by Ken Rankin

Washington - The decision of the European Union to require the use of International Accounting Standards by EU-listed public companies starting Jan. 1, 2005, drew a thumbs up from United States regulators who consider the move a key step toward global uniformity in standards for cross-border securities offerings.

Testifying before the House Financial Services Committee, Securities and Exchange Commission Market Regulation Division director Annette L. Nazareth said that Europe’s shift from "many national accounting standards of varying quality and comprehensiveness to a single EU standard that is developed in an independent and transparent manner is a positive development for both issuers and investors."

Currently, many European companies seeking to offer securities in the U.S. use their native country generally accepted accounting principles and reconcile to U.S. GAAP, while some use IAS. Still others elect to employ U.S. GAAP outright. Much of the current reporting complexities that arise from this approach would be reduced under a common EU standard, Nazareth maintained.

"IAS, applied correctly and consistently, and enforced effectively, would provide a higher degree of quality and transparency in financial statements than the present systems in the EU countries," she said.

The effects of accounting standards uniformity in Europe will also be "generally favorable" for U.S. companies doing business abroad, she said, because "it is expected that U.S. companies will continue to be able to list in the EU using U.S. GAAP, as they do today."

Indeed, Nazareth told Congress that "the benefits of IAS adoption in the EU may take on even greater significance if the Financial Accounting Standards Board and the International Accounting Standards Board make significant progress in achieving convergence on accounting principles."

The goal of a global convergence of accounting standards moved closer to reality in May when the IASB unveiled plans for a series of key improvements in the current standards that govern cross-border securities offerings.

Those changes, advanced in the form of an exposure draft, seek to foster convergence of international accounting standards by establishing uniformity in a number of murky areas of financial reporting.

In addition to eliminating accounting loopholes, such as the use of a narrow definition of "related parties" by some countries, the exposure draft also seeks to prohibit accountants from labeling items of income or expense as "extraordinary items," either in the income statement or in the notes.

The plan also eliminates certain options for accountants using IAS, including the "LIFO" (last-in, first-out) inventory valuation method that is widely used in the U.S. and other countries.

Calling the exposure draft a first step toward establishing "a globally accepted set of accounting standards," IASB officials pledged to press forward to "promote convergence on high quality solutions" in other areas where cross-border differences exist.

"In the next quarter, our priorities will be to bring forward draft guidance for those adopting international standards for the first time and proposals to overhaul the reporting of business combinations, including reforms to accounting for goodwill," said IASB chairman Sir David Tweedie.

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