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Atkins Reviews Trends In Transatlantic Capital Markets

Commissioner Paul Atkins told attendees at a financial services conference in Brussels that the SEC's mission extends beyond the U.S. in facilitating capital formation and includes companies outside the country as well. He addressed the reasons that foreign companies may choose not to list in the U.S., including the costs and risks of the Sarbanes-Oxley Act legislation and the U.S. system of litigation. The SEC can address those issues to a degree, but cannot address another potential factor, he said, which is the relative underperformance of the U.S. markets compared to foreign markets over the last few years.

Atkins said the most controversial provision of the Sarbanes-Oxley Act, section 404, could be one of the most valuable parts of the Act if a cost-effective means of achieving its objectives can be found. The SEC recognizes the difficulties section 404 can pose, he said, particularly in combination with the transition to international financial reporting standards. Atkins reported that the SEC and the PCAOB plan to hold another public roundtable in the spring to review practices in the second year of applying Auditing Standard No. 2. Atkins predicted that the roundtable participants will report more cases of excessive documentation and improper scope and focus in the planning and execution of the section 404 reviews.

Foreign issuers have expressed concerns about deregistering from the U.S. markets, a process which can be complicated and costly. Atkins reviewed the SEC's rule proposal that should make the process more clear and less cumbersome. He said the SEC should allow for as much flexibility as possible without eliminating fairness and the expectations of U.S. equity investors. The proposal would allow foreign issuers to terminate their reporting requirements as long as they meet certain conditions, depending on whether the registered securities are equity or debt.

Atkins has heard reports that anywhere from 5% to 26% of issuers would be eligible to deregister under the SEC's proposal. He encouraged interested parties to submit their views to the SEC. If there is a better approach, Atkins said he would like to hear it.

Atkins also addressed the convergence effort that is underway as a result of the Norwalk agreement between FASB and the International Accounting Standards Board. He has heard that the level of cooperation between the two accounting boards is excellent and may serve as a model for European and American cooperation on other matters as well. Atkins said the process is moving forward at a faster rate than he expected.

True equivalence of accounting standards may not be practical, according to Atkins, given the differences in cultures, legal systems and liability regimes. He does not believe a single set of accounting rules in necessary for competition across borders. The key is that the accounting standards be clear and evenly applied, he said. Atkins believes that applying the new standards evenly may be as important as narrowing the differences between the accounting systems.

Atkins supports the roadmap for eliminating the reconciliation of IFRS to U.S. GAAP that was established by former Chief Accountant Donald Nicolaisen and believes the SEC will meet its timetable. The changes in personnel at the SEC have not changed the support for the roadmap, he said. Atkins expressed confidence that the need for reconciliation will disappear as the markets gain experience with IFRS, which can be achieved within the roadmap's timeframe.

Atkins said he was disappointed by some views that Europeans should require U.S. companies to reconcile U.S. GAAP financial statements to IFRS. That runs counter to the direction taken by the U.S. and undermines mutual recognition, he said. U.S. GAAP became the benchmark because of the size of the U.S. markets, he explained, and because of investor demand. The efforts of the U.S. and Europe should focus on ensuring that IFRS succeeds, in his view. International cooperation on regulatory matters will benefit everyone in the long run, he said.