Effective March 4, SEC rules allow foreign private issuers listing securities in the United States to report exclusively in International Financial Reporting Standards (IFRS) without reconciling their financial statements to U.S. GAAP. Israel is second only to Canada in the number of foreign private issuers that register with the SEC and has recently adopted IFRS. The JofA spoke with Itamar Levin, editor of The Accountant, a publication of the Institute of Certified Public Accountants in Israel, on how the transition to IFRS has gone.
JofA: What are the major issues and challenges facing the accounting profession in Israel?
Levin: Our top ranking professional challenge is the implementation of the IFRS from Jan. 1, 2008. This is pure IFRS, not a version of it as has been done in Europe, and this is a very serious challenge for everyone who is involved in financial reporting. The second challenge touches upon the expectations gap and our need to explain to the public what auditors can and are authorized to do and what they cannot and are not authorized to do.
JofA: Israel has nearly completed its transition to IFRS. How has the transition gone?
Levin: Up to now, the implementation of the IFRS has been moving forward satisfactorily, but you can certainly understand that the real challenge is still in front of us, from the year 2008 and thereafter. In the first stage, public companies have been required to report about their preparations for the transition and, after that, about the main financial implications that are expected.
Personally, I think that the first two to three years will not be easy ones, to say the least, since what one is talking about is the replacement of the language in which the companies, the auditors, the analysts, the banks and the interested parties are talking—in effect we are talking about the entire economy. At the same time, one must not ignore the fear that exists that there might be people who will try to exploit the transition and do things that should not be done, especially in the field of the remuneration of management. All of this places a serious challenge in front of the supervisory authorities and also the auditing bodies, including the members of the Institute.
JofA: The U.S. SEC recently voted to allow foreign companies that list securities in the United States to drop the requirement to reconcile their financial statements to U.S. GAAP if they report using IFRS as published by the IASB. Will this encourage more Israeli companies to list on U.S. exchanges?
Levin: Israeli companies have been carrying out public offerings in the USA for many years. Israel is second only to Canada in the number of foreign companies that are traded in the USA. At the same time, in recent years more than a few Israeli companies have turned to the European markets, among other reasons, because of the regulatory and legal climate in the USA. In my opinion, the Israeli companies will carry out their flotations in a place where they can do so more easily and at a higher value. The removal of the requirement to reconcile financial statements to the U.S. GAAP is certainly gratefully received, as is any step that makes raising capital easier.