An increasing number of European companies are listing in the USA. These companies must report in US Gaap and in IFRS back in their respective countries in Europe. By August 2007 there were an estimated 160 European companies listed on the New York Stock Exchange. Their shares trade through An American Depositary Receipt (or ADR). ADR represents ownership in the shares of a foreign company trading on US financial markets. ADRs enable US investors to buy shares in foreign companies without undertaking cross–border transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US–based companies.
The US FASB and the Intenational Accounting Standard Board have drawn a road map to accelerate convergence between the two sets of standards.
According to the accouncement by the two standard setters last year, after their joint meeting in September 2002, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued the Norwalk Agreement in which they ’each acknowledged their commitment to the development of high quality, compatible accounting standards that could be used for both domestic and cross–border financial reporting. At that meeting, the FASB and the IASB pledged to use their best efforts (a) to make their existing financial reporting standards fully compatible as soon as is practicable and (b) to co–ordinate their future work programmes to ensure that once achieved, compatibility is maintained.’
At a subsequent meetings in April and October 2005, the FASB and the IASB reaffirmed their commitment to the convergence of US generally accepted accounting principles (US GAAP) and International Financial Reporting Standards (IFRSs). A common set of high quality global standards remains the long–term strategic priority of both the FASB and the IASB.
The FASB and the IASB recognise the relevance of the roadmap for the removal of the need for the reconciliation requirement for non–US companies that use IFRSs and are registered in the United States. It has been noted that the removal of this reconciliation requirement would depend on, among other things, the effective implementation of IFRSs in financial statements across companies and jurisdictions, and measurable progress in addressing priority issues on the IASB–FASB convergence programme. Therefore, the ability to meet the objective set out by the roadmap depends upon the efforts and actions of many parties–including companies, auditors, investors, standard–setters and regulators.