US COMPANIES are set to switch to international accounting rules, a move that will, for the first time, see all the world’s most important listed groups reporting according to the same single set of standards.
Yesterday, the US Securities and Exchange Commission (SEC)proposed a “road map” to manage the migration of US companies from their rules to the international ones.
More than 100 countries use, or are adopting, international financial reporting standards (IFRS), including all 27 EU members, China, Japan, Canada and India.
The US’s generally accepted accounting principles (GAAP), the accounting lingua franca until the sudden rise of IFRS, is the last significant standard to switch.
Under the SEC’s plans, US groups are likely to adopt IFRS in 2014 providing certain conditions are met, a decision that will be taken in 2011. Some firms may be allowed adopt IFRS sooner.
Christopher Cox, chairman of the SEC, said more groups were reporting under IFRS than GAAP and the number would rise as other large economies made the switch. He said GAAP would be marginalised if the US did nothing, making it harder for international investors to consider US companies.
A single set of globally understood accounting rules is expected to help cut companies’ cost of capital and improve the ability of groups and investors to invest across borders.
Yesterday’s announcement will be welcomed by many big US groups, most of which have begun preparing for the shift, but have been reluctant to push ahead without a firm date.
Last year, the SEC signalled its support for IFRS when it dropped the rule that foreign groups produce a reconciliation of their numbers with GAAP. In switching to IFRS, the SEC would effectively hand over authority for accounting rules to the International Accounting Standards Board, based in London.
