On the heels of the Securities and Exchange Commission's decision to temporarily postpone the filing date for smaller accelerated filers' management reports on internal controls, the commission's chief accountant hinted this week that foreign issuers could also get a reprieve on implementing the new rules.

In a Dec. 6 speech before attendees at the American Institute of CPAs National Conference on Current SEC and PCAOB Developments, chief accountant Donald Nicolaisen said that the commission will be sensitive to the needs of foreign private issuers as they move to adopt international accounting standards.

While Nicolaisen said that he believes that all companies who access the U.S.'s public markets should adhere to the same disclosure standards and should account for like transactions consistently, he noted, "I also recognize that our foreign private issuers face significant challenges and resource constraints over the next year as they move to IAS."

"Though the Sarbanes-Oxley Act does not provide an exemption for foreign private issuers, we have and continue to be sensitive to the need to accommodate unique foreign structures and requirements ... . Clearly, many non-U.S. issuers and their auditors are working hard and are well on their way to completing the work necessary to report on internal controls," Nicolaisen continued. "However, I am sensitive that this requires in some cases great cultural change. And, perhaps most importantly, I appreciate that many companies abroad, especially in Europe, face additional challenges in the near term that go above and beyond those faced by U.S. issuers as they adopt international accounting standards for the first time in 2005."

The SEC has deferred temporarily some initiatives to give management and auditors time to implement the new rules properly. Most recently, the commission authorized a limited and temporary postponement of the filing date for smaller accelerated filers' management reports on internal controls.

"Based on discussions with audit firms and registrants, I believe that these actions should give the vast majority of registrants and auditors sufficient time to complete the work necessary to issue their reports on internal control," Nicolaisen said. He also reiterated his belief that the internal controls requirements are "the most urgent financial reporting challenge facing a large share of corporate America and the audit profession between now and certainly through much of 2005."

Nicolaisen noted that he expects to see a number of companies disclose material weaknesses in their controls during the process.

"We should expect in the coming months to see an increasing number of companies announce that they have material weaknesses in their controls. For this initial pass, that finding generally should not be surprising," he said. "Nor should it, by itself, necessarily be motivation for immediate or severe regulatory or investor reactions. What's important is that material weaknesses are identified and fully disclosed and that management addresses such weaknesses with appropriate remediation efforts."

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