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September 30, 2005    


The Honorable Charlie McCreevy
Member for Internal Market and Services
European Commission

The Honorable John W. Snow
Secretary of the US Department of the Treasury


Dear Commissioner McCreevy,
Dear Secretary Snow,


The European-American Business Council (EABC) is a leading business association active in representing US and EU companies on Trans-Atlantic trade and investment policies. EABC works to foster the continued integration and growth of the European and American economies, as well as the reduction of trade and investment barriers by speaking out on issues that fortify or threaten the Trans-Atlantic commercial relationship.

Cross-border acceptance of International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) in both the US and EU capital markets would be of great value in promoting investment and the efficient allocation of capital. The US Securities and Exchange Commission (SEC) under former Chairman Donaldson set a date of no later than 2009 for elimination of the reconciliation requirement from IFRS to US GAAP for SEC registrants through convergence of IFRS and US GAAP. We encourage and applaud the current dialogue to eliminate this barrier in the United States even sooner. It is with this benefit in mind that we feel compelled to comment on the potential creation of a new barrier, namely CESR’s (Committee of European Securities Regulators) final “Technical Advice on Equivalence of Certain Third Country GAAP and on Description of Certain Third Country Mechanisms of  Enforcement of Financial Information” (herein referred to as the “CESR recommendation”).

EABC Letter to The Honerable Charlie McCreevy and The Honorable John Snow, Page 2



If adopted by the European Commission, the results of the CESR  recommendation would likely add a new and substantial quarterly IFRS reporting requirement for listed entities that will significantly increase the costs of compliance for listing equity and debt securities in Europe. These costs will exceed the benefits to users and likely to multinational companies. We support the principle that financial statements should provide sufficient information to allow investors to make informed judgments. However, we do not believe a full reconciliation or supplemental disclosures from US GAAP to IFRS (or from IFRS to US GAAP) would significantly improve the majority of users’ current ability to make similar investment decisions given the current level of convergence and volume of publications addressing the differences between IFRS and US GAAP.

When the reconciliation requirement was adopted in 1982, the SEC focused on requiring registrants to disclose “similar” information. Given the advancements made in both technology and understanding of world-wide reporting over the past several years—specifically the prominence of IFRS and its broad similarity to US GAAP—we believe the SEC’s focus should now be on identification of areas of significant differences between IFRS and US GAAP and reducing those differences through either disclosure or convergence to enable investors to make informed investment decisions. In that respect, we believe reciprocal acceptance of IFRS and US GAAP financial information will achieve this aim.

Considering the good progress achieved on harmonizing IFRS and US GAAP as well as all the efforts and goodwill on both sides to come to agreement in a mutually satisfactory manner, our members are concerned that the amount of work required to comply with CESR’s recommendation will be equivalent to that as if CESR required a full reconciliation on a quarterly basis. In that regard, our members very much welcome CESR’s conclusion that companies reporting under US GAAP are - under no circumstances - expected to present a complete
reconciliation of their financial statement into IFRS. However, it would seem that in order to comply with the proposed recommendations, a full reconciliation will need to be undertaken at least internally. Therefore, we continue to believe that the burdens will not be minimal and that imposition of these requirements will not level the playing field or advance the goal of convergence.

While we understand that finding a mutually satisfactory solution is not an easy task, we would like to encourage you to be mindful of the end goal when setting current legislation. If the European Commission concludes that further information on US GAAP is required for European listings, we would highly encourage an approach that would require US GAAP filers to provide qualitative


EABC Letter to The Honerable Charlie McCreevy and The Honorable John Snow, Page 3



disclosures of the significant differences between US GAAP and IFRS that could have a material effect on that company. This would provide the information necessary for unsophisticated investors to understand the presentation of the financial information before making an investment decision. We greatly appreciate all efforts and strongly hope that EU and US officials and regulators resolve this issue on both sides of the Atlantic in a manner that will  encourage the growth in transatlantic trade. You can count on EABC’s support for any initiative that would further enhance and strengthen the transatlantic relationship. Please do not hesitate to call on us if we can be of any assistance.

Yours sincerely,

M. Maibach Signature Image
Michael C. Maibach
President






CC:     Christopher Cox, Chairman of the US Securities & Exchange Commission 
           Bob Herz, Chairman, Financial Accounting Standards Board
           Don Nicolaisen, Chief Accountant, Securities & Exchange Commission
           Richard Swift, Chairman, Financial Accounting Standards Advisory Council
           Sir David Tweedie, Chairman, International Accounting Standards Board
           Paul Volker, Chairman of the Trustees, International Accounting  Standards Committee Foundation