SEC pressure sparks public spat

If UK companies needed another reason not to have a US listing, they have got
one now. The issue of ‘comment letters’ from the Securities and Exchange
Commission has sparked an unusually public spat over the future of accounting

There have always been tensions between the US and the UK way of measuring a
company’s performance, but senior figures rarely air their most pressing
concerns in such a public way.

Often the instigator of key debates in the profession, AstraZeneca CFO Jon
Symonds, sparked the row almost by accident a few weeks ago.

At a conference discussing the standards situation, Symonds expressed
annoyance that his company, eighth in the FTSE 100, had been served with a
‘comment letter’ from the SEC.

The letter asked for huge volumes of detail on AstraZeneca’s accounts.
AstraZeneca has not been the only company to receive a letter. US figures last
week indicated that hundreds had been sent and one SEC figure called the stunned
reaction ‘anti-American.’

The issue, in a nutshell, was that reconciliation statements being filed with
the SEC were being questioned line by line. Where international financial
reporting standards require European companies to state their accounts according
to broad principles, the SEC appeared to be also asking them to meet the
detailed, line-by-line, rules-based disciplines traditionally seen in US

Wayne Carnall, a former SEC official and now a PricewaterhouseCoopers
partner, defended the SEC, saying it was only trying to understand how IFRS was
being applied.

‘I think this issue of comment letters is gathering a disproportionate amount
of attention and creating unnecessary fear and anxiety. Most of the comments are
good and will improve reporting,’ said Carnall.

He also insisted that it was rare for an SEC member of staff to ask a
question or make a comment that is not legitimate: ‘Where there has to be a
re-statement of issues, these have often been found by the company, auditor or,
in some cases, the SEC.’

He pointed out that even if the requirement of a reconciliation statement is
eliminated ­ which reconciles European international financial reporting
standards with US GAAP ­ the SEC would probably still ask questions of

Bob Herz, the head of the US Financial Accounting Standards Board, who is
himself a fan of principles-based accounting, perhaps unexpectedly backed
Carnall, saying there appeared to be an issue in Europe of ‘extra-territorial
reach of the SEC’.

‘People here are not used to the enforcement regime that we have in the US.
They don’t like to be second-guessed on their decisions.

‘But the truth is that if the SEC spots a problem, then there generally is a
problem. The SEC asks questions to understand accounts, not to necessarily say
they have to change,’ said Herz. He went on the offensive saying that companies
which protested too much could be trying to ‘hide’ something.

‘If a company feels the questions from the SEC are too excessive, they ought
to make this view known.

‘I have no doubt that if companies were as rigorously inspected here, as they
are in the US, there will be problems found beyond reporting and possibly to do
with issues of fairness and disclosure.

‘Just because the UK is at the top of the list, it doesn’t mean there aren’t
things going on here,’ he said.

So what is likely to happen? UK corporates could accept that this is a fact
of life of doing business in the US. Or they could decide that the compliance
demands of being listed across the pond have just taken another dramatic turn
for the worse.
When politicians in the US are only just coming to terms with the competitive
disadvantages handed to them by Sarbanes-Oxley, it couldn’t really have come at
a worse time.

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