Is it possible to reconcile the dual objectives in a

They can help in many different situations. That decision helped save the company. When one of those board members noticed some troubling patterns, he dug into the books and discovered that unless DDD got serious about making money, it would have to shut down in a matter of months.

Senior leaders then made some tough but essential changes and turned DDD around. So they negotiated for an independent board of directors that would keep an eye on their mission and think beyond just profits and growth.

The senior team at Corning, for its part, creates guardrails of a different kind. Aware that product groups have a tendency to kill innovations that they feel will cannibalize existing revenue streams, the senior team puts the most promising innovation projects under the protection of a general manager in a separate part of the company. A springtime decision that pushes resources in one direction may need to be revised in the fall, when the context has changed.

This requires dynamic decision making. The best leaders in dual-purpose organizations consider their high-level principles sacrosanct but their ground-level decisions provisional. This is especially important in organizations with social-vs-financial tradeoffs to make.

Great for the mission, but not the most efficient way to optimize profits. Since then, the company has modified its practices to better meet its financial objectives: it has stuck to its mission of hiring underprivileged workers, but now it also screens them for analytical skills and learning capacity. DDD also engages in dynamic decision making when selecting new work locations, with an eye to keeping the company both mission-driven and financially sustainable.

For-profit companies also find it essential to revise decisions as new opportunities arise and new problems emerge. Lululemon, the yoga apparel manufacturer, initially grew based on a decentralized, employee-centric culture. Eventually the firm changed direction again, recommitting to employee development and pulling back on the aggressive growth goals.

In short, the company shifted dynamically over time—emphasizing first culture and then the business before ultimately finding a way to manage both. Dual-purpose organizations need leaders who are committed to managing the built-in tradeoffs. Leaders need to surface those tensions and adjudicate between them, adapting and adjusting constantly as the context changes. But eventually some of his more business-focused executives grew dismissive of the social mission, and Hockenstein had to let them go.

Recent events in the United States have highlighted the importance of high quality auditing standards and, at the same time, have raised questions about the effectiveness of today's audits and the audit process. Audit requirements may not be sufficiently developed in some countries to provide the level of enhanced reliability that investors in U. Nonetheless, audit firms should have a responsibility to adhere to the highest quality auditing practices -- on a world-wide basis -- to ensure that they are performing effective audits of global companies participating in the international capital markets.

To that end, we believe all member or affiliated firms performing audit work on a global audit client should follow the same body of high quality auditing practices even if adherence to these higher practices is not required by local laws. Audit Firms with Effective Quality Controls Accounting and auditing standards, while necessary, cannot by themselves ensure high quality financial reporting.

Audit firms with effective quality controls are a critical piece of the financial reporting infrastructure. Independent auditors must earn and maintain the confidence of the investing public by strict adherence to high quality standards of professional conduct that assure the public that auditors are truly independent and perform their responsibilities with integrity and objectivity.

As the U. Supreme Court has stated: "It is not enough that financial statements be accurate; the public must also perceive them as being accurate. Public faith in the reliability of a corporation's financial statements depends upon the public perception of the outside auditor as an independent professional The quality control policies and procedures applicable to a firm's accounting and auditing practice should include elements such as: 7 independence, integrity and objectivity; personnel management, including proper training and supervision; acceptance and continuance of clients and engagements; engagement performance; and monitoring.

A firm's system of quality control should provide the firm and investors with reasonable assurance that the firm's partners and staff are complying with the applicable professional standards and the firm's standards of quality. Historically, audit firms have developed internal quality control systems based on their domestic operations. However, as clients of audit firms have shifted their focus to global operations, audit firms have followed suit and now operate on a world-wide basis.

Therefore, quality controls within audit firms that rely on separate national systems may not be effective in a global operating environment. We are concerned that audit firms may not have developed and maintained adequate internal quality control systems at a global level.

Profession-Wide Quality Assurance The accounting profession should have a system to ensure quality in the performance of auditing engagements by its members.

In some jurisdictions the local accounting profession may have a system of quality assurance. However, structures focused on national organizations and geographic borders do not seem to be effective in an environment where firms are using a number of affiliates to audit enterprises in an increasingly integrated global environment.

Active Regulatory Oversight The U. Each of these elements is essential to the success of a high quality financial reporting framework. This oversight reinforces the development of high quality accounting and auditing standards and focuses them on the needs of investors.

It provides unbiased third party scrutiny of self-regulatory activities. Regulatory oversight also reinforces the application of accounting standards by registrants and their auditors in a rigorous and consistent manner and assists in ensuring a high quality audit function. The form and content requirements for financial statements filed with the Commission are set forth in Regulation S-X.

A foreign private issuer using accounting standards other than U. GAAP must provide an audited reconciliation to U. For example, we have amended our requirements for financial statements of foreign private issuers to permit use of certain IASC standards without reconciliation to U.

By requiring a U. GAAP reconciliation, with the exceptions noted above, we do not seek to establish a higher or lower disclosure standard for foreign companies than for domestic companies. Rather, the objective of this approach is to protect the interests of U. GAAP reconciliation requirement requires foreign issuers to supplement their home country financial statements. The total number of foreign reporting companies increased from in to approximately 1, currently.

Towards Convergence of Accounting Standards in a Global Environment In the past, different views of the role of financial reporting made it difficult to encourage convergence of accounting standards. Now, however, there appears to be a growing international consensus that financial reporting should provide high quality financial information that is comparable, consistent and transparent, in order to serve the needs of investors.

Over the last few years, we have witnessed an increasing convergence of accounting practices around the world. A number of factors have contributed to this convergence.

First, large multinational corporations have begun to apply their home country standards, which may permit more than one approach to an accounting issue, in a manner consistent with other bodies of standards such as IASC standards or U.

Second, the IASC has been encouraged to develop standards that provide transparent reporting and can be applied in a consistent and comparable fashion worldwide. Finally, securities regulators and national accounting standard-setters are increasingly seeking approaches in their standard-setting processes that are consistent with those of other standard-setters.

If convergence of disclosure and accounting standards contributes to an increase in the number of foreign companies that publicly offer or list securities in the U. Although the U. GAAP requires, current disparities in accounting practices may be a reason foreign companies do not list their securities on U.

As Congress has recognized, [E]stablishment of a high quality comprehensive set of generally accepted international accounting standards would greatly facilitate international financing activities and, most importantly, would enhance the ability of foreign corporations to access and list in the United States markets. GAAP, as a result of improvements in the quality of information available to both management and shareholders as a result of reporting under U.

Investors benefit when they have the ability to compare the performance of similar companies regardless of where those companies are domiciled or the country or region in which they operate.

Over the years, we have realized that foreign companies make their decisions about whether to offer or list securities in the United States for a variety of economic, financial, political, cultural and other reasons. Many of these reasons are unrelated to U.

These companies have indicated that they have forgone listing in the United States rather than follow accounting standards that they have not helped formulate. Therefore, accepting financial statements prepared using IASC standards without requiring a reconciliation to U. On the other hand, other factors could continue to deter foreign access to the U. For example, some foreign companies have expressed concern with the litigation exposure and certain public disclosure requirements that may accompany entrance into the U.

Development of the Core Standards Project After studying issues relating to international equity flows, IOSCO noted that development of a single disclosure document for use in cross-border offerings and listings would be facilitated by the development of internationally accepted accounting standards.

The focus of IOSCO's involvement in the core standards project is on use of IASC standards by large, multinational companies for cross-border capital-raising and listing.

We request your views on whether the IASC standards: 1. In responding to the requests for comment set forth below, please be specific in your response, explaining in detail your experience, if any, in applying IASC standards, and the factors you considered in forming your opinion. Please consider both our mandate for investor protection and the expected effect on market liquidity, competition, efficiency and capital formation. However, copies of the standards have been placed in our public reference rooms.

For your convenience, a listing of questions is included as Appendix A. Are the Core Standards Sufficiently Comprehensive? The goal of the core standards project was to address the necessary components of a reasonably complete set of accounting standards that would comprise a comprehensive body of principles for enterprises undertaking cross-border offerings and listings.

In developing the work program for the core standards project, IOSCO specified the minimum components of a set of "core standards" and identified issues to be addressed by the IASC.

Why or why not? GAAP for specialized industry issues in the primary financial statements or permit use of home country standards with reconciliation to U. Which approach would produce the most meaningful primary financial statements?

Is the approach of having the host country specify treatment for topics not addressed by the core standards a workable approach? Is there a better approach? Why or Why Not? When we refer to the need for high quality accounting standards, we mean that the standards must result in relevant, reliable information that is useful for investors, lenders, creditors and others who make capital allocation decisions.

To that end, the standards must i result in a consistent application that will allow investors to make a meaningful comparison of performance across time periods and among companies; ii provide for transparency, so that the nature and the accounting treatment of the underlying transactions are apparent to the user; and iii provide full disclosure, which includes information that supplements the basic financial statements, puts the presented information in context and facilitates an understanding of the accounting practices applied.

Such standards should: be consistent with an underlying accounting conceptual framework; result in comparable accounting by registrants for similar transactions, by avoiding or minimizing alternative accounting treatments; require consistent accounting policies from one period to the next; and be clear and unambiguous. In assessing the quality of the IASC standards, we are applying these criteria on a standard-by-standard basis, as well as to the IASC standards as a whole.

In comment letters submitted to the IASC, the SEC staff has raised concerns including, but not limited to: the ability to override an IAS where application of the IAS would not result in a "true and fair view" see IAS 1 ; the option to revalue property, plant and equipment to fair value see IAS 16 ; transition provisions that permit unrecognized minimum pension and employee benefit obligations see IAS 19 ; the amortization of negative goodwill to offset restructuring costs see IAS 22 ; unlimited useful lives for goodwill and other intangibles see IAS 22 and IAS 38 ; the capitalization of costs related to the development of internally generated intangible assets see IAS 38 ; the remeasurement of impaired assets at an amount other than fair value see IAS 36 ; and principles for derecognition of financial assets, and a modified form of basis adjustment for cash flow hedges, including hedges of anticipated transactions and firm commitments see IAS Indeed, we are seeking advice on any technical issues arising with respect to the IASC standards.

In general, we are seeking to determine whether preparers, auditors and users of financial statements have identified particular issues based on their experience with the IASC standards and whether they have developed strategies for addressing those issues.

We also would benefit from the public's views regarding whether any of the standards represent a significant improvement over U.

The focus of the staff's comments to the IASC has not been on the differences between the proposed standards and U. GAAP; rather, the staff focused on the quality of the proposed standards. An analysis of the differences, however, could serve as a useful tool for highlighting what differing information might be provided in financial statements prepared using IASC standards compared with U.

GAAP financial statements. GAAP are significant, the financial position and operating results reported under the IASC standards may be difficult to compare with results reported under U. The ability to make such a comparison is important for an investor making capital allocation decisions between U. Please provide us with your experience in using, auditing or analyzing the application of such standards. In addressing this issue, please analyze the quality of the standard s in terms of the criteria we established in the press release.

If you considered additional criteria, please identify them. We are particularly interested in investors' and analysts' experience with the IASC standards. Will any of these differences affect the usefulness of a foreign issuer's financial information reporting package? If so, which ones? GAAP put U. GAAP at a competitive disadvantage to foreign companies with respect to recognition, measurement or disclosure requirements?

If so, what are the specific aspects and reason s for your conclusion? If accounting standards are to satisfy the objective of having similar transactions and events accounted for in similar ways, preparers must recognize their responsibility to apply these standards in a way that is faithful to both the requirements and intent of the standards, and auditors and regulators around the world must insist on rigorous interpretation and application of those standards.

Otherwise, the comparability and transparency that are the objectives of common standards will be eroded. In this respect, it is difficult to evaluate the effectiveness of certain of the IASC standards at this stage. First, there is little direct use of IASC standards in developed capital markets. Second, even where IASC standards are used directly in those markets, a number of the new or revised standards may not have been implemented yet. Therefore, preparers, users and regulators may not have significant implementation experience with respect to those standards to assist us in our evaluation of the quality of the standards as they are applied.

In order for any body of standards to be able to be rigorously interpreted and applied, there must be a sufficient level of implementation guidance. Instead, they concentrate on statements of principles, an approach that is similar to some national standards outside the United States.

We believe that the requirements of an IASC standard are not limited to the black lettered sections and that compliance with both black and gray letter sections of IASC standards should be regarded as necessary.

Additionally, the IASC has published a basis for conclusions for only two of its standards. The basis for conclusion in U. Comparability may be achieved with respect to less detailed standards through common interpretation and practice by companies and auditors who are familiar with the standards.

Earlier standard-setting organizations in the United States, such as the Accounting Principles Board, followed this approach and developed less detailed standards. Our experience with that approach was not favorable, however, and led to the current organization and approach to standard-setting under the FASB. Do the IASC standards provide sufficient guidance to ensure consistent, comparable and transparent reporting of similar transactions by different enterprises?

Please provide specific examples. Are these issues that have been addressed by new or revised standards issued in the core standards project? If so, in what areas does this occur? Rigorous and consistent application of accounting standards also depends on implementation efforts of the standard-setter, auditors and regulators. There are concerns that current IASC standards may not be rigorously and consistently applied.

For example, a recent study authored by the former IASC secretary-general identifies non-compliance with IASC standards by a number of the companies surveyed. It also cites examples of auditors who failed to identify properly a lack of compliance with IASC requirements in their reports on an issuer's financial statements. The staff has received a number of requests to accept characterizations of business combinations as "unitings of interests" despite IAS 22's clear intention that uniting of interest accounting be used only in rare and limited circumstances.

In addition, the SEC staff, based on its review of filings involving foreign private issuers using IASC standards, has identified a number of situations involving not only inconsistent application of the standards but also misapplication of the standards. Do you believe that an effective infrastructure exists to ensure consistent application of the IASC standards?

If so, why? If not, what key elements of that infrastructure are missing? Who should be responsible for development of those elements? What is your estimate of how long it may take to develop each element? A standard-setter's responsibility for ensuring consistent application of its standards includes providing an effective mechanism for identifying and addressing interpretive questions in an expeditious fashion.

The IASC began addressing interpretive issues in with the creation of its Standing Interpretations Committee SIC to provide resolution of interpretive issues arising in the application of the IASC standards that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance. Has the SIC been effective at identifying areas where interpretive guidance is necessary?