U.S. Chamber Backs IFRS; Calls For Fairness In U.S. Legal, Regulatory, Enforcement Processes
March 26, 2008
FEI summary
On March 26, 2008, the U.S. Chamber of Commerce reiterated its support for adoption of International Financial Reporting Standards (IFRS) in the U.S., and renewed its call to “restore fairness to legal, regulatory, and enforcement processes.” These recommendations and others were contained in a report entitled, “Strengthening U.S. Capital Markets: A Challenge For All Americans,” issued in conjunction with the U.S. Chamber’s Second Annual Capital Markets Summit. U.S. Treasury Secretary Henry M. Paulson will deliver a keynote address on the U.S. economy at the Chamber's March 26 program, and other panels will address various legal and regulatory issues.
Chamber’s Recommendations Focus on Four Areas
The Chamber’s report reviewed developments taking place with respect to the regulatory and enforcement framework during 2007 including related efforts of the Chamber’s Center for Capital Markets Competitiveness (CCMC), and outlined CCMC’s four-part action plan for 2008 and beyond, to:
- Establish a modern and coherent regulatory structure;
- Restore fairness to legal, regulatory and enforcement processes;
- Implement a global financial reporting model; and
- Promote innovation and the long-term interests of all investors.
Highlights of the four recommendations are detailed further below.
- Regulatory structure
The Chamber recommends establishing a modern and coherent regulatory structure, by:
· Developing a national regulatory vision.
· Reforming financial regulatory structure.
· Establishing principles-based regulation and prudential oversight and enforcement.
- Fairness in legal, regulatory and enforcement processes
There is a need to restore fairness to legal, regulatory, and enforcement processes, states the Chamber. Specifically, the Chamber supports:
· Protecting constitutional and due process rights of individuals and companies.
The Chamber notes it views Senate passage and enactment of the Attorney-Client Privilege Protection Act as a high priority in 2008.
· Challenging overreaching enforcement tactics and retroactive reinterpretation of rules. The Chamber notes it will take steps in:
o Eliminating rulemaking through enforcement actions and restore respect for the administrative process.
o Improving financial services regulatory agency enforcement and oversight processes.
o Ending criminal penalties against corporations (except in the case of actual criminal enterprises), the costs of which are ultimately borne by innocent shareholders.
· Supporting long-term securities reform. The Chamber notes:
o As all the independent competitiveness reports have clearly stated, securities litigation reform is urgently needed to maintain U.S. competitiveness in global capital markets.
o The Chamber’s Institute for Legal Reform (ILR) will continue exposing and challenging the abusive and often illegal tactics of trial lawyers.”
- Global financial reporting
A global financial reporting model should be implemented, says the Chamber, by:
· Pursuing global accounting and auditing practices that will be reasonably applied and consistently enforced. On this point, the Chamber adds:
o International Financial Reporting Standards (IFRS) is the preferred global accounting standard ….To ensure that the U.S. remains a strong voice in the development of these standards, the Chamber will take every opportunity to push policymakers to ensure effective and timely adoption of IFRS in the U.S.
o To ensure a more transparent process and to reduce the need for unnecessary, costly, and disruptive restatements, the Chamber will closely monitor the U.S. Securities and Exchange Commission's (SEC) activities. Specifically, it will work to ensure that the agency respects the full public notice and comment requirements of the Administrative Procedures Act (APA) and ends the practice of “Speech GAAP”—that is, adopting significant changes in public company reporting requirements through staff speeches and interpretations.
· Ensuring the long-term viability of global audit functions and the client-auditor relationship. The Chamber adds:
o Both U.S. and global capital markets are greatly exposed to a twin risk: concentration among public company auditors and audit firm exposure to extreme catastrophic litigation.
o In 2008, the Chamber will work with its public company and audit firm members and policymakers to identify meaningful and sustainable solutions, including safe harbors for certain defined auditing practices, limitations on liability in certain circumstances, development of new business models for audit firms, and establishment of an optional national charter for multinational public company audit firms with national oversight.
· Achieving readability, reliability, and comparability of financial statement disclosure. The Chamber notes:
o There is an urgent need for more reliable and user-friendly financial information, especially for investors.
o Most business transactions are simple and easily accounted for, but many are complex and require the use of estimates and professional judgment in their accounting.
o Policymakers need to realize that detailed and complex accounting rules more often than not only complicate matters.
o To combat this problem, the Chamber will educate the SEC, Public Company Accounting Oversight Board (PCAOB), Congress and others through comment letters, roundtables, and other necessary means.
o The Chamber states it will also continue to support the positive work coming from the SEC’s committee studying accounting complexity.
Innovation and investors
The Chamber recommends promoting innovation and the long-term interests of all investors, by:
· Protecting and promoting the innovation economy and provide reasonable access to global investments.
· Challenging self-serving tactics by third parties used in pursuit of “protecting investors,” and
· Promoting regulatory, tax, and corporate policies for long-term shareholder value.
Prepared March 26, 2008 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI), summarizing the U.S. Chamber’s report. This summary does not represent FEI opinion unless expressly stated above.