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U.S. Securities and Exchange Commission Chairman Christopher Cox said he supports a plan to put international accounting standards under the oversight of a regulatory body.
The initiative by the trust overseeing the International Financial Reporting Standards, in use in about 100 countries and soon to be recognized in the U.S., would boost "investor confidence" that the rule-writers answer to the public, Cox said in a Bloomberg Television interview today in Paris.
Public accountability is crucial to winning universal use of IFRS and creating a global language for investors, Cox said in a speech to a conference of the International Organization of Securities Commissions. The SEC already has agreed to let IFRS users file financial reports in the U.S. without translating into Generally Accepted Accounting Principles.
"This shows the seriousness of the SEC in wanting to move ahead with IFRS," Charles Mulford, accounting professor at the Georgia Institute of Technology in Atlanta, said in a telephone interview. The IASB oversight plan "has to be done," to meet requirements in U.S. law for regulatory control of standard-setters.
The plan would create a monitoring group of regulators, including the SEC, to supervise the International Accounting Standards Board, the nongovernmental body in London that writes the IFRS. The board's work program -- not the rules -- is currently overseen by a private panel of trustees called the International Accounting Standards Committee Foundation.
Accept Oversight
"We have to accept oversight," IASB member Philippe Danjou said at the Paris conference. Public accountability is important because the board can't impose rules, it can only win acceptance for them, he said, adding that current users make up 57 percent of world stock-market value.
"I worry about the bureaucracy of having yet another body supervising another body," former SEC Chairman Arthur Levitt told Bloomberg TV today. Levitt is a board member of Bloomberg LP, the parent of Bloomberg News.
The SEC should try to ensure that international accounting standards, which "haven't been as rigorous as we would hope they would be," become at least as tough as U.S. rules, Levitt said.
Even before they took effect in 2005, the international rules drew criticism from European banks for mandating fair- value accounting, in which the fluctuating value of investments can affect profit. The review of IASB governance was spurred in part by European calls for a greater say on the board.
Critics of fair-value accounting say the rule exacerbated the subprime-mortgage crisis as banks were forced to write down assets, sparking the recent credit crunch.
Danjou, the IASB member, said today the board has formed an advisory committee to consider changes or additional guidance for securities that are hard to value because trading has dried up. "We have to help," he said.
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