Hundred Group turns up the heat

When the body that sets international standards and its counterparts across
the Atlantic agreed on a work project that could remove the need for non-US
companies to reconcile their accounts to US GAAP, it was seen as a major step on
the way to the global convergence of accounting standards.

It was also seen as a step forward in the timetable to remove the
reconciliation requirements.

The original roadmap set out by the European Commission and the Securities
and Exchange Commission set this time last year, was anticipated to enable
companies using international financial reporting standards listed in the US to
file unaltered accounts by 2009.

February’s announcement on the work plan saw the date for the requirements to
be moved potentially to 2008. But this is still far too late in the day for
some.

A letter to the SEC from the influential Hundred Group of Finance Directors,
currently under the stewardship of Prudential FD Philip Broadley, urged the
regulator to withdraw the requirements in the next 12 months.

The group argued that such a move would ‘reduce the incremental burden of
Exchange Act reporting for the great majority of EU companies, and remove the
single largest deterrent for EU companies considering a public offering or
listing in the United States’.

It also stated that the SEC’s position to wait and see how successfully the
implementation of IFRS is achieved is misplaced.

‘Hundreds of EU companies for which IFRS is the primary or sole accounting
standard are currently trading on European stock exchanges among retail and
institutional investors alike. We believe that the market has demonstrated its
confidence in the quality of IFRS reporting.’

What effect this call will have on the SEC remains to be seen.

Certainly, The Hundred Group is influential, but it is likely to take
something very persuasive to force a change of thinking on the matter.The work
programme set out by the IASB and the Financial Accounting Standards Board was
agreed to by the SEC and the EC, and accelerating that in order to meet The
Hundred Group target would prove troublesome.

IASB chairman Sir David Tweedie is likely to want to take things a little
slower with the six short-term and 11 long-term projects that have been
identified. He admitted that the standards that were published in order to
provide the stable platform for Europe in 2005 were ‘rushed through’.

On top of this, the subjects they are approaching are a lot more contentious
than some of those for 2005, and will mean tackling contentious issues that were
glossed over during the stable platform creation.

Financial instruments will be returned to for a more comprehensive solution,
while phase II of business combinations is already stirring up some controversy.
Add to this the difficult topics of performance reporting and revenue
recognition, and both boards suddenly have their hands full.

Fortunately, the work plan doesn’t require completed standards in many of
these cases, but the SEC will want to see some form of progress, though that
progress that could be difficult to achieve.

Disagreements between the two boards are bound to arise, as the perennial
battle between rules and principles comes into play. While FASB chairman Bob
Herz is a keen exponent of principles-based accounting, he has a battle on his
hands to convince many of his fellow board members. This means the direction
that the new standards take will be the subject of much debate, and this will
inevitably take some time.

While the pace of change may be slower than the mad dash to 2005, 2008 could
still be an ambitious target. Although the work plan was not in the mind of the
Hundred Group when it put its case for eliminating the reconciliation
requirements, it will not be so easy for the SEC to ignore it.

A situation where companies are able to file IFRS accounts with the SEC by
the end of the year seems just as distant as it has always been.