Accounting standards eased for foreign firms: SEC

Commissioners of the United States Securities and Exchange Commission unanimously voted 5-0 for a proposal on Wednesday that would allow foreign firms that trade on U.S. exchanges to file financial reports using International Financial Reporting Standards (IFRS) instead of U.S. accounting standards.

For many multinationals that do business in the U.S., this is a reprieve from having to use the country’s more rigorous generally accepted accounting principles (GAAP). In addition, the majority of markets in the world generally use the IFRS, so for companies that trade on multiple international exchanges, this proposal means they wouldn’t have to spend the resources and time creating a completely separate accounting report for the U.S. market.

Although not ready to officially endorse the SEC’s proposal, RBC Financial, which is one of several Canadian firms listed in the U.S., is optimistic about what it means for its reporting.

“It supports global convergence of accounting standards, which we believe is worthwhile. RBC currently reconciles our Canadian GAAP financial statements to U.S. GAAP through a note to our quarterly and annual financial statements. Without knowing or studying the details of the SEC proposal, this reconciliation would appear to be no longer necessary, freeing up resources and management time,” an RBC spokesperson says.

The move also may send a strong message to the Canadian market. RBC’s chief operating officer, Barbara Stymiest, has long been a proponent of IFRS. She was a key speaker at the Canadian Institute of Chartered Accountants conference on IFRS in Toronto last week. Canada, like the U.S., has been a hold-out in adopting IFRS, something Stymiest told the conference is counterintuitive to today’s global business environment.

“While there is some discussion on both sides of the Atlantic about the faults of IFRS and the hardship it might cause companies, there is little dispute about the merits of having a set of universal standards for how the world’s companies report on their finances. At dispute is how we get there and how quickly,” she says. “The concept of converging Canadian standards with international ones is not only a good idea; it is a necessary one that has benefits for Canadian companies and investors in a globally competitive market.”

Stymiest says that if Canada adopted IFRS, it would free up resources for Canadian multinationals and raise the appeal of Canadian issuers to foreign investors, who could accurately compare their performance to competitors in markets like Europe and Asia.

“Canadian public companies stand to gain by simply making it easier for international investors to understand and compare their financial statements against global peers,” she says. “Making it easier for investors, regulators and other stakeholders to compare the financial condition of a Canadian-based company to that of an Italian one [for example] can have tangible benefits to shareholder value and efficiency.”

Stymiest also says that it’s a good opportunity to expand Canadian capital markets.

“For Canadian investors, the benefits could mean potentially more issuers in the Canadian market. For a country that accounts for less than 4% of global market capitalization, we should embrace every opportunity to make our markets more attractive to new and international public company issuers,” she says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com