issuing a "concept release," often a prelude to a rule change.
For those interested in the I-Cubed economy, this development bears watching. US and international accounting standards differ in how they treat intangibles -- specifically R&D (see our paper Reporting Intangibles). Having foreign companies report under one system and US companies under another will force analysts to confront the issue directly as they seek to make comparable analysis. It may therefore raise their awareness, both on intangibles and on the preference as to how to account for intangibles.
Then again, they may just blow the whole thing off – as they have been wont to do regarding intangibles in the past
We will see.
Posted by Ken Jarboe at June 21, 2007 7:43 AM
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