SEC report card 2007; The commission tackled proxy access, Sarbanes-Oxley refinements, terrorism ties, securities markets globalization, and other business and financial-reporting developments. How did it measure up?

Directors & Boards, Summer, 2008 by Ralph Ferrara, Riva Khoshaba Parker, Joseph J. Migas

Although no changes have yet been made, it is refreshing that the SEC has finally tuned in to what specialists have long complained about: that a reporting system in place 30 years ago is antiquated and inaccurate when it comes to giving investors a true valuation of a company's assets in an increasingly technology-driven and global industry. The move to reevaluate the reserves reporting process, after more than a decade of deafness, earns the SEC a "C" for effort; we will grade the final exam next year.

3. Moving from U.S. to international accounting standards

A CYRRENTLY, THE SEC REQUIRES that companies report their financials according to the U.S. Generally Accepted Accounting Principles, or GAAP. Foreign companies are usually required to follow International Financial Reporting Standards, or IFRS, in their home jurisdictions, and had to undertake a complicated and sometimes costly reconciliation with U.S. GAAP. In a move that recognizes the increasingly competitive global landscape for securities, Chairman Cox eliminated the reconciliation requirement for foreign companies trading in the U.S. This move will begin to rehabilitate the increasingly pervasive image that U.S. markets carry unwieldy regulatory burdens relative to other highly attractive markets, such as London and Hong Kong. The SEC also proposed allowing U.S. companies to choose whether to file under GAAP or IFRS.

The move away from U.S. GAAP is significant in two respects: first, it recognizes a global rejection of GAAP; and second, by allowing U.S. companies to file using IFRS, the SEC would avoid giving foreign companies the advantage that the more flexible IFRS would allow. More importantly, it indicates that the SEC is moving towards a truly global accounting standard--welcome news in the increasingly global marketplace. If it follows through on this effort, the SEC will have earned itself an "A ."

4. Shift towards more global awareness

A ALLOWING COMPANIES to choose between IFRS and GAAP is just one (albeit significant) initiative that indicates that the SEC is increasingly opening itself to a global paradigm. The SEC approved the merger of New York Stock Exchange parent NYSE Group Inc. and the European exchange operator Euronext NV. The SEC has also floated the idea that it will consider allowing foreign brokers to service U.S. investors without requiring them to register in the U.S., provided their home jurisdiction's regime is "substantively comparable" to the SEC's. The SEC also announced its plans to open an overseas office in London or Brussels, and potentially in Asia as well. All these increasingly global moves indicate an SEC that has embarked on a new era of cooperation with its counterparts in foreign jurisdictions. But it also indicates an agency willing at last to recognize the legitimacy and effectiveness of foreign regulators and different (if "substantively comparable") regulatory regimes. The move towards globalization indicates that cooperation among regulators is only likely to increase, and companies must continue to be mindful of the risks, as well as benefits, of operating in a global economy. The SEC's embrace of globalization earns it another "A."