Corporate & Securities Law

By James Hamilton

IOSCO urges companies to disclose to investors the accounting standards that were used to prepare their annual report and other financial statements. Michel Prada, Chairman of the IOSCO Technical Committee, expressed concern that, with the convergence of global accounting standards, investors may assume that all company accounts are generally comparable when that may not be the case.

Put another way, regulators and issuers can no longer assume that investors will automatically be familiar with the jurisdiction in which an issuer company is based and the accounting standards that have been used. The tendency of investors and other users of financial statements to assume that all accounts are generally comparable exists particularly when IFRS as adopted by the IASB have been modified or adapted to
the particular circumstances of a national market. This raises the specter of investors making investment decisions without a full understanding of financial statements because they are not fully aware of the basis on which they are prepared, and of the accounting standards that underpin the company's policies.

Thus, IOSCO recommends that companies preparing their annual and interim financial statements on the basis of IFRS should inform investors if they are using IFRS as adopted by the IASB or IFRS as modified by national standards and, if so, how the modified IFRS differ from the IASB variety. Those companies should also include, at a minimum, a clear statement of the reporting framework on which the accounting policies are based and the accounting policies on all material accounting areas. They should also disclose an explanation of where the accounting standards that underpin the policies can be found. IOSCO believes that the risk of misunderstanding can be mitigated by this type of disclosure.

Full post as published by Jim Hamilton's World of Securities Regulation on February 12, 2008 (boomark / email).