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Campos Sees Growing Interest in Mutual Recognition

SEC Commissioner Roel Campos believes the globalization of securities markets and international securities regulation may be approaching a critical mass. In remarks at IOSCO's annual conference in Mumbai, India, Campos pointed to the recent NYSE-Euronext merger and to remarks by key SEC officials about mutual recognition and cooperative approaches relating to foreign trading screens and broker-dealers. Campos said it is time to consider the broader issue of mutual recognition and the extent to which it can be accomplished. His written remarks are posted on the SEC's Web site.

There are many issues that would have to be worked out with respect to mutual recognition, according to Campos. For instance, it could be difficult to impose more demanding standards on domestic issuers than on foreign issuers whose securities are sold through screens. A reasonable degree of regulatory convergence would help before instituting any new approaches, he said. Campos believes it will take time and effort, as well as international will and cooperation.

Campos reported that the SEC's roundtable on eliminating the U.S. reconciliation requirement for financial statements prepared pursuant to international financial reporting standards resulted in some provocative new ideas, including whether U.S. companies should be given the choice of using IFRS or U.S. GAAP. He added that former SEC Chief Accountant Donald Nicolaisen, who first proposed the roadmap for eliminating the reconciliation requirement, suggested that the SEC consider requiring all U.S. companies to use the same standard as foreign companies, rather than giving them the choice. Campos said it is interesting that people are now willing to consider previously taboo subjects.

Since the pool of foreign companies that submitted their 2005 financial statements prepared using IFRS as promulgated by the IASB was much smaller than expected, Campos said it may be necessary for issuers and their auditors to have a serious discussion. He hopes that auditors can prepare opinions stating that the audited financial statements were prepared according to IFRS as promulgated by the IASB, and not solely in accordance with the standards of a specific jurisdiction. To achieve the critical mass contemplated by the roadmap, Campos said more companies must file audited financial statements prepared in accordance with IFRS as promulgated by the IASB.

Campos reviewed the discussion at a recent open meeting, which he described as the most unusual since he has been at the SEC. The staff reviewed matters raised by commenters in response to the PCAOB's proposed Auditing Standard No. 5 and the SEC's proposed guidance for management under section 404. The issues raised at the meeting will be addressed by the SEC and PCAOB staffs to finalize their respective proposals. Campos also made clear that the revisions are not an attempt to roll back section 404 or to appease business or audit industry interests, but to increase the effectiveness and the efficiency of the audit process.

Campos reported that IOSCO's technical committee will host a roundtable on June 1 on the quality of public company audits from a regulatory perspective. The committee is also drafting a paper on contingency planning for audit services. The roundtable will examine audit quality from a global perspective and whether potential future developments will have an impact on audit quality.

Campos said it is imperative that regulators consider contingency planning given that there are only four major accounting firms conducting the bulk of all public company audits. Campos said the paper will likely consist of general guidance and broad suggestions on how contingency plans can be written by securities regulators. It will not be overly specific, he said, since many contingency plans will be confidential and countries' laws differ.

Jacquelyn Lumb