Academic journal article Journal of Accountancy

The Role of U.S. Standard Setters in International Harmonization of Accounting Standards

Academic journal article Journal of Accountancy

The Role of U.S. Standard Setters in International Harmonization of Accounting Standards

Article excerpt


Following are excerpts from a speech by Philip R. Lochner, Jr., a commissioner of the Securities and Exchange Commission, on the role of the United States in achieving international harmonization of accounting standards. The speech was delivered at the 10th Annual SEC and Financial Reporting Institute Conference held in Los Angeles.

In the decades since the need for international accounting harmonization was first recognized, the forces of internationalization have struck with a vengeance. In 1975, transactions in U. S. securities by foreign investors and transactions in foreign securities by U. S. investors were estimated to have aggregated about $66 billion. By 1989, this figure had increased more than 80 times to a staggering $5.4 trillion.

Unfortunately, the movement toward harmonization of accounting standards has not kept up with the increase in international economic activity. The United States has not recognized any international accounting standards. Further, for a foreign company to offer securities in the United States or list its securities on a U. S. exchange, it must reconcile its financial statements to U. S. generally accepted accounting principles, regardless of the quality of the foreign standards the company may have previously complied with.

Everyone believes harmonization will happen, but apparently no one believes it will happen in his or her lifetime. But there is room for some optimism. The International Accounting Standards Committee (IASC) is entering a crucial phase in its attempt to develop a nucleus of internationally accepted accounting principles and has indicated it expects to complete this process by the beginning of 1993. (For more on the IASC'S current activities, see the interview with IASC Chairman Arthur R. Wyatt, on page 100.)


From the point of view of the SEC, an extremely valuable benefit of harmonization would be the increased usefulness of financial statements to U.S. investors in foreign securities. The rules prohibiting foreign companies from offering securities in the United States or listing on U.S. exchanges without compliance with U.S. accounting requirements have not deterred U.S. investors from purchasing foreign securities. U.S. investors must make such purchases on the basis of financial statements prepared in accordance with a variety of accounting standards. However, financial statements prepared in accordance with harmonized accounting standards would be far more comparable than those currently relied on by U.S. investors.

And yet another benefit of harmonization is that it could increase dramatically the willingness of foreign issuers to participate in U. S. securities markets.


The first approach to harmonizing standards is a bilateral one, under which regulators in two countries enter into arrangements on accounting harmonization. An example of this is the proposed bilateral disclosure system between Canada and the United States currently pending at the SEC. The advantage of the bilateral approach is that it may be faster and easier to implement than a multilateral agreement involving many countries. The disadvantage is, as more and more separate bilateral agreements are entered into, requirements under one agreement may differ from those under another, perpetuating rather than reducing accounting disparities.

The second approach is regional multilateralism. The best example of this is the European Community (EC), which has taken significant steps, including some involving accounting, to facilitate capital flows among member states. …

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