With more than 25% of European corporations expecting to take the major strategic step of adopting new financial reporting rules during the next three to five years, the need for truly global accounting standards, elusive and controversial for several years, is gaining real urgency.
These corporations -- and lots of other firms -- could opt for domestic standards, decide to follow existing international accounting standards (IAS), or select U.S. generally accepted accounting principles (GAAP). The problem is that each has definite assets and liabilities. U.S. GAAP, for example, are generally conceded to be of higher quality than existing international standards and are pretty much a prerequisite for tapping into rich U.S. capital markets. But U.S. GAAP are more comprehensive and costly to comply with than IAS, and that's a European corporate concern.
Currently, more than 50% of the European firms disclosing their financial-reporting plans to KPMG International are likely to opt for IAS; 29% expect to select U.S. GAAP. And the process is being complicated by both the European Commission and the Securities & Exchange Commission (SEC) in the U.S., which are signaling different regulatory intentions. The European Commission may allow IAS as the only alternative to domestic financial filing standards. Meanwhile, the SEC is considering whether or not to accept IAS for cross-border filings without first reconciling them with U.S. GAAP.