Last week, the International Organization of Securities Commissions issued a statement supporting the use of International Financial Reporting Standards—now the required accounting method for European companies—with the hope that “issuers would be allowed in the foreseeable future to make use of IFRS without reconciliation.” The statement comes at a time when the IOSCO, of which the U.S. Securities and Exchange Commission is a member, is launching an initiative to raise the standards of cross-border cooperation among securities regulators.
In its three-page statement, the Technical Committee of the securities regulators group offers a two-pronged approach for its members to adopt that would facilitate such a full-scale global conversion to IFRS.
First, the Committee recommends members allow multinational issuers to use IFRS in cross-border offerings and listings supplemented by reconciliation, disclosure and interpretation as needed to address regional or national differences. Second, the Committee also suggests regulators continually evaluate their requirements for supplemental treatments to encourage consistent application and enforcement of IFRS.
In the United States, the SEC currently allows non-U.S. companies listed on U.S. exchanges to report financials using IFRS, but requires supplemental reconciliation to U.S. Generally Accepted Accounting Principles over a three-year period. In a January speech, SEC Chairman William Donaldson said the Commission is considering allowing first-time users of IFRS to reconcile to U.S. GAAP for only two years.
The IOSCO seeks to “identify jurisdictions that present the greatest risk and promote their compliance with IOSCO standards through dialogue designed to explore obstacles to their cooperation and paths to their swift resolution,” the Commission said in a press release.
European Union Adopts Stock Option Expensing Rule
The European Union Commission has followed U.S. standard setters in adopting an accounting rule that requires European-listed companies to recognize stock options as an expense against income.
Though approved in early February, the European rule goes into effect retroactively to Jan. 1, 2005. The U.S. rule, finalized in December, will not take effect until June 15, 2005, and there are still movements afoot in Congress to delay it yet further or block it from ever taking hold.
Europe’s 8,000 listed companies will begin booking stock options as part of a much larger transformation occurring in Europe, the mandatory shift to International Financial Reporting Standards. The required conversion to IFRS also took effect Jan. 1.
The concerns in Europe fell along similar lines as in the United States. Companies worried the stock option expensing rule would create an undue hit to profits, and they pushed to delay the effective start date. High-tech companies, where options are a significant part of the incentive package, feared the biggest hit.
Standard setters, on the other hand, touted transparency and investor confidence. “Granting stock options can be a very effective way for companies to motivate managers and staff, but like any other form of remuneration, it has to be considered as an expense,” said Charlie McCreevy, EU’s internal market commissioner.
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