the 10 additional countries that have been provisionally approved for EU member-
ship starting in May 2004 would also have to follow IFRS.
To implement that strategy, in June 2002 the European Parliament adopted a regu-
lation requiring all listed EU companies (including banks and insurance companies)
to prepare consolidated accounts in accordance with IAS by 2005, at the latest. An EU
member state may delay IASs to 2007 for an entity that currently uses U.S. GAAP as
its primary GAAP or for an entity that has only listed debt securities and no listed eq-
uity. This IAS reporting requirement will affect approximately 7,000 listed enter-
prises, plus the subsidiaries, associates, and joint ventures of these entities.
EU member states can extend the IAS requirement to unlisted companies and to
individual company accounts. The government of the United Kingdom, for example,
has invited comment on whether to extend the European IAS requirement to non-
listed companies and/or to individual company (nonconsolidated) financial state-
ments. Such extension might be on a voluntary basis or a compulsory basis.
(b) Australia. In July 2002, the Australian Financial Reporting Council (a govern-
mental agency) formalized its support for adoption by Australia of International Ac-
counting Standards by January 1, 2005. The FRC envisioned that the Corporations Act
2001 will be amended to require that the accounting standards applicable to reporting
entities under the Act will be the standards issued by the IASB, and auditors’ reports
will refer to international standards rather than Australian GAAP. Consideration is
also being given to retaining Australian GAAP but bringing it into line with IFRS.
(c) Russia. In 2002, the Prime Minister announced that all companies and banks in
Russia will be required to prepare their financial statements in accordance with IASs
starting, January 1, 2004.
(d) United States. In the United States, a foreign registrant may submit financial
statements using IAS or national GAAP but a reconciliation of earnings and net as-
sets to U.S. GAAP figures is required. In effect, this requires companies to “keep two
sets of books.” In February 2000, the U.S. Securities and Exchange Commission is-
sued a Concept Release, International Accounting Standards, inviting views on
whether and how IASs might be permitted for foreign registrants, and possibly do-
mestic registrants as well. The matter continues to be under study by the SEC. The
full text of the SEC’s Concept Release can be found on the SEC’s Web site at
http://www.sec.gov/rules/concept/34-42430.htm.
In 2002, the United States Congress enacted the Public Company Accounting Re-
form and Investor Protection Act of 2002, also known as the Sarbanes-Oxley Act.
The Act requires the SEC to conduct a study on the “adoption by the United States
financial reporting system of a principles-based accounting system,” including:
- The extent to which principles-based accounting and financial reporting exists
in the United States - The length of time required for change from a rules-based to a principles-based
financial reporting system - The feasibility of and proposed methods by which a principles-based system
may be implemented - A thorough economic analysis of the implementation of a principles-based system.
16 • 14 INTERNATIONAL FINANCIAL REPORTING STANDARDS