In a major step toward an eventual convergence of accounting standards, the Securities and Exchange Commission put out a proposal to allow non-U.S. companies that list on U.S. exchanges to reconcile their financials using International Financial Reporting Standards, instead of U.S. generally accepted accounting principles.The measure, according to SEC Chairman Christopher Cox, is a movement to have all companies "speak the same language," while serving to attract more international companies to U.S. markets. Business leaders have complained that investors are bypassing the U.S. in favor of London and Hong Kong as a result of over-regulation and the costs of having to file in two sets of accounting rules.

Currently, foreign companies trading on U.S. exchanges must convert their financial results to GAAP.

The comment period will be 75 days. To enact the change would require a second vote of the commissioners. If passed, it would eliminate the reconciliation requirement for overseas filers using IFRS or other standards beginning in 2009.

Some industry observers lauded the SEC's decision.

"I think it's a good thing; the SEC should be commended for looking at it," said Cindy Fornelli, executive director for the Washington, D.C.-based Center for Audit Quality, a group affiliated with the American Institute of CPAs. "As the world becomes more flat, we have to be thought leaders and make it a level playing field."

Ed Nusbaum, chief executive at global CPA firm Grant Thornton, said that his firm "strongly supports the SEC in their decision to allow public companies to choose between international and U.S. accounting standards when reporting financial results in the U.S. The elimination of the GAAP reconciliation is a positive leap forward for international convergence of accounting standards."

In 2005, the European Union mandated that publicly traded companies within its purview report their results in IFRS. Meanwhile, the Financial Accounting Standards Board and its overseas counterpart, the International Accounting Standards Board, are working jointly on a series of convergence-related proposals, including one on business combinations, another to clarify the classification of non-controlling interests in consolidated statements, and a related project on accounting for research and development assets acquired through a business combination.

The SEC also said that it would issue a concept release to float the idea of giving U.S. firms the choice of reconciling in the international rules, which will most likely come out this summer.

That may ultimately lead to regulators eventually giving U.S. filers a choice between GAAP and IFRS. However, Fornelli said that there are a number of issues to be worked out - especially with regard to training.

"Are they consistent standards or do they interpret IFRS differently?" she asked. "The standard-setters are going to have to roll up their sleeves and look at this thing collectively and collaboratively."

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