European Commission Extends Use of GAAP for Two Years

Against the backdrop of an SEC-EU roadmap to the convergence of accounting standards, the European Commission has extended the use of US GAAP and other non-EU accounting standards for two years. Thus, the transitional exemption extended to non-EU companies presenting financial statements based on GAAP for the issuing of securities in the EU will continue for two more years as the roadmap to convergence plays out. A decision on the equivalence of third-country GAAP with the international financial reporting standards mandated in the EU is expected to take place before the end of 2009.

Specifically, third-country issuers will not be subject to restatement obligations until the end of 2008 if their financial information is prepared in accordance with Canadian, Japanese or US GAAP. Financial information prepared by other third-country GAAP is sufficient if the country responsible for the GAAP has made a commitment to converge it with IFRS and begun progress towards such convergence

Commissioner for the Internal Market Charlie McCreevy praised the decision to give issuers more time before a final decision is made on the equivalence of accounting standards. It is also the most efficient way to promote IFRS, he reasoned, since it gives the EC leverage in its efforts to obtain the removal of the SEC’s reconciliation requirements for EU companies issuing in the US. There had been some fear that non-EU companies might be required to reconcile GAAP to IFRS as a condition of listing. But Commissioner McCreevy has been instrumental in avoiding that type of confrontational situation in favor of the roadmap’s evolutionary path to accounting standard convergence.

.The SEC has reiterated its firm commitment to work towards eliminating the need for reconciliation between IFRS and US GAAP and has a roadmap to achieve this objective by 2009. The extension thus aligns the EU timetable with the SEC’s timeline and allows European and US authorities to work in parallel towards common objectives.