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Push for New Accounting Standards Gains Speed
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But critics assert that the Bush administration's interest in moving toward the international system is a way of defanging some of the post-Enron changes.
These opponents say the international rules are not as strict as the U.S. system and that investors would be denied the look they now get into the workings of publicly traded companies.
James D. Cox, a corporate finance expert at Duke Law School, said the proposal was one of several examples of "deregulatory belt-tightening" that have been pushed in recent years under the guise of globalization.
The international rules, for instance, make it easier for financial institutions to avoid detailing their market assets compared with the U.S. standards. In addition, technology companies often are able to report higher earnings overseas than in the United States because of the differences in treatment of intangible assets known as goodwill.
Overall, James Cox said, companies that file under the international system have 6 to 7 percent higher earnings than they do when they report under U.S. standards. This can allow the firms to appear healthier than they really are, critics warn.
Some lawmakers are also leery of the proposal. "I have reservations," said Sen. Jack Reed (D-R.I.). "Many experts have indicated there are significant differences between the two standards and that many of these standards don't work in favor of individual investors."
Reed said he also fears that the SEC's proposal is driven mostly by the impending end of the Bush administration rather than a desire to find an investor-friendly policy. "This is a race to get it done, not to get it done right," he said. "This is one way to weaken the provisions enacted after Enron under the rubric of competitiveness and globalization."
Sen. Carl M. Levin (D-Mich.) said ceding control to overseas regulators would be a mistake.
"U.S. securities markets are already under enough stress -- we need to shore up investor confidence, not undermine it by weakening accounting standards and surrendering our oversight," he added.
