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GAAP 2001

New Survey Highlights Significant Differences
between National Accounting Requirements
and International Accounting Standards

An international accounting survey by the world's seven largest accountancy firms, GAAP 2001, found mixed progress toward convergence of national requirements with International Accounting Standards. Approximately one-third of the 62 countries surveyed are responding to the challenge of convergence with an active agenda and proposed changes to national requirements. However, half of the countries surveyed reported significant differences between national and international standards, but have not implemented or proposed new standards to reduce the differences. As a result of major changes to international standards that are being considered, the differences between national and international standards will increase unless national standard setters redouble their efforts to keep pace with the changes.

In an age of significantly increasing international investments and financial reporting on the internet, the need for a common worldwide financial language and framework for reporting is quickly making diverse national standards obsolete. Governments, regulators, investors and the accounting profession all need to rededicate themselves to achieving convergence of accounting standards at the earliest feasible date.

The seven firms jointly advocate a single worldwide framework for financial accounting and reporting based on high-quality International Accounting Standards (IAS). Achieving such a framework would improve investor confidence by providing greater transparency and comparability of the financial information used in investment decisions, and thereby would contribute to financial market stability and economic growth around the globe.

The complete GAAP 2001 report is available at It includes summaries for each of the 62 countries surveyed of instances in which a country's requirements would not allow, or would not require, the IAS treatment. The survey also includes analyses of changes in these summaries since last year and of national requirements or proposals for national requirements, which will come into effect in the future and may further reduce differences from IAS.

In addition, GAAP 2001 demonstrates the necessity for users of any financial information to take great care to understand which accounting principles - national or international - have been applied in preparing the relevant financial statements.

"The rapid development of global financial markets has greatly reinforced the desirability of - indeed now demands - international consistency in accounting standards and auditing approaches," said Paul Volcker, Chairman of the Trustees of the IASC Foundation in June 2001. Strong support for high quality international standards has come from a number of other sources, including the European Commission's Commissioner on Internal Markets, Frits Bolkestein, who, in commenting on the EC's proposal for a Regulation on the application of IAS said, "The adoption of a common financial reporting language for listed companies throughout Europe will greatly benefit both companies and investors in bringing about more transparency and a higher degree of comparability." Isaac Hunt, a Commissioner of the United States Securities and Exchange Commission commented recently, "… I can think of no greater gift to the investing public than establishing a set of world wide accounting standards."

The potential for IAS to provide the basis for comparable national and cross-border financial reporting is increasingly clear. Evidence includes the May 2000 recommendation by the International Organization of Securities Commissions that regulators should allow multi-national issuers to use IAS for cross-border offerings and listings, subject to the provision of supplemental data. In addition, in February 2001, the European Commission proposed a Regulation that will require the Europe Union's listed companies to prepare their consolidated financial statements in accordance with IAS from 2005 onward.

Across the world from Asia to Latin America, many national governments, regulators and accountancy professionals are actively considering how their national accounting requirements differ from IAS and how to reduce those differences. This process will, in many countries, lead to a significant improvement in financial reporting transparency and comparability.

The quantity and significance of the differences reported in GAAP 2001 make it clear that, for many countries, convergence with IAS will be a major task and will require a joint effort in each country by the government, stock market regulators, financial statements preparers, users, standard setters. Although some efforts may be initiated internationally, it is clear that the most significant actions must be undertaken at the country level, where plans for convergence of high quality accounting standards need to be developed and implemented.

One response to the convergence issue is the European Commission's announcement of its proposed 2005 Regulation, which has provided several years of advance warning before IAS becomes compulsory for listed European Union companies. This approach will allow time for the management and finance functions of affected companies to develop a well-considered, orderly transition to IAS.

GAAP 2001 provides an overview of the movement toward global accounting standards throughout the world. Creating written standards that are comparable country-by-country is a critical first step, but written requirements will not actually lead to better accounting if standards are not properly applied and enforced. Overall improvements in financial reporting will require a joint effort in each country by the government, stock market regulators, the business community, users of financial statements, standard setters and the accountancy profession to develop the educational, professional and regulatory infrastructures.

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