McCreevy makes tactical retreat on accounting rules

By Anna McLauchlin

Date: 23/03/06

Non-EU companies listed on European stock markets will be able to continue to use their national accounting standards for at least another two years under a proposal to be published in the coming weeks.

In a tactical move to pacify the US, Internal Market Commissioner Charlie McCreevy will propose delaying until 2009 a decision on whether to recognise US, Canadian or Japanese Generally Accepted Accounting Principles (GAAP) as equivalent to International Financial Reporting Standards (IFRS), which have been in use across the EU since January.

Under existing EU financial services laws - the transparency and prospectus directives - the decision on whether the standards were equivalent was to be taken by 1 January 2007.

Last year the Committee of European Securities Regulators recommended imposing additional measures on non-EU companies to make it easier for investors to compare accounts. This would add to the costs of non-EU firms with additional listings on European stock markets.

The EU hopes that the delay will help convince the US Securities and Exchange Commission (SEC) to lift as soon as possible burdensome reporting requirements imposed on EU companies listed in the US.

As things stand, non-EU companies listed in the EU can file financial reports under their normal accounting procedures. But EU companies listed on US stock markets spend millions of dollars in total each year filing reports under US GAAP as well as IFRS.

But in April last year the SEC agreed to try to lift its demands on EU companies by 2009 at the latest; a decision which was reaffirmed last month following a visit by McCreevy to Washington DC.

As a result, McCreevy wants to delay the EU's decision to fit in with the new deadline.

"The companies pushing those pieces of legislation originally wanted to send the signal that they would not trust the blue eyes at the SEC indefinitely," said an industry source. "But it makes no sense to be retaliatory when there has been a degree of goodwill so far from both sides on the issue."

Aside from the political aspects, Saskia Slomp from the European Accounting Federation said it would have been difficult to impose the necessarily different requirements on companies from different countries.

"Japanese GAAP is still much further from IFRS than US GAAP. It would be better to wait until they are technically closer before doing anything about it," she said.

According to those close to the situation, France is digging in its heels in over the delay and is trying to convince Germany to back its stance. Paris argues that the postponement effectively treats non-EU companies more favourably than EU firms which have had to deal with the upheaval of introducing IFRS and also puts the EU in a weak negotiating position with the US over the reconciliation requirement.

But one aspect of the discussions might persuade the French to back down. The EU is also negotiating with the SEC to allow EU companies to deregister from US stock markets without having to continue fulfilling the costly reporting requirements.

So far the SEC has said that it will lift the reporting requirements only for foreign companies with less than 5% US-owned shares that deregister from its stock market, but is considering its position on the basis of a consultation which closed at the end of February.

Many French companies, notably media giant Vivendi Universal, would welcome more lenient rules.

Article reports that the European Commission was preparing a proposal for adoption in spring 2006 under which non-EU companies listed on European stock markets would be able to continue to use their national accounting standards for at least another two years.