The London Stock Exchange has responded to CESR's Concept Paper on how they intend to measure equivalence of certain third country GAAP and IAS. We believe this issue is a very important one for both existing and prospective third country issuers and we see the establishment of a workable and practical methodology which can provide clarity to the market as a key priority.
We are supportive of much of the approach taken by CESR, in particular that they make a “global and holistic assessment … based on the entirety of the third country GAAP” and that the assessment should focus only on the significant differences between the third country GAAP and IAS/IFRS.
However, we believe it is crucial that when making their assessment, CESR focuses on users who “have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence” - i.e. professionals such as analysts and fund managers. This is because private investors do not typically rely on accounts since most ‘non-domestic’ investment is in mutual funds - and where direct investments are made, they will be protected by other means such as suitability and appropriate tests as well as other conduct of business rules under the Markets in Financial Instruments Directive.
In addition, we welcome the provision of remedies. However, following on from the assumption that the accounts are aimed at professional investors, we believe that disclosure should be a suitable remedy in most cases.
The original consultation is available at www.cesr-eu.org