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McCreevy Discusses Accounting and Auditing Regulation At U.S. Chamber of Commerce Forum

European Commissioner for Internal Market and Services Charles McCreevy is satisfied that 2009 is a realistic date for the reconciliation of international financial reporting standards and U.S. GAAP. "There are logistical reasons why it cannot be earlier, and I'm happy with the agreed-upon date," he said in remarks at the U.S. Chamber of Commerce.

McCreevy believes the goal is to reach equivalence, not total convergence, by 2009. "We can reach a point where the two systems are sufficiently converged --that's the way forward," he said. "Hopefully we will reach a sufficient level of convergence to say both standards are equivalent."

He was asked if he thought there was any chance the convergence of accounting standards will happen sooner than 2009. Some interested parties think there is sufficient convergence to justify mutual recognition right now. McCreevy said that he is reluctant to say an earlier date because he will be held to it. "So much the better if it happens earlier, but 2009 is a realistic date," he replied.

Asked how he intended to reconcile the U.S. rules-based approach with the EU's principles-based approach, McCreevy pointed out that each system has its flaws. Both traditions have allowed big scandals to occur, he noted, adding that it is simply not possible to discover collusion overnight. He believes regulators should develop a framework to help address the situation with equivalence of standards as a goal.

McCreevy said it is critical that all legislation be drafted in the open with substantial external input. There should be transparency and consultation, informal or formal, with industry representatives and with other rule makers, he said. In this regard, he stressed the need for openness and cooperation in the area of auditing oversight. 

The EU just finished its new directive on the statutory audit, and faces the challenge of addressing registration of third country audit firms in the EU by 2008. All third country audit firms, including U.S. firms that audit foreign companies listed in the EU will have to be registered with EU oversight bodies, unless their home country oversight bodies can be considered as equivalent, he noted.

Similarly, EU firms auditing SEC registrants will face inspections from the PCAOB in 2006 and 2007. McCreevy noted that the new EU directive provides for cooperation with the PCAOB on access to audit working papers. "These are tricky issues where the EU and the U.S. must have close and pragmatic cooperation," he said. "Both sides must be willing to respect each other's rules and limitations."

On the issue of auditor liability, he said that he has read the study carried out by the Chamber of Commerce. He noted that in the EU, some member states already have limitations or are moving in that direction. There are good arguments in favor of EU action, in his opinion.

As a first step, the EC has launched a study on the economic impact of the alternative liability regimes, the competition in the market and the availability of insurance. He said that by the end of the year, he will be in position to assess the options and decide how to move forward, in particular whether the EC should make recommendations on the subject.

Another decision McCreevy faces is whether to proceed with the clearance and settlement directive. He said that he is undecided but noted that he must make up his mind by June.

"I don't want to be judged by the number of new laws I bring, but by the quality of the measures," he said. "I want as light a regulatory structure as possible, and I am still thinking about the clearance and settlement directive."

McCreevy said that in general his job and that of other world regulators is to find the balance between letting the markets go unfettered and heavy-handed regulation. Either extreme would be a disaster for the markets, he noted. "We try, but I don't think the balance is ever exactly right," he said. "It always leans in one direction or the other."

John Filar Atwood