million in 1993 after an undisclosed release of DM 1.5 billion in provisions to in-
come. In its reconciliation to U.S. GAAP, the company revealed a loss of just under
DM 1 billion. Without the reconciliation, the amount of the release would not have
been evident.
The mechanics involved in preparing the reconciliation are generally manageable
tasks, sometimes with the exception of pensions and taxes. Further, a lot of the mys-
tery associated with the process has been eliminated by the SEC staff’s willingness
to go to extraordinary lengths to arrive at sensible solutions to burdensome practical
problems. For example, the SEC staff has in a number of cases agreed to accept
fresh-start fair-value accounting to be applied by newly privatized companies in sit-
uations where reliable historical cost records are not available. The SEC staff are also
permitting companies that are unable to apply the U.S. pension standards retroac-
tively (i.e., going back to 1987 to calculate the transition liability) to approximate ap-
plication of that standard under alternative methods.
There are strong grounds for the view that the reconciliation requirement best
meets the needs of investors and creditors, since the primary financial statements
provide the reader with an insight into the home country’s understanding of the en-
terprise’s performance, financial position, and cash flows, while highlighting any
major departures from U.S. GAAP. Nevertheless, the SEC is facing a great deal of
pressure to permit non-U.S. companies to enter the U.S. capital markets without rec-
onciliation to U.S. GAAP. Multinational companies, in particular, appear to favor the
move to comprehensive acceptance of financial statements prepared under interna-
tionally accepted accounting principles. To this end, the IASB/International Organi-
zation of Securities Commissions (IOSCO) plan is for IAS to be accepted for all
cross-border offerings, including the United States. In the following section of this
chapter, the potential issues associated with moving toward internationally accepted
principles are discussed in more detail.
12.9 INTERNATIONALLY ACCEPTED ACCOUNTING PRINCIPLES. Since its forma-
tion in 1973, International Accounting Standards Committee, known as the Interna-
tional Accounting Standards Board since 2001, has gained worldwide recognition.
Together with the International Financial Reporting Interpretations Committee
(IFRIC), formerly the Standing Interpretations Committee (SIC), IASs are currently
being developed with a view to gaining acceptance for cross-border offerings. As
stated in the Preface to International Financial Reporting Standards, the objectives of
IASB are:
- To develop, in the public interest, a single set of high-quality, understandable
and enforceable global accounting standards that require high-quality, transpar-
ent, and comparable information in financial statements and other financial re-
porting to help participants in the various capital markets of the world and other
users of the information to make economic decisions - To promote the use and rigorous application of those standards
- To work actively with national standard setters to bring about convergence of
national accounting standards and IFRSs to high-quality solutions.
One issue that needs to be considered is whether the acceptance of IAS also embraces
the broader concept of global GAAP and, if so, how the issues of general acceptance
and substantive support should be addressed within this framework. It has been a fea-
12 • 30 SUMMARY OF ACCOUNTING PRINCIPLE DIFFERENCES