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Atkins Reviews Current International Initiatives

Commissioner Paul Atkins, in recent remarks to the Institute of European Affairs, reviewed the status of the proposed amendments to the SEC's deregistration rules, which is an area of interest for many European companies. Atkins noted that many commenters urged the SEC to liberalize its proposal even more by not counting qualified institutional buyers among the 300 U.S. shareholder threshold for deregistration. In Atkins' view, the proper approach is to let issuers deregister unless their shareholder base includes a large number of U.S. residents who invested with the expectation of the protections provided by U.S. registration. His prepared remarks were posted on the SEC's Web site.

Atkins talked about the importance of seeking the views of all parties who will be affected by U.S. regulatory actions. He said the SEC over the years has too often followed a regulatory impulse to provide a rule-based solution before waiting to see if the market will resolve a problem.

Atkins applauded the work of EU Internal Market Commissioner Charlie McCreevy, who has served both Ireland and the EU well with his thoughtful approach to regulatory issues. The SEC must work cooperatively with its fellow European regulators given their tightly linked economies, he said.

Atkins acknowledged concerns abroad with section 404 of the Sarbanes-Oxley Act and said the SEC is committed to addressing the implementation problems. He placed most of the blame on the PCAOB's Auditing Standard No. 2, which he said made it difficult for auditors to exercise professional judgment in assessing internal controls.

The SEC's chief accountant is working with the PCAOB to revise the standard. Atkins said that the SEC's oversight of the PCAOB has limitations that make it difficult for the SEC to influence the final standard to the degree he would like. He pledged to employ all of the SEC's oversight tools to ensure that the standard "gets fixed."

Atkins added that the SEC is working on guidelines of its own for company management so that companies will not be "at the mercy of their auditors." He hopes the guidance will restore balance to the internal control assessment process.

This is an important period in the history of accounting, Atkins said, as European companies transition to international financial reporting standards. This is the time for establishing high-quality standards that are consistently applied across nations, he said. Atkins urged regulators to resist the development of nationally-specific versions of IFRS. The SEC is also participating in efforts to establish IFRS as a viable and reliable set of accounting standards, he said.

True equivalence in accounting standards may not be a practical objective, according to Atkins, at least not in the near future. He said the more critical outcome is that the standards be clearly stated and evenly applied by all companies that adopt the standards. It will take some time to assess how IFRS is being implemented and enforced, but Atkins expressed optimism that the SEC will be able to complete its assessment within the 2009 goal for reconciliation and determine that the U.S. GAAP reconciliation requirement is no longer necessary.

He said he was pleased that Europeans increasingly are turning away from the idea of requiring U.S. companies to reconcile their U.S. GAAP financial statements to IFRS. That move would undermine efforts toward mutual recognition, in his view. U.S. GAAP is an established standard that has proven itself to investors over time, he explained. Once IFRS proves itself to be a consistently applied, high-quality set of accounting standards, the need for reconciliation disappears, he said. 

Atkins said the cooperation between the SEC and CESR is a constructive development that will provide a positive influence on accounting and auditing practices in the U.S. and Europe. Both GAAP and IFRS are likely to be improved through the joint efforts of FASB and the IASB, he added. He has heard positive reports about the level of cooperation between FASB and the IASB, and said it could serve as a model for European and U.S. cooperation more generally.