US-quoted companies urge reconciliation shift

Businesses quoted on the US Stock Exchange are pushing for a key IFRS reform to be extended, which could benefit almost 700 companies.

The Securities and Exchange Commission has been mulling over the possibility of allowing foreign private issuers to submit their accounts without having to go through the onerous process of reconciling them to US GAAP.

During the past few months, the SEC has asked for feedback from companies regarding the issue, opening the floodgates for criticism of the reconciliation millstone, which was described by respondents as ‘highly technical, not widely understood and typically not available on a sufficiently timely basis to be useful’.

Many commentators wanted the SEC to allow financial statements prepared under local versions of IFRS. There are about 70 more overseas companies that file under ‘jurisdictional’ versions of IFRS.

The SEC said that it would ‘be in a similar position’ to receive the break if it could match up its financial statements to the reporting standards endorsed by the IASB.

Around 100 issuers from Israel and 500 from Canada have also announced moves to IFRS reporting, which gives an indication of how far-reaching the reconciliation withdrawal could be.

Currently, there are 110 reporting foreign private issuers, such as Vodafone, oil giant BP and HSBC, that provide financial statements adhering to the IASB’s version of IFRS. At present, only these overseas companies are in line to have the reconciliation millstone lifted, but those polled wanted the moves to go further.

The prospect of allowing financial statements prepared under GAAP, if reconciled to the IASB’s version of IFRS, was suggested as well. This may be a step too far for the SEC, which is still labouring in its convergence efforts.

The SEC also said that some stakeholders remained cautious, believing that the time was not yet ripe for accepting financial statements prepared using IFRS without a US GAAP reconciliation.

The US market watchdog added: ‘For the proposal to remove the reconciliation process we have begun the process of evaluating the important issues raised. Given the increasing globalisation of capital markets, it is imperative that the commission be vigilant in keeping our regulatory standards up-to-date.’

COMPANY REPORTS

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Fraud charge for 'bulletproof' executive

The chief executive of a company entrusted with providing the US military with protective kit is facing charges of 'pervasive accounting fraud' levelled by the SEC. The markets watchdog filed securities fraud charges against David H Brooks, the former CEO of DHB Industries, a major supplier of body armour. The SEC believed that Brooks, with the assistance of DHB's former chief financial officer Dawn M Schlegel, manipulated the company's gross profit margin and net income by overstating inventory values, falsifying journal entries, and failing to include appropriate charges for obsolete inventory.

According to the SEC, Brooks used company credit cards and cheques to pay millions of dollars in personal expenses.

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