More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Scope of the Fiduciary Duty Owed by Investment Advisors A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.
Furthering its efforts to establish a global accounting standard, the SEC plans to issue a proposed rule this summer allowing foreign private issuers to choose between International Financial Accounting Standards (IFRS) and U.S. GAAP. To create a level playing field, the Commission plans to issue simultaneously a concept release to garner feedback on whether it should adopt a standard allowing U.S. companies to use IFRS. Comments on both releases are due in the fall.
The SEC is proposing that by 2009, "foreign companies who prepare financial statements in accordance with International Financial Reporting Standards who file those financial statements in the U.S. do not have to include a reconciliation to U.S. GAAP," which is costly, says Fred Gill, senior technical manager, accounting standards at the AICPA. It's important to note that foreign companies registered with the SEC already have the ability to file with the Commission on either IFRS or U.S. GAAP, or any other comprehensive basis of accounting, says David Kaplan, head of international accounting and SEC services at PricewaterhouseCoopers. But as it stands now, if a foreign issuer registered with the SEC files under international standards, and not U.S. GAAP, the SEC requires that the company reconcile their financial statements to U.S. accounting standards, Kaplan explains. The proposed rule, however, would exempt these companies from reconciling to U.S. GAAP.
The idea of eliminating the reconciliation requirement between International Accounting Standards and U.S. GAAP was first proposed in a 2005 Roadmap by the SEC's then chief accountant, Don Nicoliason. Since then, American companies have questioned whether they, too, would be given the same latitude as foreign registrants in reconciling their financial statements to IFRS, Gill says. Some analysts, Kaplan says, may prefer to see the reconciliation "to compare and contrast companies on a U.S. accounting basis," Kaplan says. But comments made by those who attended a recent SEC roundtable on the subject showed "pretty widespread support" of eliminating reconciliation.
The SEC's concept release seeks to give U.S. companies--even those without foreign branches--a chance to reconcile their statements to IFRS. But why would a U.S. registrant want to use an international accounting standard? Besides the fact that U.S. accounting standards are more complex than foreign ones, Kaplan says, U.S. companies want to be on par with their global competitors. "The companies against which U.S. companies may be compared may be filing with the SEC or issuing their financial statements to their shareholders on IFRS," he says. Therefore, using IFRS may put a U.S. company "on a more comparable basis of accounting as its competitors." U.S. companies may also be able "to better explain their business results because it's on a basis that's comparable to other competitors around the world."