Lawmakers urge SEC chair not to allow choice of accounting rules

WASHINGTON, July 18 Fri Jul 18, 2014 1:33pm EDT

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WASHINGTON, July 18 (Reuters) - A bipartisan group of U.S. lawmakers is urging Securities and Exchange Commission Chair Mary Jo White not to allow companies to choose between U.S. and global accounting standards, a move they said could confuse investors and lead to legal challenges.

In a June 27 letter seen by Reuters and not previously reported, the Congressional Caucus on CPAs and Accountants said that allowing two different sets of accounting rules will give companies a way to pick the rule set that paints their books in the best light.

"A single set of high-quality globally accepted accounting standards is a goal worth striving for," they wrote. But permitting the use of two different sets of rules "will set back the interests of investors in the name of global harmonization."

The letter is signed by 12 U.S. Senators and members of the House of Representatives from both parties who formed the accounting caucus last year.

White has not explicitly said whether she is considering proposing rules that would let companies choose between U.S. and global standards. A spokeswoman for the SEC declined comment.

However, in speeches earlier this year, White has said that one of her priorities is to have the SEC decide "whether to further incorporate" global accounting standards into the U.S. financial system.

For more than a decade, the SEC has wrestled with whether to phase out U.S. generally accepted accounting principles, or GAAP, in favor of international financial reporting standards or IFRS, which are used by more than 100 countries.

The move toward global standards gained momentum in the mid-2000s under then-SEC Chair Chris Cox.

In 2007, Mary Jo White's husband John White, then director of the SEC's corporation finance division, helped develop a road map designed to pave the way for the use of both rule sets in the U.S.

But over time, the effort lost steam.

By 2012, a move toward incorporating international standards seemed dead after SEC staff issued a report describing a litany of shortcomings.

The list included concerns about "underdeveloped" areas, such as accounting for the insurance industry; a divergence in how countries applied the global rules; and a shaky funding mechanism for the international accounting standard setters.

BACK ON THE TABLE

Discussions about allowing companies to use either of the two rule sets came up with international accounting standard setters at an April meeting in Sydney, Australia, according to a public report summarizing the meeting.

"SEC Chair Mary Jo White had said she hoped to be able to come back to the trustees with some proposals in the next months," the report said.

"The possibility of allowing an option by U.S. companies was for the first time mentioned in the conversations without explicit opposition."

It is unclear whether White could even win support for such a move from her fellow SEC commissioners.

The issue would likely spark a fierce debate among public companies, investors and accounting firms.

Some big multinational companies such as Ford, for instance, have said they support a switch to global accounting standards because it could simplify financial reporting and help companies save money.

But others, such an Allergan, have opposed the idea, saying it will cause tax and legal complications and increase costs for companies.

LONG ROAD

IFRS is set by the London-based International Accounting Standards Board, while U.S. GAAP is set by the Connecticut-based Financial Accounting Standards Board.

The SEC has been supportive of ongoing work by the two boards over the years to eliminate their differences as much as possible. However, sticking points remain, and to date there has been no agreement on how to achieve a single set of standards.

In the letter to White, the lawmakers said any expansion of the use of IFRS in the U.S. should be thoroughly vetted with the public first.

"We invite you to come and share your thoughts on this process with us in greater detail," the lawmakers added. (Reporting by Sarah N. Lynch; Editing by Karey Van Hall and Phil Berlowitz)

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