Nearly two-thirds of American investors own securities of non-U.S. companies. As international trade has exploded over the past five years, the job of protecting U.S. investors has become far more complicated. “Not only is cross-border business and investment activity at an all-time high, so is the risk of a securities fraud that can involve a half-dozen or more countries,” says U.S. Securities and Exchange Commission (SEC) Christopher Cox. “Doing business abroad is no longer just the province of large, multinational companies.” says Cox. “The lack of transparency and reliable financial information has made emerging-market stocks one of the most volatile asset classes in the world.”
In his address on to the AICPA conference in Washington last month, Cox reported on the progress over 100 nations are making on the development of International Financial Reporting Standards and the adoption of eXtensible Business Reporting Language (XBRL). “There is a large risk, he says, in the rapid increase in global trading and investment that is getting ahead of the ability of accounting standards and financial analysis to provide investors with comparable information in a form they can readily use and understand.” U.S. investors are not used to the “shark-infested seas” of international trade compared to the “relatively placid safe harbors at home,” he said, “while investors around the world are discovering, the hard way, the need for transparency and the rule of law.”
The best way to protect investors in a global economy, from the SEC’s perspective is to ensure that financial reporting information from different countries is comparable and reliable and that, in markets at least, the world speaks a common language. Today the chairman spends nearly half his time in helping to make that happen.
From the SEC’s perspective, Cox declared, “IFRS is coming. XBRL is coming. And mutual recognition is coming.” The full text of his address is available on the SEC website, in which he details the progress that has been made in each of these areas.
Mutual recognition would in theory allow U.S. investors to have the benefit of direct access to foreign markets, or possibly foreign broker-dealers, provided those entities are supervised in a foreign jurisdiction with high standards under a securities regulatory regime that is substantially comparable (though not necessarily identical) to that in the United States.
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