Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, August 24, 2006

Convergence between US and EU financial reporting?

Investor relations professionals at companies with listings on both sides of the Atlantic have long bemoaned the difficulties of complying with different sets of corporate disclosure rules. With differences in approach (regulation vs comply or explain, in accounting rules, in materiality, in dissemination and accessibility of information), IRO’s have found the task of compliance challenging.

However, there are emerging signs that transatlantic cooperation in regulation is catching on.

Back in 2004, the SEC and Europe’s Committee of European Securities Regulator (CESR – dubbed by many as Europe’s future SEC) established a forum to: “identify emerging risks in the US and the EU securities markets for the purpose of improving our ability to address potential regulatory problems”

This month we have seen the first output of that cooperation, in the form of a work plan. The main focuses of the work plan are:
o the application by internationally active companies of IFRS and US GAAP in the United States and the European Union,
o the modernisation of financial reporting and disclosure information technology, and
o regulatory platforms for risk management.

The long term aim of the work in the financial disclosure technology appears to be to reconcile the differences between the way that companies use technology to disclose and report in both countries. This may include the changes being brought about by the Transparency Obligations Directive for dissemination and storage of inside/ material information, and the research into a new EDGAR currently being looked at by the SEC.

It also seems bound to give a boost to the use of XBRL, which the SEC refers to as “interactive data”. The adoption of XBRL at the moment is very patchy. In the US only 22 companies currently use the new EDGAR capability to receive XBRL filings, while in Europe, a growing number of regulators have mandated its use. Among the challenges facing the wider use of XBRL is the fact that typically the same people (FD’s, CFO’s) that have just gone through a Section 404 implementation or an IFRS conversion, would be responsible for an XBRL implementation, which they would certainly not welcome.
So whilst the growing cooperation in facilitating compliance for dual listed companies is welcome, it is likely to be a long haul.


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