WEBMASTER NOTE: This is the unedited transcript of the Roundtable on the
            International Financial Reporting Standards "Roadmap" held on March 6, 2007,
            which we received directly from the court reporter. We are posting the
            transcript in this form to make it available as soon as possible. 



             1        THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION

             2

             3

             4

             5

             6            INTERNATIONAL FINANCIAL REPORTING STANDARDS

             7                         ROADMAP ROUNDTABLE

             8

             9

            10                       Tuesday, March 6, 2007

            11                       10:00 a.m.- 5:30 p.m.

            12

            13

            14          United States Securities and Exchange Commission

            15                      100 F Street, Northeast

            16                          Washington, D.C.

            17

            18

            19

            20

            21

            22

            23

            24                Diversified Reporting Services, Inc.

            25                           (202) 467-9200






             1                          C O N T E N T S

             2                                                            PAGE

             3   Call to Order                                               3

             4

             5   Introductions by Professor Hal Scott                        5

             6

             7   Opening Remarks by:

             8              Christopher Cox, Chairman,                       8

             9              U.S. Securities and Exchange Commission

            10

            11              Charlie McCreevy, European Commissioner         22

            12              for the Internal Market and Services

            13

            14   Panel 1:  Effect on the Capital Raising Process            31

            15             in the U.S. Capital Markets

            16

            17   Panel 2:  Effect on Investors                              98

            18             in the U.S. Capital Markets

            19

            20   Panel 3:  Effect on Issuers                               167

            21             in the U.S. Capital Markets

            22

            23   Closing Remarks                                           227

            24

            25






             1                       P R O C E E D I N G S

             2             MR. WHITE:  Good morning.  Welcome to the SEC

             3   staff's Roundtable on International Financial Reporting

             4   Standards, or IFRS, and their effect on U.S. capital markets.

             5             I am John White, director of the Division of

             6   Corporation Finance.  And on behalf of Ethiopas Tafara,

             7   director of the Office of International Affairs; Conrad

             8   Hewitt, the Commission's chief accountant; and myself, I want

             9   to thank all of the panelists and the public audience for

            10   being here today for this important program.

            11             Our principal goal today is to obtain input on the

            12   potential effects of a coexistence without reconciliation of

            13   the IFRS and U.S. GAAP reporting models on the various

            14   participants in the U.S. capital markets.  And I would like

            15   to begin by outlining what we have planned for the rest of

            16   the day.

            17             First, SEC Chairman Chris Cox will share with us

            18   his thoughts on the roadmap to ending reconciliation.

            19             His comments will be followed by remarks by

            20   European Commissioner of the Internal Marketing Services,

            21   Charlie McCreevy.

            22             Chairman Cox and Commissioner McCreevy will be

            23   introduced by Professor Hal Scott, the Nomura professor and

            24   director of the Program on International Financial Systems at

            25   the Harvard Law School.  Professor Scott has taught at the






             1   law school for over 30 years.  His courses include capital

             2   markets regulation, international finance, and securities

             3   regulation.  He is also a director of the Committee on

             4   Capital Markets Regulation.

             5             After Chairman Cox's and Commissioner McCreevy's

             6   remarks, we will then move directly to the first of three

             7   roundtable panels that will look at the effects of

             8   reconciliation and the possible elimination of reconciliation

             9   on the capital raising process in the United States.

            10             We will then take a break at approximately 12:30. I

            11   should point out that, if you are looking for lunch, there

            12   are a number of places in Union Station, both sit-down

            13   restaurants, and there is a large food court downstairs. You

            14   go back out the same way you came in.  Go through security,

            15   take a right, and you will have to come back through security

            16   when you come back in the afternoon.

            17             Our second roundtable panel will begin at 1:45, and

            18   it will focus on the effect on investors in the U.S. capital

            19   markets.  That should go until about 3:30.

            20             We will take a 15-minute break.

            21             And then our third and final panel will begin at

            22   3:45 and will focus on the effects on issuers, both foreign

            23   and domestic.

            24             And we are particularly fortunate to have on the

            25   final panel Don Nicolaisen, the former chief accountant of






             1   the SEC, who, in April of 2005, first described the roadmap

             2   for eliminating the requirement for non-U.S. companies to

             3   reconcile to U.S. GAAP the financial statements they prepare

             4   using IFRS, as issued by the International Accounting

             5   Standards Board.

             6             We expect to conclude this roundtable at around

             7   5:30.

             8             Now, I was also handed this long sheet of paper

             9   about how to evacuate this building in case of emergencies.

            10   And I'm not going to read the whole thing through, but there

            11   are exits in back, there are exits on the side.  There are

            12   all kinds of directions when you go those places, if you have

            13   to evacuate.  If there is a shelter-in-place incident, stay

            14   here, and we will give you additional instructions.

            15             I hope, Chairman Cox, that I got that all right.

            16             With that, I will turn it over to Professor Scott.

            17             PROFESSOR SCOTT:  Thank you.  It is an honor and a

            18   pleasure to introduce today two men who are, separately and

            19   together, making key contributions to ensuring that we have

            20   the right regulatory framework for the global financial

            21   system for the 21st Century.

            22             One of the most important features of this system

            23   -- perhaps even the most important -- is the accounting

            24   system.  A global financial system ultimately requires, in my

            25   view, a global accounting framework, whether this is to






             1   achieved by a single set of rules, or through mutual

             2   recognition, or choice among a few of the best rules.

             3             The EU and the SEC have taken an important step in

             4   this direction by a commitment to a roadmap under which the

             5   U.S. would accept IFRS by 2009 -- which, as you know, is the

             6   Europe accounting standard -- and the EU would continue to

             7   accept U.S. GAAP.

             8             An important issue in meeting this objective is to

             9   understand the impact of differences in the two standards. We

            10   should learn a lot about this from the IFRS-U.S. GAAP

            11   reconciliations now being filed in the U.S.  The differences

            12   between these two standards should continue to narrow as a

            13   result of the FASB-IASB convergence project.

            14             Equally important is to gain an understanding as to

            15   how IFRS will be enforced in the EU member states and

            16   elsewhere where it has been adopted.  The acceptance of IFRS

            17   in the U.S. will be an important change, and it is incumbent

            18   that there be open and serious discussions between now and

            19   2009 as to how this will actually work.

            20             Accounting standards may be arcane to some, but

            21   they are the bedrock of the financial system and, ultimately,

            22   the economy as a whole.

            23             The Committee on Capital Markets Regulation, which

            24   I am privileged to serve on, made a number of recommendations

            25   for improving the competitiveness of the U.S. capital






             1   markets.  Fortunately, given the roadmap, we did not need to

             2   advocate U.S. recognition of IFRS.  However, it should be

             3   kept in mind that permitting foreign companies to use IFRS to

             4   lower the costs of foreign companies publicly issuing their

             5   securities in the U.S. can allow U.S. investors to invest in

             6   these securities under U.S. disclosure rules.

             7             Let me now introduce our principals.

             8             Commissioner McCreevy is the European commissioner

             9   for the internal market, a position he has held since 2004.

            10   Prior to that time, he served in a number of positions in the

            11   Irish government, including minister of finance.

            12             He has championed many internal market reforms

            13   within the EU to perfect the achievement of a single market,

            14   including the Prospectus, Transparency, and MiFIA Directives.

            15   He has also been instrumental in greatly improving the law

            16   and regulatory process for the EU.

            17             He was instrumental in the creation of the roadmap

            18   in April 2005 and its reconfirmation at his meeting with

            19   Chairman Cox in February of 2006.  He has made further

            20   integration of the EU and U.S. capital markets a major

            21   priority.

            22             And let us not forget that he is a member of the

            23   Institute of Chartered Accountants.

            24             Chairman Cox, after a distinguished career in the

            25   U.S. Congress, became the chairman of the SEC in August of






             1   2005.

             2             Since coming here, Chairman Cox has been

             3   instrumental in pursuing a consensual approach of the

             4   Commission to the resolution of a number of controversy

             5   issues -- for example, the Commission's policy on civil

             6   penalties.

             7             Like Commissioner McCreevy, Chairman Cox has

             8   demonstrated his commitment to the development of capital

             9   markets.  The current Commission proposals on deregistration

            10   and the implementation of Section 404 of Sarbanes-Oxley have

            11   been responsive, in part, to European concerns, as well as

            12   the competitive position of the United States.  The Chairman

            13   has led the way in showing that investor protection and

            14   increased U.S. competitiveness can both be achieved through

            15   the right combination of sound policies.

            16             And I would be remiss if I didn't note that

            17   Chairman Cox received an MBA from Harvard Business School

            18   and, more importantly, a JD from Harvard Law School.

            19             We in the world are fortunate to have these two

            20   talent and dedicated leaders.  Thank you.

            21             CHAIRMAN COX:  Thank you very much, Hal.  I want to

            22   join in welcoming everyone that is here -- and some that

            23   aren't, because others will be able to participate in these

            24   proceedings remotely or by our publication and transmission

            25   of all that goes on here today.






             1             I want particularly to point out that I am joined

             2   here this morning by two of my fellow Commissioners, Roel

             3   Campos and Kathleen Casey.  And, throughout the day, all of

             4   the members the Commission will be here because of the

             5   importance that we attach to what we are talking about this

             6   morning at the SEC's Roundtable on our International

             7   Financial Reporting Standards Roadmap.  Oh, and Commissioner

             8   Nazareth is already here, as well.  So we are almost at full

             9   strength right now.  Perhaps we should call a quick vote.

            10             Today's forum is focused both on next steps and on

            11   looking back at where we have been.  It has been two years

            12   since our then-chief accountant, Don Nicolaisen, first laid

            13   out the roadmap, which, as Hal pointed out, I endorsed as

            14   Chairman, just a few months later.

            15             But this has been a much longer journey than that.

            16   Eleven years ago, in the National Capital Markets Efficiency

            17   Act, the Congress directed the SEC to give vigorous support

            18   to the development the high-quality international accounting

            19   standards as soon as practicable.

            20             Four years later -- in February 2000 -- the SEC

            21   issued a concept release that solicited comment on whether we

            22   should consider accepting IFRS in the United States.

            23             Two years after that, when Enron and the wave of

            24   the accounting scandals that followed called into question

            25   the intensely rule-based approach of U.S. GAAP, Congress






             1   again urged us to take action.  In Section 108(d)(1) of the

             2   Sarbanes-Oxley Act, the SEC was directed to study, quote,

             3   "the adoption by the United States of a principles-based

             4   accounting system."  SOX expressly required that we examine

             5   the length of time that would be necessary to change from a

             6   rule-based to a principles-based financial reporting system.

             7             And so, in 2002, with the SEC's express support,

             8   the FASB and the IASB began in earnest to achieve short-term

             9   convergence between their respective sets of accounting

            10   standards.

            11             In the Norwalk Agreement that was struck between

            12   the FASB and the IASB in September of 2002, the respective

            13   boards agreed to work toward making their existing financial

            14   reporting standards fully compatible "as soon as is

            15   practicable."  Those were the words in the Norwalk Agreement

            16   -- the phrase that was used by Congress in the National

            17   Capital Markets Efficiency Act.

            18             That same year, the European Parliament and the

            19   Council of the European Union determined that all listed

            20   European companies -- including banks and insurance companies

            21   -- would have to prepare their consolidated financial

            22   statements using IFRS beginning in 2005.

            23             So when the roadmap was laid out two years ago, we

            24   had already covered a lot of ground.

            25             The roadmap commits us to eliminating the current






             1   U.S. GAAP reconciliation requirement, with the result that

             2   eligible firms listing on U.S. exchanges could choose whether

             3   to report under IFRS or U.S. GAAP.  And if an issuer chose

             4   IFRS, it would not be required to reconcile the differences

             5   with GAAP, just as, today, issuers reporting under U.S. GAAP

             6   are not required to reconcile the differences with IFRS.

             7             Once it was unveiled, the roadmap took on a life of

             8   its own.  Governments, regulators, and standard setters

             9   around the world have been relying on it to determine their

            10   actions.  We are committed to this process, and we are not

            11   looking back.

            12             Have you ever tried to re-fold a roadmap?  It's not

            13   pretty.  Not only is it impossible to divine which side folds

            14   where, but, usually, we undertake this while the car is in

            15   motion, while the driver is yelling, and probably while you

            16   are not entirely sure if you are on the right track

            17   -- because, otherwise, you wouldn't need a map in the first

            18   place.

            19             So we are not going to re-fold the map or try to

            20   stuff it, all mutilated, back into glove box.  I am here to

            21   tell you, as I have said before, that I and the SEC are

            22   committed to the roadmap.

            23             And, in that regard, I would like particularly like

            24   to welcome EU Internal Markets Commissioner Charlie McCreevy

            25   because I know that he, too, and the EU are, likewise,






             1   committed to the roadmap.

             2             As the world securities markets continue to

             3   integrate, it is easy to imagine that this process is

             4   inevitable, inexorable, somehow impelled by forces of nature. 

             5   But everyone in this room knows that you all bear a special

             6   burden.  It's a lot of work, every day, to make this

             7   happen -- to turn that vision of seamless integration into

             8   reality.

             9             As issuers and investors increasingly look beyond

            10   their borders for opportunities to invest or to raise

            11   capital, it is critical that the financial information that

            12   they use to make their decision be both accurate and timely.

            13             One of the obstacles that investors have to

            14   overcome in making their investment decisions is the

            15   different ways that information might be presented to them.

            16   Sometimes the differences are due simply to the happenstance

            17   of the country in which an issuer happens to find itself.

            18   That's why virtually everyone -- issuers, investors,

            19   stakeholders of all kinds -- agree that the world's capital

            20   markets would benefit from the widespread acceptance and use

            21   of high-quality global accounting standards.

            22             The rationale for a global standard, instead of the

            23   babble of competing and sometimes contradictory national

            24   standards, has been often stated.  But it is so important

            25   that it bears repeating:  Global accounting standards would






             1   improve investor confidence in the market, so long as the

             2   standards are high quality, comprehensive, and rigorously

             3   applied.

             4             They would allow investors to draw better

             5   comparisons among investment options.  They would also lower

             6   costs for issuers, who would no longer have to incur the cost

             7   of preparing financial statements using different sets of

             8   financial reporting standards.  And those lower costs, in

             9   turn, would benefit investors, who ultimately bear the burden

            10   of the entire cost of the financial reporting system.

            11             The purpose of today's roundtable on the roadmap is

            12   to consider the possibility that IFRS and U.S. GAAP might

            13   coexist in U.S. capital markets and to assess the impact that

            14   this would have on capital markets in the U.S., on the

            15   decisions that investors make, and on our program of investor

            16   protection.

            17             Not only the European Union, but also many other

            18   nations -- including Canada, Australia, New Zealand, Israel,

            19   China, and Hong Kong -- are adopting IFRS.  And so, without

            20   question, it is becoming a widely used set of standards.

            21             But we shouldn't forget that it is also a new set

            22   of standards.  IFRS has existed as a truly comprehensive set

            23   of accounting standards for only a few years.  And because of

            24   that relative newness, it necessarily has a limited history

            25   of interpretation and application.  We are all now engaged in






             1   the exercise of ensuring that IFRS is being applied

             2   consistently, faithfully, and transparently.

             3             This exercise is of importance, of course, to our

             4   friend in the European Community because consistency and

             5   faithfulness in the interpretation and application of IFRS

             6   are critical to the creation of a seamless integrated capital

             7   market comprising the EU's 25 member states.

             8             The exercise is also of critical importance to us

             9   here at the SEC.  Allowing the use of two different sets of

            10   accounting standards in the United States would mark a

            11   significant change for us, but allowing two standards is a

            12   nothing compared to allowing two dozen.  And, for that

            13   reason, we have got to be able to demonstrate that IFRS is

            14   indeed a single set of international accounting standards and

            15   not a multiplicity of standards going by the same name.

            16             It is the premise of the roadmap that, if we can do

            17   this, that the potential benefits to U.S. investors of

            18   allowing the use of IFRS in the United States almost

            19   certainly outweigh the risks and the costs.

            20             These benefits include increased investor access to

            21   foreign investment opportunities and entry into the U.S.

            22   capital markets by issuers that might otherwise be deterred

            23   from listing here because of cost of reconciling their

            24   financial statements to U.S. GAAP.

            25             The risk, by contrast, is not that IFRS isn't of






             1   high enough quality to provide U.S. investors with adequate

             2   information about the companies in which they invest, but,

             3   rather, that financial statements prepared using IFRS might

             4   not be comparable with one another because of a lack of

             5   consistent, uniform application.

             6             That imperative of consistent application and

             7   interpretation depends on policy makers, on governments, on

             8   issuers, and on accountants.  Regulators, such as the

             9   Securities and Exchange Commission, also play a role because

            10   it is our job to review financial statements, whether they

            11   are filed using IFRS or U.S. GAAP, to see whether the

            12   accounting standards are being applied consistently and

            13   faithfully.

            14             Last summer, we saw the first wave of filings by

            15   non-U.S. companies using IFRS.  While the number of IFRS

            16   filings was smaller than we had expected it would be, those

            17   that we did receive were helpful in orienting us to the kinds

            18   of issues that we can expect to see as number of filings

            19   rises over the next few years.

            20             While these were the first IFRS filings we have had

            21   the opportunity to review, the SEC has long been in the

            22   business of reviewing filings by foreign private issuers. The

            23   kind of review that the SEC staff has done of these first

            24   IFRS filings is the same that we have done for years for

            25   filings reconciled to U.S. GAAP.






             1             But, given the relative newness of IFRS, the staff

             2   of the Office of the Chief Accountant and the Division of

             3   Corporation Finance have worked hard to understand the new

             4   standards and how issuers are using them to state their

             5   financial results.

             6             The initial comments of staff reviewing these

             7   filings are most appropriately described as

             8   information-seeking.  They are not intended to be conclusions

             9   about the application of IFRS.  They are instead meant to be

            10   an effort to better understand things that might be unclear,

            11   or call attention to things that may be omitted.

            12             I want to emphasize that the staff's comment

            13   letters should not be viewed as an attempt to straight-jacket

            14   the interpretation of IFRS, or to make it a more rules-based

            15   and less principle-based system.  It's one thing to say that

            16   IFRS should be interpreted and applied consistently and

            17   another thing to say that it should be stripped of its

            18   flexibility business and its essential principles-based

            19   nature.

            20             One of America's early icons, a rough-and-tumble

            21   frontier lawyer, who Tennessee's first Congressman, once

            22   memorably said that, "It's a damn poor mind indeed that can't

            23   think of at least two ways to spell the same word."

            24             Old Hickory, as he came to be known, was our

            25   seventh President, and Andy Jackson's folk wisdom is






             1   appreciated today by some of the great Americans who work in

             2   the Division of Corporation Finance and the Office of the

             3   Chief Accountant.  They know as well as anyone that, the same

             4   way that a poem or a short story or a novel or a play is

             5   subject to multiple interpretations, so are the standards set

             6   forth in IFRS, even if accounting standards don't often rise

             7   to the level of poetry.

             8             But just as is it true that any piece of literature

             9   can be subject to multiple interpretations, it is also true

            10   that some interpretations can be incomplete, or just wrong.

            11   For example, an essay on Moby Dick that doesn't mention the

            12   whale may raise questions that the writer has perhaps missed

            13   something important.  Or when an essay on Hamlet begins with

            14   the statement that Lady Macbeth is the key to understanding

            15   the play, we know that something has gone terribly wrong.

            16             So while there may be more than one reasonable

            17   interpretation or understanding, that interpretation or

            18   understanding has to be susceptible to explanation. And a

            19   comment letter that asks for more detail or greater

            20   explanation doesn't mean that the SEC is trying to impose its

            21   own interpretation.  We and others around the world will

            22   instead be focusing on a shared understanding of the

            23   principles of IFRS.

            24             To this end, the SEC and the Committee of European

            25   Securities Regulators have entered into a joint work plan to






             1   further the consistent and faithful application of accounting

             2   standards.

             3             The work plan provides a forum in which the SEC and

             4   the EU regulators can discuss questions about the application

             5   of accounting standards.  The work plan helps foster

             6   consistency and faithfulness by helping regulators to avoid

             7   conflicting decisions.

             8             The process is very much collaborative, and it

             9   recognizes that, by their very nature, neither IFRS nor U.S.

            10   GAAP is the exclusive purview of a particular regulator, but,

            11   rather, they are public goods for the common benefit of many. 

            12   By consulting with each other, the SEC and the CESR staff can

            13   help ensure that high-quality global accounting standards are

            14   consistently interpreted and faithfully applied.

            15             At the same time, FASB and the IASB have embarked

            16   on a project to converge accounting standards, which, as I

            17   noted, was formalized in the Norwalk Agreement.  Over the

            18   past few years, these efforts have gone far to reduce

            19   differences between the two sets of standards.  And, by all

            20   accounts, they have improved both IFRS and U.S. GAAP in the

            21   process.

            22             But accounting standards are complicated, and this

            23   process can be difficult.  And that inherent difficulty has

            24   led some to the view that the convergence of IFRS and U.S.

            25   GAAP is ultimately impossible; thus, rendering the






             1   elimination of the reconciliation requirement an eternally

             2   unattainable goal.

             3             So let me repeat that we don't expect to see total

             4   convergence, or even a specific level of convergence, before

             5   eliminating the reconciliation requirement.  Instead, there

             6   must be a robust and active process for converging IFRS and

             7   U.S. GAAP.  If the process is in place, then the current

             8   differences will be minimized in due course.

             9             This is hard work, but the benefits for investors

            10   in our markets, if we are successful, are enormous. 

            11   Convergence of IFRS and U.S. GAAP will allow the United

            12   States and markets around the world to capitalize on the

            13   benefits of a single set of globally-accepted accounting

            14   standards.  And the process of reducing the differences

            15   between IFRS and U.S. GAAP gives us the opportunity at the

            16   same time of taking both to the highest-quality level. That's

            17   why the SEC originally committed to the roadmap and why,

            18   years later, we are still committed.

            19             That original commitment was enormously

            20   consequential because it implied a great deal.  It meant that

            21   IFRS and U.S. GAAP would some day compete freely in America's

            22   capital markets, and that two accounting systems would

            23   operate side by side -- at least, until the process of

            24   convergence concludes with actual convergence and there is

            25   truly one global accounting standard and seamless






             1   international comparability in reporting.

             2             It meant that issuers, markets, and investors would

             3   have a choice because they -- not the government -- could

             4   decide between IFRS and U.S. GAAP.

             5             And it meant that the SEC was seriously

             6   contemplating a system in which, not only foreign issuers,

             7   but also domestic issuers, will have that choice.

             8             Most importantly, it meant that the work of

             9   standard setters toward convergence of the two systems that

            10   is ongoing here in the United States, at the IASB, and in

            11   every nation that is implementing IFRS will not be of

            12   infinite duration.

            13             As the name implies, the roadmap has a destination

            14   and an estimated time of arrival.  We are now less than two

            15   years away from our planned arrival at the intended

            16   destination.  Whether or not complete conversion is

            17   susceptible of practical implementation in the short term,

            18   the elimination of the present reconciliation requirement is

            19   not dependent upon the FASB and the IFRS resolving all major

            20   differences between their regimes.  As I said, rather, it

            21   requires sustained progress toward that goal.

            22             It is a significant implication of the roadmap

            23   that, once the reconciliation requirement is lifted, there

            24   will be no incentive for delay in truly converging IFRS and

            25   U.S. GAAP.






             1             The roadmap isn't an article of faith.  It's a

             2   plan -- nothing more or less.  And just as with the garden

             3   variety roadmap, every once in a while, it pays to stop and

             4   ask questions about the particular route that we have chosen

             5   answer.  And that is why we have convened this distinguished

             6   group of panelists today, drawn from those who play a vital

             7   role in the capital raising process.

             8             We are interested in multiple points of view --

             9   from issuers, accountants, investors, credit rating agencies,

            10   investment bankers, lawyers, and directors.  Because all of

            11   these people -- all of you -- are observing this process

            12   firsthand, you are the experts.  We aim to be empiricists and

            13   to learn from your experience.

            14             Twenty-three centuries ago, Aristotle concluded

            15   that heavier bodies fell faster than lighter ones because it

            16   seemed logical that they would.  For almost two millennia

            17   afterward, just about everybody believed that that was true,

            18   not only because it seem logical to them, as well, but also

            19   because Aristotle had said so.  It was not until Galileo

            20   constructed a carefully conceived series of experiments and

            21   meticulously observed and reported the results was it proved

            22   once and for all that bodies fall at the same rate of speed,

            23   whatever their weight.

            24             And as important as that discovery was, the far

            25   more important consequence was the triumph of empirical






             1   observation over ivory tower analysis -- or, as the great

             2   American sage and New York Yankee legend Yogi Berra, an

             3   unheralded empiricist, once said, you can observe a lot just

             4   by watching.  And you can learn a lot just by listening.

             5             As a matter of theory, the benefits of eliminating

             6   the reconciliation requirement seem reasonable and logical.

             7   What remains to be determined is whether those benefits can

             8   be and will be achieved in practice.

             9             That is the reason the SEC is hosting this

            10   roundtable and why, as Yogi might put it, it is now my turn

            11   to observe by watching.

            12             Thank you to all of our panelists and presenters

            13   who are here today.  I look forward to what will surely be an

            14   illuminating discussion.  I know that we will accomplish a

            15   lot of good today.

            16             MR. MCCREEVY:  Firstly, thank you, Chris, for the

            17   invitation to take part in this roundtable.  And also thanks

            18   to you, Professor Scott, for your very kind words of

            19   introduction and for you own pioneering work over many years.

            20             Now, this is all further proof of the close and

            21   effective cooperation the SEC and the European Commission

            22   have established.  I am very pleased about what we have

            23   already achieved together.  It is of great practical

            24   importance to all of our citizens and to our businesses, and

            25   I would like to commend you on your leadership.






             1             Capital markets are global.  Our financial markets

             2   are becoming ever more close to integrations and can no

             3   longer be viewed in isolation.  Global markets, the global

             4   standards, and global regulatory cooperation -- this is the

             5   only way to ensure proper investor protection and to promote

             6   transparency and efficiency.

             7             We are destined to work together more, on

             8   securities regulation, banking, insurance, and so on.  I note

             9   that the G7 finance ministers, in Essen last month, urged

            10   that we should now, and I quote, "explore free trade in

            11   securities based on mutual recognition of regulating

            12   regimes."  That is a major step up.

            13             Some years ago, the European Union was faced with a

            14   situation where our financial reporting practices no longer

            15   met the requirements for building and integrating European

            16   capital markets.  We had to rethink our goals, and we decided

            17   to move for international financial reporting and accounting

            18   standards.  That move, we think, was bold and visionary.

            19             The changeover to IFRS has not come easy.  It has

            20   taken a lot of time and a lot of money for 8,000 or so listed

            21   companies to adapt to the new accounting environment.

            22   Analysts and shareholders have had to learn how react to new

            23   financial information.

            24             But I am very pleased to be able to say today the

            25   move towards IFRS has been going well.  The feedback we get






             1   is generally positive.  Studies of IFRS accounts have shown

             2   that the overall quality of the accounts and the disclosures

             3   have improved.

             4             Of course, the introduction of 40 new standards,

             5   plus interpretations, has given rise to some application and

             6   interpretative issues.  Most of these have been dealt with at

             7   company level, by auditors or regulators.  And this is how it

             8   should be in a principles-based system.  Robust and

             9   understandable principles should be handled and use by

            10   skilled professionals.  To sift out any more complex

            11   problems, we have set up a roundtable to assist in

            12   interpretation.

            13             Cooperation between regulators on both sides of the

            14   Atlantic is also crucial for the smooth introduction and

            15   enforcement of IFRS.  In the global market, only regulators

            16   working closely together can ensure adequate investor

            17   protection.  I am very pleased to see the increased level of

            18   contacts and the joint work between Committee of European

            19   Securities Regulators -- which trades over the imperious

            20   title of CESR -- and the SEC.

            21             The work done between CESR and the SEC is an

            22   important step within the roadmap of facilitating cooperation

            23   between regulators.  This cooperation is crucial in order to

            24   ensure consistent application and enforcement by IFRS and

            25   U.S. GAAP and to avoid any conflicting regulatory positions






             1   on the application of IFRS.  We need to be open towards each

             2   other and to exchange information at every stage and to do so

             3   frequently.  There is still work to be done, but I am

             4   confident we are on the right track.

             5             Since we in Europe took the decision to use IFRS,

             6   more than 100 jurisdictions around the world have decided to

             7   require or to allow IFRS.  The United States has taken

             8   significant steps in this direction.  I am convinced

             9   accepting IFRS without reconciliation in the U.S. capital

            10   markets will have very positive effects.  It will bring more

            11   openness to capital markets, it will benefit U.S. investors,

            12   it will facilitate access for third country issuers into the

            13   United States financial markets, and also contribute to a

            14   more coherent global regulatory structure.

            15             And let me underline this:  This is in the U.S.

            16   interest, just as it is in ours, and can and will be done in

            17   a way that will benefit and safeguard U.S. investors.

            18             I fully subscribe to the conclusions of the Capital

            19   Markets Competitors Group that Professor Scott chaired, the

            20   Bloomberg-Schumer-McKenzie report, and the speech of Treasury

            21   Secretary Hank Paulson -- all calling for convergence of

            22   accounting standards and a more principles-based approach to

            23   regulation.

            24             In the long term, it is crucial that we receive

            25   substantial convergence in IFRS and U.S. GAAP, the world's






             1   most important accounting frameworks.  I welcome the efforts

             2   made by the standard setters in FASB and the IASB to develop

             3   accounting standards for worldwide use.

             4             But this does not mean that IFRS and U.S. GAAP

             5   should be identical.  The differences should be narrowed down

             6   so that investors can understand the financial statements

             7   prepared under the different accounting frameworks.

             8             The convergence process should improve the

             9   information available to investors, with the opportunity to

            10   replace weaker standards with stronger ones.  However, any

            11   new standards must be introduced in such a way that there

            12   will be a stable framework of rules that users and preparers

            13   can learn to apply in an orderly fashion.  We need a period

            14   of accounting stability and predictability, not a palace

            15   revolution every day of the week.

            16             While standards setters are continuing on the

            17   conversion process, we should also have short of short-term

            18   benefits.  Therefore, we need to work on mutual recognition

            19   and equivalence of accounting rules between the United States

            20   and the European Union.

            21             Last year, Chairman Cox and I confirmed our mutual

            22   commitment to removing the reconciliation requirements for

            23   IFRS and U.S. GAAP.  I am happy that good progress has been

            24   made since then.

            25             In the European Union, we took a decision to






             1   continue to permit listings on the basis of statements

             2   prepared according to the United States and a number of other

             3   GAAPs until 2009.  This aligns the EU timetable with the SEC

             4   roadmap.

             5             Next year, both the SEC and the European Commission

             6   have to take crucial decisions.  I am convinced that we will

             7   achieve a positive result.  This is a win-win situation for

             8   the United States and the European Union.

             9             And I think the principle of equivalence can also

            10   be applied in fields beyond accounting.  This morning, PCAOB

            11   Chairman Mark Olson and I have agreed to deepen EU-U.S.

            12   cooperation on other regulation.

            13             The starting point for cooperation between

            14   oversight bodies should be the whole country principle.  This

            15   is why we have agreed today to launch roadmap discussions on

            16   equivalence of our respective auditing systems.  We want to

            17   move towards full reliance on our respective public oversight

            18   systems in the same spirit as in accounting.

            19             This does not require standards and systems to be

            20   identical, but robust enough to ensure investor confidence,

            21   robust enough for each us to have confidence in each other.

            22   We must also work to find a way to narrow down differences in

            23   auditing standards.  The aim is to have, by 2009, inspections

            24   of audit firms carried out by the home country public

            25   oversight body, not by host country inspections, which are






             1   legally and organizationally very cumbersome.

             2             Now, this agenda is ambitious, and we will need to

             3   work hard to achieve it.  But I am confident, and I think we

             4   can built on the experience we have gained in the are of

             5   accounting.

             6             And let me also say that these two areas

             7   -- accounting and auditing -- are the outriders, the

             8   precursors to much deeper EU-United States cooperation, as

             9   Chancellor Merkel of Germany is hoping to build with her

            10   trans-Atlantic initiative.

            11             To conclude, global capital markets are a reality.

            12   Regulators have to adapt their structures and thinking to

            13   this reality.  The convergence of accounting standards

            14   removes differences so the investors can understand different

            15   financial statements and make similar investment decisions,

            16   regardless of whether accounts are prepared under IFRS or

            17   U.S. GAAP.

            18             While this process is going on, regulators in the

            19   United States and the European Union must already take two

            20   important steps.  One, deepen their corporation to ensure

            21   consistent application and enforcement of the accounting

            22   standard, their confidence in each other, and to trust each

            23   other; and, two, eliminate costly reconciliation

            24   requirements.

            25             This will create a real win-win situation, will the






             1   removal of barriers and unnecessarily costs to give better

             2   access for funding, lead to lower cost of capital, and boost

             3   our economies on both sides of the Atlantic, towards a

             4   friction-free trans-Atlantic capital market, which is no less

             5   than 70 percent of the global total.

             6             The prize is within our grasp, so we must reach out

             7   and take it.  Thank you very much.

             8             MR. WHITE:  Thank you, Chairman Cox, Commissioner

             9   McCreevy, Professor Scott, for being here and setting the

            10   stage for today's roundtable.

            11             We are now going to move directly to our first

            12   panel, if everyone can come up.  Thank you.

            13             (Panel members come forward.)

            14             MR. WHITE:  Thank you.  Before we actually start

            15   this panel, a couple of preliminary matters.

            16             First, we have joining us on this first panel two

            17   of our SEC Commissioners, Annette Nazareth and Roel Campos. 

            18   I know, from talking with both of them, that they have a very

            19   keen interest in this topic, and I am very pleased that they

            20   could join us for this first panel.  We will actually have a

            21   number of Commissioners coming and going during the course of

            22   the day, but they are here for the first panel.

            23             The one Commissioner you will not see today is

            24   Commissioner Atkins.  He is actually in California today as

            25   part of the Commission's program to promote investor






             1   protection for the men and women in our armed services.  But

             2   he did specifically ask me to convey how important today's

             3   topic is to him and his strong support for our efforts in

             4   this area.

             5             Let me also point out that today's program is being

             6   video-cast on the Commission's website and will be available

             7   through the archive after today.  There will also be a

             8   transcript of today's proceedings showing up on the

             9   Commission's website.

            10             The rules of the road for our panels today are,

            11   really, fairly simple.  Each panel will have two moderators.

            12   The lead moderator will introduce the panelists.  I'll play

            13   that role for the first panel.

            14             My co-moderator for this panel will be the

            15   Commission's chief accountant, Conrad Hewitt.  Conrad joined

            16   the Commission staff last August and brings a wealth of

            17   experience and a diversity of perspectives to today's topic.

            18             Conrad and I will also be moderating the third

            19   panel this afternoon.

            20             Before I introduce the panelists, let me lay out a

            21   couple of the rules of the road for the -- for all three

            22   panels, actually.

            23             We have asked the panelists not to make any opening

            24   statements.  And, in fact, we will actually direct certain

            25   questions to the panelists, but we then encourage any of the






             1   panelists who would like to comment to please do so.

             2             The way we would like you to be recognized is to

             3   turn your tent card up on end, like this. Then, if Conrad and

             4   I are in the mood and we like what we think you are going to

             5   say, we will call on you.  If not, we will think twice about

             6   it.  But that's how you, at least, get our attention.  I

             7   guess we will ask the Commissioners to follow the same

             8   procedure, although you can interrupt if you want.

             9             So let me introduce the panelists for the first

            10   panel.

            11             Starting on the far left, Richard Blackett. Mr.

            12   Blackett is the head of the International Equity Capital

            13   Markets Group at Citigroup, where he has worked for 24 years. 

            14   He described himself to me that he had worked on almost every

            15   international offering underwritten by Citigroup since 1993. 

            16   So I am quite pleased and impressed that we have Mr. Blackett

            17   with us today.

            18             Neri Bukspan is a managing director with Standard &

            19   Poor's Credit Market Services.  He is S&P's global chief

            20   accountant and is responsible for providing direction on the

            21   manner in which financial statement information is analyzed

            22   and incorporated into S&P's rating considerations.

            23             Nick Grabar.  Mr. Grabar is a partner in the New

            24   York office of the international law firm of Cleary,

            25   Gottlieb, Steen & Hamilton.  His practice focuses on






             1   international capital markets and securities regulation. He

             2   has also served in their Paris office.

             3             Dave Kaplan.  Dave has over 30 years of experience

             4   with the international audit firm of PricewaterhouseCoopers.

             5   He is currently the leader of PwC's International Accounting

             6   and SEC Services Group.

             7             Roberta Karmel.  Professor Karmel is the Centennial

             8   Professor of Law and co-director of the Center for the Study

             9   of International Business Law at Brooklyn Law School.  She

            10   served as a Commissioner of the SEC from 1977 to 1980 -- but

            11   not in a room as nice as this, as far as I know.  I don't

            12   think it was quite like this.  And she was also a public

            13   director of the New York Stock Exchange for six years.

            14             And speaking of the York Stock Exchange, we have

            15   Cathy Kinney.  Ms. Kinney has been with the New York Stock

            16   Exchange for approximately 33 years, if I understand it

            17   correctly, and is currently serving as its president and

            18   co-chief operating officer.

            19             And, interestingly, among the many perspectives

            20   that she brings today is that she is recently going through

            21   the process of being a U.S. public company merging with

            22   Euronext -- a different perspective than we are used to

            23   having from our New York Stock Exchange representative. But I

            24   hope she will share some thoughts on that with us.

            25             Next, we have Ken Pott, who is in his 20th year at






             1   Morgan Stanley, where he is currently head of Morgan

             2   Stanley's Capital Markets Execution Group, where he focuses

             3   on equity offerings, particularly IPOs, of both international

             4   and domestic issuers.

             5             And, finally, we have Sam Ranzilla.  Mr. Ranzilla

             6   is the partner in charge of the Professional Practice Group

             7   in the national office of the auditing firm of KPMG.  Among

             8   his many roles at KPMG was a stint in their Hong Kong office.

             9             So I think you will appreciate that that is a

            10   pretty impressive group of panelists, particularly their

            11   international experience.

            12             As I mentioned earlier, the focus of our panels

            13   today is the reconciliation requirement for foreign private

            14   issuers reporting under the U.S. securities laws and, in

            15   particular, what are the anticipated effects of ending that

            16   reconciliation requirement.

            17             And, to that end, we are going to try to focus the

            18   panels today, as we look at that issue through, I guess I

            19   would say, the lens of three missions that we have here at

            20   the SEC -- which is, promoting capital formation, maintaining

            21   fair and orderly markets, and protecting investors.

            22             And so we have asked each of the panelists on the

            23   all three panels to formulate their comments thinking about

            24   the following questions:

            25             What are the factors that cause investors and






             1   issuers to go to particular capital markets?

             2             What are the effects on the availability of capital

             3   in the U.S. markets if both IFRS, without reconciliation, and

             4   U.S. GAAP are coequal financial reporting systems?

             5             What are the opportunities and consequences for

             6   various capital market participants of having this dual

             7   system in place?

             8             And finally, and quite importantly, what is the

             9   impact on investors, and will they be receiving the necessary

            10   information to make informed investment decisions?

            11             So with that long wind-up, let's get started on our

            12   first panel.

            13             I would like to first call on Mr. Blackett and Mr.

            14   Grabar for our first discussion topic, which is whether

            15   ending reconciliation may result in U.S. investors having

            16   additional opportunities to invest in foreign securities here

            17   in our U.S. markets, presumably because the U.S. markets will

            18   become more attractive to these issuers.

            19             So, Mr. Blackett?

            20             MR. BLACKETT:  For my first point, I think I would

            21   like to step back a little bit and try and put the investor

            22   base in context, because it's not just the retail investor

            23   base, which I think we traditionally view as being

            24   potentially the, quote, "beneficiary" of such a change, but I

            25   think it is also there is a large body of institutional






             1   investors who would also benefit.

             2             We look at our businesses with much the same view. 

             3   We break our investor base down into three broad categories:

             4             Very large sophisticated institutional investors,

             5   who generally have the scope and scale to invest

             6   internationally by setting up offices abroad and investing in

             7   local markets, investing in the back office systems, the FEX,

             8   the custody, safekeeping, et cetera.  Those are generally

             9   institutions that probably have about $2 billion or more.

            10             The other two categories -- and, of course, this

            11   investor base is a spectrum, rather than a neat little series

            12   of silos -- is what we call middle market.  And we cover

            13   about 5,000 of those institutions, and they run the gamut

            14   from a few million to several billion dollars.

            15             And then, of course, our retail investors that run

            16   the gamut from the small accounts, with just an IRA, up to

            17   Bill Gates, arguably.

            18             So the spectrum of each silo can be quite broad,

            19   but I think it's important to look at those three silos.

            20             All of these, I think, have seized on the same

            21   themes or trends over the last several years -- the last 5 or

            22   10 years -- of diversification of portfolio assets,

            23   increasing global awareness, the search for relative

            24   out-performance, risk mitigation by buying non-correlative

            25   assets -- and perhaps that has been tested in the last






             1   week -- and thematic investment, looking for ethanol or

             2   alternative investments around the world -- IT investments,

             3   technology and natural resources, entry level housing.

             4             So the themes that have driven those investors are

             5   probably very similar across the various silos.  The large

             6   institutions, as I said, can do this locally.  They have the

             7   costs of scale, the local offices, the back offices, the

             8   custody, et cetera.  And, to some degree, that acts as a

             9   barrier to entry for other institutional investors, in

            10   particular, let alone retail, to get into that line of

            11   business and benefit from those themes.

            12             The smaller institutions and retail investors, from

            13   where we sit, see the same opportunity, have the same general

            14   awareness of the themes I outlined, but, for various reasons,

            15   are substantially frustrated, either because of the lack of

            16   availability of stocks in the United States or, indeed, their

            17   ability to replicate it.

            18             They are very focused -- particularly the small

            19   institutions -- on us fees, fees on fees, fixed cost charges,

            20   expenses that they may or may have to pass through.

            21             So there is a huge body of investors that sees the

            22   same opportunity, but are substantially frustrated, not just

            23   by the lack of listing, if you will, but, more importantly,

            24   the incremental cost of doing it themselves in a foreign

            25   market.  You're buying FEX, you're buying it at the retail






             1   rate, rather than the wholesale rate -- those sorts of

             2   expenses.

             3             They do see the same themes and, from where we sit,

             4   would be significant participants in offerings in the United

             5   States -- but not just offerings here, but also the secondary

             6   market and the liquidity that a ADR would provide them.

             7             So, certainly, there is a large constituency out

             8   there that I think would benefit both from the primary

             9   market, but also the secondary market.

            10             MR. GRABAR:  I would just add, from the perspective

            11   of the participants in the offering process that

            12   reconciliation and the 2009 deadline are something that we

            13   hear from our clients everybody is looking to, very eagerly.

            14             Foreign issuers who are already in the U.S. market

            15   have now dealt with 404 reporting.  They understand that

            16   foreign private issuer deregistration is on the way.  And the

            17   other thing they want to know before they decide whether to

            18   stay is what is happening with reconciliation in 2009.  So

            19   people are very focused on this deadline.

            20             For those who are already in the U.S. market, the

            21   elimination of reconciliation will make a number of specific

            22   kinds of transactions available to U.S. investors that are

            23   not available today.  And that is because the reconciliation

            24   creates an anomaly in the reporting process for big foreign

            25   private issuers.






             1             Big issuers who comply in full with their '34 Act

             2   reporting requirements find themselves blacked out from

             3   making registered offerings under the '33 Act by the absence

             4   of a recent U.S. GAAP reconciliation.

             5             So our big foreign private issuer clients who took

             6   advantage of securities offering reform to set up automatic

             7   shelf registration statements, for example, find that,

             8   because they don't prepare reconciliations of interim

             9   financial statements, the only period during which they can

            10   actually their beautiful new automatic shelf is between the

            11   time they file their 20-F on, say, June 15th, and the time

            12   that they would be required to prepare an interim

            13   reconciliation, which is September 30th.  That, of course,

            14   includes the summer.

            15             So that many of our foreign issuers actually, when

            16   they, for example, are raising fixed income in the U.S. or

            17   conducting a rights offering will avoid the U.S. public

            18   markets and do private placement through registration rights

            19   because of the blackout effect that falls from the

            20   reconciliation.

            21             So this is a small point, perhaps, in the big

            22   picture, but it is a technical anomaly that means that

            23   eliminating the reconciliation will make deals available to

            24   U.S. investors that are not available to them today.

            25             MR. WHITE:  Ms. Kinney, do you want to give us the






             1   stock exchange's perspective -- or your own?

             2             MS. KINNEY:  Well, I think the assumption that

             3   there would be a larger pipeline of listings or issuers

             4   coming to the U.S. markets is a fairly reasonable and sound

             5   assumption to make.

             6             We, as well, hear issuers, very excited, about the

             7   progressive nature of the recent announcements by the SEC --

             8   the changes in 404, the deregistration, and then the

             9   impending 2009 adoption.

            10             So I think non-U.S. issuers are very encouraged by

            11   what they hear and are really hoping to be able to stay in

            12   the U.S., and many of them are hoping to come to the U.S. And

            13   we see an enormous pipeline coming from Asia, as well as from

            14   other developing markets around the world.

            15             So, first, we encourage as much work as can be done

            16   and, certainly, mutual recognition as quickly as possible.

            17   And if it could be accelerated or any pilots could be

            18   conducted, I think that would be useful.

            19             We do think that more issuers will come to the U.S.

            20   We think they will come in the form of dual listings.  That

            21   will mean that, because the markets outside the U.S. growing

            22   and developing, the home country listings, as well as

            23   international listings, will be the way that companies access

            24   investors, broadly speaking.

            25             And I think this would be very good for U.S.






             1   investors because, today, many of those investors are going

             2   to the home country to buy those securities, anyway.  They

             3   are being brought there by their broker-dealers.  And, in

             4   some cases, they are already relying on the disclosures and

             5   the financial reporting in those home countries.  So I think

             6   investors are looking at the companies and wanting to invest

             7   wherever those companies reside.

             8             And I would say, finally, you can see that fact in

             9   that, today, 20 percent of all investable assets are being

            10   invested in non-U.S. companies.  And so, to the point that

            11   was made earlier, investors are seeking opportunities, and

            12   they will go outside the U.S., if they have to, but they

            13   would prefer to be here.

            14             MR. WHITE:  And you see this happening as soon as

            15   the reconciliation requirement ends?

            16             MS. KINNEY:  I think that companies are getting --

            17   the answer is yes.  I think that we see companies getting

            18   ready and thinking about that and how to position in time

            19   things into the U.S.  But, you know, as I said, the faster

            20   and sooner it could come, I think that would be great.

            21             MR. WHITE:  Mr. Grabar, just going back to your

            22   comment, as soon as the reconciliation requirement ends, the

            23   problem you described disappears?

            24             MR. GRABAR:  Yes, I think that's right.  I would

            25   also add that there are ways and ways of eliminating the






             1   reconciliation requirement.  And part of the effect that

             2   Cathy Kinney is referring to could turn on which issuers can

             3   take advantage of a system in which IFRS financial statements

             4   are accepted without reconciliation.

             5             And, obviously, the discussion focuses very much on

             6   European issuers, but the same questions will arise -- and an

             7   interesting variable in how this is implemented will be

             8   whether issuers from non-European countries, or even

             9   countries that have not adopted IFRS as their standards, will

            10   be able to take advantage of this new regime.

            11             Can a Brazilian or Thai issuer that chooses to

            12   report in IFRS take advantage of the elimination of

            13   reconciliation?  The answer to that will drive much of the

            14   business that Cathy is referring to, of new listings and new

            15   registrations in the U.S.

            16             MR. WHITE:  Mr. Pott, from your perspective?

            17             MR. POTT:  Well, I agree with everything that has

            18   been said.  I completely agree with Cathy that the

            19   elimination of reconciliation to U.S. GAAP will bring more

            20   issuers to the U.S. and will be a good thing for U.S.

            21   investors, since they are already going outside the U.S. to

            22   invest.

            23             And not to butter up my host, by having SEC

            24   oversight on those issuers who are currently only listing now

            25   outside of the U.S. would be a good thing, and the small cost






             1   of eliminating U.S. GAAP reconciliation, I think is, to me, a

             2   terrific step that -- you know, I think 2009 couldn't come

             3   too soon.

             4             I will say -- and it may be in the context of some

             5   of these other questions you have here, John, but I will say

             6   that I'm not saying that U.S. GAAP reconciliation is useless

             7   right now.  In fact, we are dealing with a number of issues

             8   currently and over the past year where we are recommending to

             9   our clients to have more details than less in their U.S. GAAP

            10   reconciliation for some of their financings.  But I'll talk

            11   more about that in a little bit.

            12             MR. WHITE:  Professor Karmel, I know you are

            13   particularly focused on retail investors --

            14             PROFESSOR KARMEL:  Yes.

            15             MR. WHITE:  -- and opportunities for them.  So I'll

            16   let you go.

            17             PROFESSOR KARMEL:  Let me say that I think that the

            18   elimination of reconciliation could prove a particular boon

            19   for the retail investor, particularly the more sophisticated

            20   retail individual investor, who now has certain difficulties

            21   and has to experience certain costs in buying foreign

            22   securities which are not listed on one of our exchanges or in

            23   the SEC system.

            24             And I know that the SEC is particularly worried

            25   about protecting the retail investor, but it seems to me






             1   that, today, the retail investor is less protected because,

             2   as another one of the panelists said, coaxing foreign issuers

             3   into the SEC reporting system really gives the individual

             4   investor more protection in purchasing securities of such an

             5   issuer than that retail investor is now having to go to

             6   foreign market to do so.

             7             MR. WHITE:  We'll move to another topic -- unless

             8   you have a question.

             9             MR. HEWITT:  This is a question for Mr. Blackett

            10   and also Professor Karmel, because you mentioned you have

            11   three groups of investors, basically, and the latter group

            12   being the retail group and the small institutional investors.

            13             And I wonder, since they are used to seeing U.S.

            14   GAAP today, will they need any additional education or

            15   information on IFRS to understand the implications of what

            16   difference there is between U.S. GAAP and IFRS statements?

            17             MR. BLACKETT:  That's an interesting question

            18   because, right now, I think most investors in foreign

            19   securities list in the United States their interim results,

            20   which are, in many cases, as important to them as the final

            21   reconciliation with GAAP because it gives them an interim

            22   check on how the business performing four times a year, if

            23   you will, as opposed to the reconciliation, which generally

            24   comes once a year.

            25             They have increasing become understanding, I think,






             1   of IFRS, or whatever the local generally accepted accounting

             2   principles might be, some variation thereof -- which brings

             3   up the interesting question about reconciliation within IFRS.

             4             But I think they are generally used to seeing that

             5   information presented in the local accounting term because

             6   that's what they see -- not just on the three interim

             7   periods, but also in the year-end results that come out in

             8   late January or early February.  And there is usually a long

             9   period of time -- Nick talked about June 15.  Maybe it's not

            10   exactly that long, but it's pretty close to that before they

            11   finally see the reconciled GAAP statements.

            12             And, by then, the world, to some degree, has moved

            13   on.  The market is focusing on the June 30th results coming

            14   up and, indeed, beginning to transition, frankly, into the

            15   following year -- momentum into the following year.  For

            16   example, this year, by the time a filer files on June 15th of

            17   the '07, investors are generally beginning to transition to

            18   what the results for '08 look like.  So it's almost a

            19   historical anomaly.

            20             They are reasonably sophisticated.  Generally, for

            21   foreign markets, a primary metric evaluation initially to

            22   screen investments or some variation of firm value to EBITDA,

            23   which doesn't necessarily drive you down into some of the

            24   changes.  I think they are appreciative in certain sectors

            25   -- perhaps the natural resource area, home building, where






             1   there is revenue recognition -- of a discussion about the

             2   major differences, but I think, generally, they are

             3   reasonably educated today about the local market and are

             4   reliant on that flow today to have make an investment

             5   decision.

             6             PROFESSOR KARMEL:  As an educator myself, I have to

             7   say education is always worthwhile.  And, of course, it, I

             8   think, will be useful for the SEC and others, once

             9   reconciliation is no longer required, to point out some of

            10   the differences that still exist between U.S. GAAP and IFRS.

            11             I think this will be important, not only for U.S.

            12   investors and, particularly, retail investors, but something

            13   that relates to a later question we are going to discuss, and

            14   that is a decision that U.S. issuers will now have as to

            15   whether they should report in IFRS, as opposed to U.S. GAAP.

            16             So I think a concern of education will certainly be

            17   in order, and I am fully confident that the SEC staff will do

            18   its job here.

            19             MR. WHITE:  I am always fully confident that the

            20   the SEC staff will do its job, of course.

            21             Why don't we move to our second topic, which I

            22   guess I will call more kind of the process or mechanics

            23   topic.

            24             But in a world when we are no longer reconciling,

            25   how is it going to change, or is it going to change the way






             1   that the securities of foreign private issuers are marketed? 

             2   Is the process going to be different?  Is it going to look

             3   different?

             4             Mr. Pott, I know you were starting to go in the

             5   direction before.  Do you want to start us on how the world

             6   will look different then, in terms of the process.

             7             MR. POTT:  Let me start by -- I want to follow up a

             8   little bit on what Richard was saying because I do agree with

             9   him that there is a broadening acceptance of IFRS.

            10             I do think, though, that getting into the process

            11   here and what we do -- which is, as investment bankers in

            12   capital markets, we deal with issuers early in the process

            13   who are trying to raise capital and who are trying to make

            14   decisions about what the most efficient mechanism to raise

            15   capital is going to be at the lowest cost of capital.  And

            16   involved in that is the decision on where to list and perhaps

            17   even, in some cases, when we are dealing with foreign

            18   issuers, what accounting principles to use.

            19             And I would say that, in some of the industries

            20   that I deal with, there is still a strong preference for U.S.

            21   GAAP.  And what we are trying to do is appeal to a number of

            22   different constituencies.  And among those are the research

            23   analyst community and the investor portfolio analyst

            24   community.

            25             And when we talk to them, whether it be, you know,






             1   potentially -- mostly out of the conservatism, there is still

             2   a view that those constituents would like to do see numbers

             3   in U.S. GAAP.

             4             So what we have done in some of these industries,

             5   some of these cases -- whether it be comparing to local GAAP

             6   or IFRS -- we have strongly urged the issuer to forward in

             7   U.S. GAAP financials and, if they cannot do that, then to

             8   provide this reconciliation and to do in a way that is as

             9   detailed as possible.

            10             And I would say that that is -- given the

            11   convergence of the two sets of principles, I would say that

            12   that is the mostly out of -- I think the process is

            13   inherently conservative.

            14             And when you are dealing with a issuer who might

            15   have some extra time, although they want to come to market

            16   fast, if it only takes another month to reconcile to U.S.

            17   GAAP or to provide -- in one case that we are dealing with,

            18   they had to provide a more detailed reconciliation of

            19   financial statements, which actually are shown in U.S. GAAP

            20   -- then often we end up pursuing that route when, in fact,

            21   the investors would probably be able to handle the IFRS

            22   financials without the reconciliation, especially given that

            23   there are many other comparable companies out there who will

            24   be reporting in IFRS.

            25             But I want to raise a little bit a note of caution






             1   as to where we are right now, which is we are not completely

             2   -- I'm not going to sit here and say that U.S. GAAP

             3   reconciliation is not useful, because our clients are

             4   reporting very detailed U.S. GAAP reconciliation, and it has

             5   been effective in some recent instances.

             6             MR. WHITE:  That's interesting.  I'm jumping ahead

             7   a little bit on our topics here, but why don't we do it,

             8   since you have teed it up.

             9             So if we are in a world of no reconciliation, are

            10   there others here who believe that we will still have to --

            11   that companies will need to provide that information in some

            12   form?

            13             MR. POTT:  Well, John, let me --

            14             MR. WHITE:  Or did I interpret what you said

            15   correctly?

            16             MR. POTT:  No, no, no.  What I'm telling you is

            17   where things have been over the past year.  But I do think,

            18   by the time we eliminate reconciliation as an SEC policy,

            19   that we will not be advising issuers to reconcile to U.S.

            20   GAAP.

            21             But there is -- I'm reinforcing the notion that

            22   there is an educational process and a kind of baby steps

            23   process to get the participants in the capital raising

            24   process used to only dealing with IFRS.

            25             Because, in a lot of ways, you have legacy issuers






             1   that have -- let's take an industry, such as the airline

             2   industry, where most of the key participants in that industry

             3   report in U.S. GAAP, and the ones who are not U.S. have

             4   detailed reconciliations.  So you are dealing with people who

             5   build their models in U.S. GAAP and are used to reading U.S.

             6   GAAP financial statements.

             7             So I think there is a process of educating

             8   everybody who is involved in the capital raising exercise to

             9   get them used to understanding what the differences are

            10   between IFRS and U.S. GAAP and not seeing a reconciliation

            11   every time somebody reports.

            12             MR. WHITE:  I'm seeing a lot of nodding heads up

            13   here.  Is everyone agreeing with Mr. Pott?  Mr. Bukspan?

            14             MR. BUKSPAN:  Just to pick up on this point and

            15   reflecting on change, people -- sometimes, it takes time for

            16   them to get used to change.  I'm still reflecting on the

            17   change from Lotus 1-2-3 to Excel.  For those of you that

            18   remember that, you still had the slash in Excel.  It took a

            19   little bit, and then it was gone.  So, clearly, there is an

            20   element of education.

            21             I think the point that you made about industries

            22   that had predominant participants that are reporting using

            23   one method versus the other -- it's important to note.

            24             The question is:  Who is responsible for the

            25   education?  Is it the responsibility of the Securities and






             1   Exchange Commission, or the responsibility is the market's

             2   responsibility?

             3             As Commissioner Cox said earlier, it's a roadmap.

             4   Ultimately, we're going to be converged.  At the current

             5   state, we have differences.  And there is clear differences.

             6   And differences are still arising whether you are reporting

             7   only under IFRS and having certain options with IFRS, and

             8   even under U.S. GAAP.  For a variety of reasons, including

             9   facilitating the transition, there are numerous options.

            10             The issue of education does exist.  And I think the

            11   importance is that the education will come through, one,

            12   robust disclosures -- because, at the end of the day, people

            13   think about accounting and whether the reconciliation is

            14   going away.  In my mind, in my experience, many times, it's

            15   an information game, rather than a number game -- how you

            16   provide information.  And in the spirit of the information

            17   game, it is critical to think about what is the role of

            18   disclosures in the spirit of educating the market.

            19             And I am also pretty confident that whether it's

            20   going to be CEOs or CFOs, or it's going to be market

            21   participants, such as ourselves, or equity analysts, or

            22   equity investors, they will point out the differences.

            23             To the extent to the differences do exist and

            24   you've got two nearly identical airlines and gross profit

            25   margins are substantially different because there is






             1   reporting differences, I guarantee you that you don't need an

             2   education system or education structure.  Somebody will take

             3   care of our education.  And they are generally going to be

             4   enterprise that will be looking sub par -- notwithstanding

             5   the fact that it's not really sub par, but it happened to be

             6   sub par because of the reporting.

             7             Just going back to the question that we are

             8   actually covering now, which is the offerings -- I think one

             9   thing to remember is that the spirit of reconciling creates

            10   dual systems.  You need to report under dual systems.

            11             Reporting under dual systems requires dual

            12   expertise.  You have to have accountants that are experts in

            13   U.S. GAAP and IFRS.  We know how difficult it is to find

            14   accountants who are experts in one versus the other.  So

            15   creating replicating systems -- and then the auditors will

            16   have to be educated on auditing both.

            17             I think it will take certain costs out of the

            18   system.  I haven't measured them, but I have a sense that

            19   this could be quite significant over time.  So broadly, if

            20   you think about the global financial market, I don't know if

            21   it is going to translate to more U.S. offering versus EU or

            22   other markets offering, but I think, broadly, from a system

            23   perspective, having one system will yank a lot cost out of

            24   the system.

            25             MR. WHITE:  Can I ask one of the accountants to






             1   comment on that?  Mr. Kaplan?

             2             MR. KAPLAN:  Well, I certainly agree with that.  I

             3   do think it will take costs out of the system.  We do hear

             4   from our foreign private issuer clients that they have to

             5   maintain the systems in order to prepare the U.S. GAAP

             6   information.  They need to educate people to be able to do

             7   that, as well.  We, obviously, need to educate our auditors

             8   around the globe in order to make sure they understand both

             9   U.S. GAAP and IFRS.  So it certainly will take costs out of

            10   the system.

            11             We do also see, though, that there are other

            12   concerns that foreign private issuers have in coming to the

            13   U.S. markets.  Many of those concerns have been enumerated by

            14   some of the committees that have issued the publications

            15   fairly recently around the litigation environment and other

            16   concerns, as well.

            17             But as it relates specifically to the

            18   reconciliation, we do see that costs will be coming out of

            19   the system.

            20             We also see that education, which has been

            21   mentioned here, is increasing.  IFRS is becoming -- maybe the

            22   best way to say it is more stable.  And its stability is

            23   growing.  It clearly has increased the transparency of the

            24   information.

            25             And then, as it sort of relates specifically to the






             1   question as to whether foreign private issuers -- you know,

             2   how those securities are marketed to U.S. investors -- we do

             3   see that, at least the way we understand it, the investment

             4   community builds their models based upon the base GAAP -- so

             5   it's either on IFRS or on U.S. GAAP -- so that they are able

             6   to do their analysis in ways that don't always require those

             7   reconciled numbers between the two in every instance.

             8             And, in fact, our foreign private issuer clients

             9   tell us that they generally get very few questions on the

            10   reconciliation itself.  Now, that may be because it comes out

            11   very late in many cases; certainly, after press releases and

            12   maybe some initial financial statements have been released.

            13   So there is, at least, some anecdotal information that there

            14   is not a lot of questions today on some of those

            15   reconciliation matters.

            16             MR. WHITE:  Mr. Blackett?

            17             MR. BLACKETT:  I concur with that.  The most

            18   critical result for a newly issued company are that first,

            19   second, and third quarter results and the correct

            20   presentation of that.  Now, the IPO, if you will, has relied,

            21   to some degree, on that U.S. GAAP reconciliation.  Again, to

            22   your point, it has been a parallel process because people

            23   have been building their models generally on local

            24   accounting, so that when that first or second quarter results

            25   come out, they are understandable and viewable within a






             1   framework that is consistent with what you saw at the time of

             2   the IPO and then what you saw in that first, second, or third

             3   quarter.

             4             Once you get through that first or second quarter

             5   as a public company, you now know what investors'

             6   expectations are, what they are interested in, et cetera, et

             7   cetera.  And if this is poorly relayed because you have

             8   confused them with accounting issues, the stock will be,

             9   arbitrarily perhaps, punished in the short run, and all of

            10   the constituents in the process -- the underwriters,

            11   underwriters' counsel, management, financial management of

            12   the company and, arguably, the auditors -- will be punished

            13   to some degree reputationally, or, certainly, verbally by

            14   their investors.

            15             So there is a huge incentive in the IPO process to

            16   educate people about what the process will be going forward,

            17   and not just over-reliance on the annual GAAP reconciliation,

            18   which, as Nick said, is a very delayed process and almost

            19   overcome by events.

            20             MR. WHITE:  Mr. Grabar?

            21             MR. GRABAR:  I was just going you have to remember

            22   what reconciliation is good for and what it isn't good for.

            23             It isn't good for giving investors what they want

            24   going forward -- which is comparability issuer to issuer and

            25   comparability period to period.  The reconciliation doesn't






             1   do that.

             2             What the reconciliation does is it identifies

             3   differences in accounting principles and measures them. And

             4   it has been very valuable for that purpose.  But I submit

             5   that that purpose is falling away because of convergence.  So

             6   I am more optimistic than Ken is that, when reconciliation

             7   goes, it won't be missed.

             8             MR. WHITE:  Mr. Ranzilla?

             9             MR. RANZILLA:  Let me follow on on a couple of

            10   themes here.  To first address the issue of the cost, one of

            11   the issues that will need to be addressed -- not by,

            12   necessarily, the Commission directly, but, rather, by the

            13   PCAOB -- is the current requirement in the quality control

            14   standards, which are referred to in their overall standards.

            15   They are in our standards and it's, you know, code name

            16   Appendix K, if you will.

            17             And it requires a review of filings that are made

            18   here in the U.S. by foreign private issuers by individuals

            19   knowledgeable in U.S. GAAP, U.S. auditing, and U.S.

            20   independence standards, who will be able to understand the

            21   differences between the home country requirements and those

            22   here in the U.S.

            23             One has to sit back -- "one" being the SEC and the

            24   PCAOB -- and decide whether or not that requirement makes any

            25   more sense -- to require, in essence, an involvement of a






             1   filing reviewer -- the term used in Appendix K -- in those

             2   situations where there is no U.S. GAAP reconciliation.

             3             Now, that goes directly to the cost and taking cost

             4   out of the system, because most of the filing review process

             5   that is undertaken today is generally done by U.S. teams --

             6   U.S. partners, senior managers -- very skilled, very seasoned

             7   people.  There is there virtually no leverage in that

             8   situation.  And there are costs associated with that. But, in

             9   order for the foreign member firm to be able to state

            10   compliance with PCAOB standards, that review needs to be

            11   undertaken.

            12             So that's one factor to consider as we look forward

            13   to the auditor's involvement in a world with no

            14   reconciliation.

            15             MR. WHITE:  So you're saying when the

            16   reconciliation requirement leaves, you'll have that cost,

            17   unless --

            18             MR. RANZILLA:  It's currently sitting in the

            19   interim standards of the PCAOB.  One surely has to sit back

            20   and say, well, one of those elements has gone away, right --

            21   the U.S. GAAP to home country GAAP or IFRS reconciliation.

            22   But there are still audit standard differences, home country,

            23   and independent standards.

            24             Which maybe brings me to my second point, which is

            25   that -- maybe to make an advertisement for the need to






             1   converge auditing standards and independence standards.

             2   Obviously, that is further behind than where we are with the

             3   convergence of U.S. GAAP and IFRS, but there is, I think, a

             4   need to converge auditing standards in a world where we truly

             5   are Cross-border and trying to be transparent in that manner. 

             6   So that is a second issue, I think, of a longer-term nature

             7   for us to deal with.

             8             MR. WHITE:  Ms. Kinney?

             9             MS. KINNEY:  I was just going to comment on the

            10   point that Nick made about reconciliation won't be missed.

            11   And just to use our own example, as you raised earlier, we

            12   are going to be a U.S. company and are going to merge with

            13   Euronext.  But, as a consequence of that merger, we had to go

            14   back and reconcile Euronext's financials to U.S. GAAP.  And

            15   because they were very acquisitive over the last several

            16   years, that was an extremely expensive reconciliation.

            17             And I think our CFO, and I'm sure John Thain would

            18   say that the results would have been probably neither

            19   perceived nor appreciated by the investors who were going to

            20   look at the company's disclosed financials that were audited

            21   and will be continued to be audited under U.S. GAAP going

            22   forward.

            23             So we went through a very expensive process, and

            24   it's not clear that investors would really have appreciated

            25   the very small differences that resulted from that






             1   reconciliation.

             2             MR. WHITE:  Professor Karmel?

             3             PROFESSOR KARMEL:  I think others have made good

             4   points with regard to periodic comparability of a particular

             5   issue.  And, yet, there is still the question of

             6   comparability of various companies within the same industry

             7   and an investor trying to decide, "Should I buy" -- to use

             8   the example given before -- "X U.S. airline or X foreign

             9   airline?"

            10             And I would just add to what has already been said

            11   that I think this really puts something of a burden on many

            12   of the intermediaries represented at this table -- the

            13   investment bankers, research analysts, the exchange, and the

            14   rating agencies -- in that it is going to be important to

            15   investors, particularly smaller institutional and individual

            16   investors, to gain an understanding of what all of this means

            17   in terms of comparability of different issuers in the same

            18   industry.

            19             MR. WHITE:  I would actually like to have Mr.

            20   Bukspan and Mr. Grabar comment on that point.  What is your

            21   reaction, from the rating agency standpoint, and what are

            22   lawyers going to have to do here?

            23             MR. BUKSPAN:  First, I welcome the challenge. I

            24   think this is when we have seen our role all along as

            25   analysts.  The difference between the analyst and the






             1   accountant is the accountants will have to peg something to a

             2   number.  Analysts, by definition, will take the numbers, pick

             3   them apart, slice and dice them, stress them, project them. 

             4   So there is a clear difference between the accounting method

             5   and what we are doing with the numbers.

             6             I will reemphasize and reiterate the significance

             7   of disclosure, including disclosure will allow us to provide

             8   -- or use past information for forward-looking data that we

             9   need in order to project, ultimately, a company's ability to

            10   pay its obligations when they become due.

            11             On the point of whether the reconciliation will be

            12   missed or not and the cost associated with this, just a point

            13   of caution.  In preparing for today, I pulled two financial

            14   statements, and there are pronounced differences -- huge

            15   differences.

            16             So the first reaction would be for someone to step

            17   back and say, "You know, we still need a reconciliation,"

            18   because if the company was an acquisitive company, or the

            19   company was not an acquisitive company and the business

            20   combination rules were introduced in the EU three years later

            21   or two years later, we can have meaningful differences in

            22   equity.

            23             So you are looking at a financial institution that

            24   has a U.S. GAAP equity of X and an IFRS GAAP of 2X.  So

            25   someone can feel a little bit uncomfortable.  And I think






             1   this is exactly where the role of an intermediary is.

             2             And this is where, you know, disclosure comes into

             3   play, risk assessment comes into play.  There is other

             4   influences that we are seeing.  And I think it's maybe a

             5   little semantic here, but IFRS stands for International

             6   Financial Reporting Standards and U.S. GAAP stands for

             7   Generally Accepted Accounting Principles.  I think there is

             8   some sentiment here that we need pick up on.  It's the

             9   importance and the difference and importance between

            10   accounting and financial reporting.

            11             There is trends about -- for example, European

            12   insurers are reporting under a framework called EEV --

            13   European Embedded Value.  There is a trend now about Solvency

            14   II, about Risk Measures, Basel II, and other risk disclosures

            15   that are provided by the Commission, for example, we are

            16   focusing on very closely.

            17             So it is not necessarily the number.  It is what is

            18   behind this number.  It is not necessarily whether it's an

            19   acquisition.  And this is our role.  This is what we do day

            20   in and day out.

            21             The reason what we somehow will miss the

            22   reconciliation, but we are willing to be live without it, is

            23   that we are information freaks.  And, you know, the more out

            24   there, we have another data point we can analyze and

            25   benchmark and look at.  So we are clearly going to miss the






             1   reconciliation, but we clearly can live without it, given

             2   more information and supplementary disclosures.  So that's

             3   where we come out on that.

             4             MR. WHITE:  Mr. Grabar, what happens from your

             5   securities counsel perspective?

             6             MR. GRABAR:  Well, I was just going to say we are

             7   living without the reconciliation today because, if I think

             8   back over my calendar the last six months, I have worked on 3

             9   or 4 registered offerings, but I have worked on 6 to 10

            10   144(a) offerings that we conducted full due diligence without

            11   the benefit of a reconciliation.

            12             So what do we do with the differences in accounting

            13   principles when we don't have the reconciliation?  That's a

            14   tough question.  And part of the answer does turn on the

            15   practices of the accounting firms and on having a robust due

            16   diligence process that includes people who understand

            17   accounting.

            18             Getting rid of the reconciliation will take the

            19   educational burden off of a particular issuer and a

            20   particular accountant and put it on the people that Mr.

            21   Bukspan is talking about -- on the rating agencies, on

            22   research analysts and, I think, on public sources.

            23             One of the things we look at, if you -- say, you

            24   have an airline; you're doing a 144(a) offering for an

            25   airline.  One of the things that you would look at to see if






             1   there are GAAP issues, GAAP principles that you to need to

             2   think about is CESR's study on technical equivalence, because

             3   CESR went to the effort of inventorying large numbers of GAAP

             4   differences and thinking through what they might need.

             5             That kind of exercise is something that people will

             6   have to do without a reconciliation.  They will have to find

             7   sources for intelligent discussions of important GAAP

             8   differences, other than the issuers.  And we are already

             9   there.

            10             MR. WHITE:  Mr. Kaplan?

            11             MR. KAPLAN:  Maybe this runs a little bit to what

            12   Sam said and also to what Nick said.  I do agree that one of

            13   the next steps that the PCAOB will need to think about is

            14   what to do with what Sam referred to as being Appendix K --

            15   that is, the requirement that there is a designated review by

            16   a knowledgeable person in U.S. auditing standards and

            17   independence and whether or not that review -- which was

            18   initially put in premised more on the accounting than

            19   anything else -- continues to be necessary.

            20             However, I do also think that, likely, what would

            21   happen, even if that requirement were removed -- and a little

            22   bit to what Nick said -- is that most of the firms have their

            23   own internal quality review processes that take place and, in

            24   many cases, those are focused on -- you were talking about

            25   Cross-border financing -- on the inbound territory's






             1   regulatory procedures.

             2             So even though the specific requirements that would

             3   be eliminated might be around the U.S. accounting aspects, if

             4   you were to eliminate the designated review, from a

             5   regulatory perspective as it relates to accounting and other

             6   disclosures that might be required for that jurisdiction,

             7   likely, there would still be market forces that would require

             8   some of these reviews and, therefore, may embed some of the

             9   quality that we are talking about for the regulatory

            10   requirements for whether it be the U.S., or London, or

            11   whatever the territory might be.

            12             MR. WHITE:  Ms. Kinney?

            13             MS. KINNEY:  I think, just to put some statistics

            14   around Nick's point about 144(a), if you look at the year

            15   2000, there were 149 deals -- global IPOs -- with 144(a)

            16   tranche that year, and they raised $58 billion.  In 2006,

            17   there are 204 deals done with a 144(a) component, raising

            18   $138 billion.

            19             Now, if you contrast that to the non-U.S. companies

            20   that were SEC-registered in 2000, you had 100 deals raising

            21   55 billion.  And in the year of 2006, you had only 40 deals

            22   that raised $11 billion.

            23             So to his point, reconciliation really doesn't

            24   exist today.

            25             MR. HEWITT:  I have a question for the accountants






             1   concerning the PCAOB and the requirement now on the

             2   reconciliation process of a U.S. review partner.

             3             If the reconciliation goes away, is there a

             4   necessity at all for a U.S. partner to be reviewing

             5   information?  I don't want to put you on the spot, but --

             6             MR. WHITE:  Mr. Kaplan?

             7             MR. KAPLAN:  Well, as it relates to the IFRS-based

             8   set of financial statements, I mean, clearly, the auditors

             9   that would be looking at that around the globe -- whose now

            10   base accounting language is IFRS, in a sense -- would be as

            11   knowledgeable in that as anyone might be in the U.S.

            12             So to look at it from purely a U.S. accounting

            13   perspective, once you eliminate the reconciliation from a

            14   U.S. GAAP perspective, the answer is, likely, no.

            15             However, as I mentioned, there are a number of

            16   regulatory requirements in the U.S. to file with the

            17   Securities and Exchange Commission that go beyond just the

            18   U.S. accounting, and those also may relate to the filing from

            19   an IFRS perspective.

            20             So to make sure that our clients meet the

            21   regulatory requirements, likely, we would still want to have

            22   someone from a quality perspective that would take a look at

            23   the filing, make sure that it meets that.  There are also

            24   often thing like comfort letter requirements and other

            25   requirements, as well, that we would need to look at from a






             1   U.S. PCAOB perspective.

             2             MR. RANZILLA:  Let me take a shot at that.  I agree

             3   with Dave.  The question will be:  Do you require that

             4   through the quality control or auditing standards of the

             5   PCAOB, or is that just an element of -- an international

             6   network of firms would designate a quality control element on

             7   its own and compete in the marketplace with some difference

             8   in that regard.

             9             But Dave is absolutely right.  If you eliminate the

            10   measurement and recognition issues through the

            11   reconciliation, there still are SEC requirements, and there

            12   is still an auditing issue.

            13             But if you look at risk from the perspective of the

            14   investor, the risk of missing a reconciling item between home

            15   country GAAP and U.S. GAAP, I think is far more significant

            16   than the risk of the auditing standard not being complied

            17   with.

            18             Because, again, focusing on just the largest of

            19   firms, there is a global methodology.  I mean, it's a base

            20   methodology that the firms employ around the world.  It's

            21   tweaked to meet individual jurisdictions' requirements.  But

            22   the risk of an audit not being conducted in accordance with

            23   PCAOB standards, in my mind, is a much lower risk than a risk

            24   that a reconciliation might miss a material item without the

            25   involvement of somebody who is schooled and expertised in






             1   U.S. GAAP.

             2             MR. HEWITT:  Thank you.  Mr. Kaplan?

             3             MR. KAPLAN:  Actually, another way to think about

             4   it, in answering that question is, even today, many of the

             5   firms -- and one of them includes PricewaterhouseCoopers --

             6   actually have a requirement that requires a review of

             7   144(a)s.  So even there is no designated review requirement

             8   there, we actually, under 144(a), would require a review of

             9   those offerings.

            10             MR. WHITE:  Why do not we move to the next general

            11   topic.  I know we have danced around this one in a number of

            12   ways already, but, at least, for those of us that come from

            13   Corporation Finance, I guess what we focus is, of the three

            14   SEC missions -- investor protection and disclosure to

            15   investors is the one that, at least, I am the most focused

            16   on.

            17             And, in fact, I think each lawyer who has started

            18   work here at the Commission, when we are sworn in by Chairman

            19   Cox, he points out to us that the investor is our new client,

            20   as opposed to whoever our clients were before.

            21             So, with all of that as a lead-in, do we believe

            22   that investors will be receiving the information they need to

            23   make informed investment decisions when we have eliminated

            24   the reconciliation requirement?

            25             Let's start with Ms. Kinney.






             1             MS. KINNEY:  Well, I think the answer is yes.  And

             2   I think the point was made earlier that perhaps, even in the

             3   lack of reconciliation, the timing of information can be

             4   improved.

             5             So the point was made earlier, if you have a

             6   December 31 reporting company, in the February to April time

             7   frame, you would have the numbers.  And today, an investor

             8   has to wait for the 20-F until late June or, at the latest,

             9   the middle of July.  And so I think that there would be a

            10   presumption that the information coming forward would be more

            11   timely and, therefore, investment decisions could be made

            12   with perhaps better information.

            13             MR. WHITE:  Professor Karmel, do you think

            14   investors are going to be taken care of here?

            15             PROFESSOR KARMEL:  I think investors will receive

            16   enough information, but -- and I think it's a big but -- as I

            17   said before, I think this puts a certain burden on the

            18   intermediaries.

            19             If, for example, a securities firm is recommending

            20   to one of its clients that the client purchase a particular

            21   foreign security where there is no reconciliation, then, in

            22   order to have a reasonable basis for that recommendation --

            23   which is a simple requirement -- the firm is going to have to

            24   understand what this means and is going to have to appreciate

            25   the difference between the way in which reporting was






             1   previously done where there was a GAAP reconciliation and

             2   now.

             3             Now, maybe that would be irrelevant in terms of a

             4   particular security, but in terms of another security, it

             5   might be something important.

             6             MR. WHITE:  I mean, the 144(a) offerings we have

             7   been commenting on are obviously all sold to sophisticated

             8   investors.

             9             PROFESSOR KARMEL:  That's right.  But now --

            10             MR. WHITE:  But we are now talking about sales to

            11   retail investors.

            12             PROFESSOR KARMEL:  Well, now, we're talking about

            13   sales to retail investors and smaller institutions that don't

            14   qualify as credit investors for purposes of 144(a).

            15             So I think that is going to be a different dynamic,

            16   and I think investors will be expecting that the

            17   intermediaries involved will have analyzed the securities.

            18             And, as I said, this puts a burden on the exchanges

            19   that list these securities, on the investment bankers, on the

            20   research analysts, and on the rating agencies, when we are

            21   talking about foreign bonds, particularly.

            22             MR. WHITE:  We'll keep going down to the left

            23   there.  Are investors going to be protected?  Mr. Blackett?

            24             MR. BLACKETT:  I think, to Neri's point, there are

            25   multiple sources -- or silos, if you will -- of information,






             1   and GAAP reconciliation is just one.

             2             We shouldn't lose sight of -- first, in no

             3   particular order, SOX 404 is a continuing obligation for all

             4   foreign issues.  That is a real hammer in the minds of

             5   foreign issuers.  They take that extraordinarily seriously.

             6             So there are a number of constant disclosure

             7   requirements.  The advent of websites.  When they come to the

             8   U.S. market, they clearly realize that they have to, in many

             9   cases, step up their investor contact and their investor flow

            10   of information.  And when you look at a website for a foreign

            11   issuer today versus two or three years ago, part of the

            12   extraordinary change is not just technology, but also

            13   recognition.  Analysts, when they publish, are invariably

            14   publishing exclusively, I would argue, in local GAAP for

            15   comparative purposes.

            16             And, also, let's not forget one thing.  Local

            17   regulators and markets are seeing the potential for liquidity

            18   to go to the United States.  Particularly, regulators are

            19   looking at what we do to improve the attractiveness of our

            20   market to try and reverse that trend, because none of them

            21   want to see their market wither for lack of -- for a

            22   perception that they are somehow delinquent.

            23             Novo Mercardo, for example, in Brazil, is a clear

            24   example where the regulator, in anticipation of seeing

            25   liquidity move, realized they had to join that flow of






             1   increased disclosure and awareness.

             2             So I think there are multiple channels.  And I do

             3   think, at the end of the day, discussion of the differences,

             4   where materially appropriate, between IFRS and GAAP are

             5   important.

             6             Now, as the two converge, so that goes away.  But

             7   until they converge, disclosure and discussion around it, at

             8   least on the annual basis when they come out, is important

             9   for investors.  And that is usually on, as I said earlier,

            10   revenue recognition and timing of revenue recognition, or

            11   disclosure, in mining and natural resources, of probable and

            12   possible reserves, and issues like that.

            13             MR. WHITE:  I want to keep going down here and

            14   getting everyone on record on this question.  Mr. Bukspan?

            15             MR. BUKSPAN:  Well, on that point, I'm just getting

            16   myself on record.  I'll try to condense a day in the life of

            17   an analyst to two minutes.

            18             But when analysts look at these issues, sometimes,

            19   you can have the reconciliation that will allow you --

            20   sometimes, analysts can say there is a clear economic answer. 

            21   For example, some of our analysts truly believe that the

            22   entire economic deficits of a pension plan needs to be on the

            23   company's balance sheet.  Sometimes, it's just an exercise in

            24   comparability.

            25             And, stated differently, maybe it will be pure to






             1   measure everybody and put them all on a scale without their

             2   shoes on.  But let's say that 90 percent of population has

             3   their shoes on.  So what the analyst would do is approximate

             4   what is going to be the weight of the shoe in order to get an

             5   approximation and do a relative comparison.

             6             So there are differences.  There are clear

             7   differences.  And, frankly, it's not necessarily the

             8   difference between IFRS and U.S. GAAP.  There's clear

             9   difference within U.S. GAAP alone.  FASB just reduced the

            10   fair value option, which creates differences with U.S. GAAP.

            11             And differences existed always, even within U.S.

            12   GAAP.  Of course, you will remember pooling versus purchase;

            13   FIFO versus LIFO.  And if you start looking at companies, and

            14   you compare those companies, you need to make an analytical

            15   decision.

            16             Sometimes you have the information or you can

            17   reconstruct the information.  So we try to capitalize leases,

            18   put them on the balance sheet, look at pensions, and quantify

            19   some things.  So you sometimes you can quantify.

            20             Sometimes our pencils are not as sharp because it's

            21   impractical to do it, or you don't have the information.  And

            22   then you just know that, with any single number, you have

            23   x-degrees of freedom.

            24             And if there is a very large gap, I'm sure analysts

            25   will be asking the questions, and companies will look at the






             1   issues, and these gaps will be minimized over time, either

             2   through convergence or through disclosures, to allow users to

             3   understand those differences.

             4             And I don't see it as any different than what we

             5   are seeing today.  I think people forget the optionality

             6   within existing accounting.  I think the analogy was made

             7   earlier about a roadmap and how difficult it is to follow a

             8   roadmap.  I use my own analogy on the road.  I think,

             9   currently, we have a system where you can drive on the right,

            10   you can drive on the left, you can drive on the center in

            11   some points.  And this is part of the convergence.

            12             I think what is very important for us to understand

            13   is to have road signs.  If we have the appropriate road

            14   signs, we know how to drive, using the system.  If we don't

            15   have the road signs, we are running the risk that we have

            16   major clashes .

            17             And this is the role of the auditors -- to make

            18   sure that we have the appropriate transparency, consistent

            19   auditing, whether it's the PCAOB or the regulator.  But I

            20   think this is ultimately the confidence of the users in the

            21   financial report.

            22             And, at the end of the day, I think the jury is

            23   still out.  If there is going to be a significant uncertainty

            24   in the market with respect to the quality of learning,

            25   whether it is under U.S. GAAP or under IFRS, there will be a






             1   market discount for uncertainty because there is some -- and

             2   if we reflect back on the Enron, I don't think it's an issue

             3   of U.S. GAAP.  I think it's an issue that the information

             4   about the VIE wasn't prominently disclosed in the financial

             5   statements in the first place.  I would probably vouch that

             6   Enron wouldn't have happened if they just needed to provide

             7   certain disclosures under VIE.

             8             I think the focus will be also on the disclosures,

             9   and risk disclosure and information disclosure.  I think we

            10   will all benefit and the system entirely will benefit, given

            11   that, as analysts, I think we don't like options.  We like to

            12   have to a single system.  We recognize that are some

            13   differences, but, with the roadmap, hopefully, at some point,

            14   we will have a single starting point, and I think, hopefully,

            15   sooner than later.

            16             MR. WHITE:  I take it from that that you agree

            17   with, in effect, what Chairman Cox said earlier, in that we

            18   don't need to get complete convergence because we can have

            19   two coexisting systems that are different, as long as they

            20   are understood.

            21             MR. BUKSPAN:  I fully agree with that.  And I also

            22   will take it to the next level and say, even if you have only

            23   U.S. GAAP entirely, or only IFRS, within a single system, you

            24   will have differences that you need to be equally aware;

            25   that, in theory, there could be subsets of the standard that






             1   are not harmonized because companies can elect one option

             2   versus the other, which could create meaningful financial

             3   statement differences in results.

             4             MR. WHITE:  Mr. Grabar, let me get you on record,

             5   as well.

             6             MR. GRABAR:  Well, I'm not sure I know what

             7   investors need.  I just have a checking account, and I'll

             8   leave it at that.  But what people need is high-quality

             9   financial statements, and I think the Commission is going to

            10   make the decision that IFRS financial statements are

            11   high-quality financial statements.

            12             And, having gotten that, do they need to hear from

            13   each foreign private issuer about the difference between

            14   System B and System A?  I think the answer to that is, "Not

            15   really."  You may get better information down the road.

            16   Investors are hearing that through participation with

            17   intermediaries.

            18             I'll add that I think that another kind of

            19   convergence that you may see within the next three or four

            20   years is convergence around IFRS; that the airline that,

            21   today, is being asked by Morgan Stanley to prepare a U.S.

            22   GAAP income statement so it will be comparable with other

            23   airlines, in four or five years, may have to prepare an IFRS

            24   financial statement the same purpose.

            25             MR. WHITE:  More comments on investor --






             1             MR. POTT:  I totally agree with that.  I think that

             2   the quality of information that investors are getting is

             3   going to be no less than under a current standard.  And with

             4   the combination of convergence and SEC review of financial

             5   statements, investors are going to be just fine.

             6             I mean, after all, U.S. GAAP has not exactly

             7   distinguished itself over the course of the last few years.

             8   And so I wouldn't necessarily conclude that one is better

             9   than the other, but, certainly, IFRS is not inferior.

            10             MR. WHITE:  Further comments, or are we ready to

            11   move to the next topic?

            12             MR. HEWITT:  I have a question for any of the panel

            13   members.  Under the roadmap, as it was originally designed,

            14   FASB and the International Accounting Standard Board were

            15   going to look at, say, 11 major accounting standards between

            16   the two of them -- one of those being, say, the business

            17   combinations for which there are two different standards,

            18   FASB and IASB.

            19             Assuming that FASB and IASB could not agree upon

            20   converging this particular accounting standard -- say, on

            21   business combinations, which is a very important standard, in

            22   terms of accounting standards -- would that make any

            23   difference to the investor?

            24             Anybody can answer.  Mr. Blackett?

            25             MR. BLACKETT:  Let me start the conversation.  I






             1   think it would be -- again, in the context that information

             2   is, you know, a multi-sourced phenomena, I think the fact

             3   that if they could not would mean that the intermediaries --

             4   whether they were the rating agencies, the underwriters, the

             5   underwriters' counsel, company's counsel -- would clearly be

             6   obligated to highlight what is, I would argue, almost a

             7   redundancy -- because it has been so highlighted by the fact

             8   that two prominent entities could not agree, that it is

             9   almost a redundancy for us to then continue to over-highlight

            10   it.

            11             But I think that would be one of the disclosure

            12   items that we would feel obligated to put in the prospectus

            13   -- that, you know, there are material differences, as

            14   recognized by both jurisdictions, if you will, and, you know,

            15   trying to help investors quantify what financial impact there

            16   might be.

            17             I think it's a very manageable topic and, arguably,

            18   because it has been highlighted both entities, it is almost

            19   an easy one to answer because of that visibility.  It's the

            20   ones that are less obvious or have some problem that raise

            21   bigger issues.

            22             MR. GRABAR:  I would just say when -- I mean,

            23   acquisition accounting is a good example of this -- that the

            24   areas in which the FASB and IASB may end up being unable to

            25   agree will be areas in which, whatever those two organisms






             1   may think, the market will probably react that there was no

             2   right answer.  And where there was no right answer, these

             3   questions of comparability will be maybe less important.

             4             I think that the things that we focus on in the

             5   offering and due diligence process tend to be subjects on

             6   which the agreement has come rather rapidly, which we have

             7   mentioned that reconciliation is a prominent example.

             8             MR. WHITE:  Okay.  Why don't we move to our next

             9   topic.  So far, we have been talking about foreign private

            10   issuers coming into the U.S. markets and no longer having to

            11   reconcile.

            12             I guess the next question is:  What about the U.S.

            13   issuers that are already sitting here, reporting in U.S.

            14   GAAP, were never involved with IFRS, were not reconciled?

            15             What is the impact of -- let's just start with,

            16   assuming this is fully implemented, in terms of the

            17   elimination of the reconciliation requirement, what is going

            18   to be the impact on U.S. issuers?

            19             We'll start with you, Mr. Pott.

            20             MR. POTT:  Well, I'm not sure I have the answer on

            21   that one, John.  But I do think that --

            22             MR. WHITE:  But there are a lot of people that are

            23   interested.

            24             MR. POTT:  Maybe.  I'm not sure they're interested

            25   into my opinion about it.






             1             But I do think that it is possible -- as I think

             2   Cathy might have mentioned before, it is possible that -- or

             3   perhaps Nick also -- the dramatically increasing acceptance

             4   of IFRS may move the comparability of a company's competitors

             5   in an industry more from U.S. GAAP over to IFRS, which might

             6   cause, I think, the U.S. company to decide that it is better

             7   off reporting in IFRS.

             8             So there is a possibility of a move to that.  If

             9   that is something that is going to considered allowable by

            10   the SEC, I don't know.

            11             MR. WHITE:  Well, I mean, you obviously heard

            12   Chairman Cox hinted that, in his remarks earlier, as a

            13   possibility.

            14             MR. POTT:  Right.

            15             MR. WHITE:  I mean, do you see, at this point,

            16   reconciliation in the other direction, on a voluntary basis?

            17             MR. POTT:  No.  No, I don't.

            18             MR. WHITE:  Ms. Kinney?

            19             MS. KINNEY:  We talked to a couple of large global

            20   issuers, and a number of them said that they would look at

            21   both standards, but, in fact, they might choose to go to IFRS

            22   in the future.

            23             But I think it would be something they would

            24   welcome -- they would like to have a choice.  And given their

            25   business models and the industries in which they find






             1   themselves and the comparadors, I think that they would, as I

             2   said, welcome a choice between the two alternatives.  And I

             3   think many companies might go into the direction of IFRS.

             4             MR. WHITE:  Professor Karmel?

             5             PROFESSOR KARMEL:  Well, all regulatory changes,

             6   you have unexpected side effects, and this could well be one

             7   of the unexpected or not so thought about side effects of

             8   this change.

             9             I believe that when the SEC, years ago, put out a

            10   concept release on this topic, some U.S. issuers commented

            11   that this would be unfair to us.  We would have to still

            12   report in U.S. GAAP, and foreign issuers could report in

            13   international standards.

            14             And I think the SEC probably will have to allow

            15   U.S. issuers this choice in the future -- to either report in

            16   IFRS or U.S. GAAP.  And that could be a very interesting

            17   experiment, if important U.S. issuers decide to stop

            18   reporting in U.S. GAAP and to start reporting in IFRS.

            19             In any event, I think this could possibly be a spur

            20   to more principle-based accounting standards in the U.S. and

            21   worldwide because IFRS is more principle-based than U.S.

            22   GAAP.  And I think it could assist that kind of convergence.

            23             It's always hard to speculate on what the effects

            24   of a new regulation are going to be, but I think there could

            25   be an interesting result.






             1             MR. WHITE:  Do you think this is a choice we are

             2   going have to offer on day one, or is this kind of step two?

             3             PROFESSOR KARMEL:  Well, that's up to you, not to

             4   me.  This is for the Commission to decide.

             5             MR. WHITE:  Well, I guess we're here to ask for

             6   input.  I heard the mention of a concept release as another

             7   choice here.  That's one of the ways we get input, you know,

             8   but roundtables are another.

             9             PROFESSOR KARMEL:  I think, usually, the government

            10   generally does better doing something in incremental steps.

            11   So it probably makes sense to do a change that is this

            12   important in incremental steps also.

            13             But, yes, I think the SEC will have to offer that

            14   choice to U.S. issuers, and it will be interesting to see

            15   which U.S. issuers take advantage of it.  Will some seasoned

            16   issuers change to IFRS?  And what about companies that are

            17   going public for the first time?  That would be even more

            18   interesting, I think.  Will they choose IFRS, or will they

            19   choose U.S. GAAP?

            20             Also, when you look at the agreement between the

            21   SEC and CESR, in terms of how this will work, you see that,

            22   if U.S. issuers that are listed abroad continue to report in

            23   U.S. GAAP, securities regulators in Europe will then have the

            24   opportunity, maybe the obligation, to question those

            25   financials, just as the SEC has started to ask questions of






             1   foreign issuers reporting in IFRS.  And I think that also

             2   will really be a spur to convergence down the road.

             3             I think that, once regulators start talking to each

             4   other about these kinds of problems, surprisingly, they often

             5   agree and cooperate with each other -- because they have the

             6   same mandates and the same problems.

             7             And so I think allowing U.S. issuers to report in

             8   IFRS and having the dynamic where foreign regulators are

             9   asking U.S. issuers questions about U.S. GAAP will generally

            10   assist convergence, so that it probably will be a good

            11   development.

            12             MR. WHITE:  Mr. Kaplan?

            13             MR. KAPLAN:  We see two different aspects of this,

            14   John.  The first is, obviously, CESR is working on a similar

            15   timetable as is the USC, in terms of whether or not there

            16   ought to be additional disclosures or some reconciliation for

            17   U.S. issuers in European markets.

            18             And if the SEC does not head down this direction,

            19   you know, could there eventually be some additional costs for

            20   U.S. issuers raising capital in other markets overseas?  And

            21   the answer is, certainly, that's a possibly that I think many

            22   U.S. companies would not prefer to see happen.

            23             Second, of course, is what you mentioned in terms

            24   of whether or not the SEC would consider allowing U.S.

            25   companies to file on IFRS-based financial statements in the






             1   U.S. capital markets.  And, certainly, we would not want to

             2   see the decision around eliminating the reconciliation held

             3   up for that question.  We think that the decision around

             4   eliminating the reconciliation to U.S. GAAP should move

             5   forward in accordance with the roadmap which has been

             6   established, and I wouldn't want to see that held up.

             7             However, I think there are a number of different

             8   considerations that U.S. companies may have with respect to

             9   going to IFRS financial statements.  Certainly, they would

            10   have to go through the -- as you say, the transformation --

            11   the knowledge, the transformation, the systems changes,

            12   everything else, which they would have to evaluate from a

            13   cost benefit perspective.

            14             Of course, they would want to be looking at their

            15   competitors to find out whether or not they would be moving

            16   towards -- whether their basic marketplace reports mostly on

            17   an IFRS basis or on a U.S. GAAP basis.

            18             I think there is also some litigation questions

            19   that they would be thinking about.  In particular, there is

            20   certain information which is required as disclosures in the

            21   basic financial statements under IFRS which would bring it

            22   into the basic financial statements, which might now be

            23   disclosed outside of the financial statements and be subject

            24   to some safe harbor rules, SEC rules.  So they would want to

            25   consider some of those aspects, as well.






             1             So there would be a number of different

             2   considerations that U.S. preparers would have to think

             3   through.

             4             MR. WHITE:  Is there any concern in terms of the

             5   accounting profession getting ready, if there was a

             6   significant movement of U.S. companies to --

             7             MR. KAPLAN:  Certainly, it would be a very large

             8   educational effort for the accounting profession, as well, in

             9   order to train people.  But, you know, we are already in the

            10   process of doing that, as it relates to IFRS.

            11             We have in the U.S. certain people that already

            12   specialize in IFRS financial statements.  We hold internal

            13   seminars and training programs.  But, at the end of the day,

            14   you know, we wouldn't be asking people here to do anything

            15   more than that what Europe has just done in educating their

            16   entire marketplace on a change to IFRS.

            17             MR. WHITE:  Mr. Ranzilla?

            18             MR. RANZILLA:  I agree with David on that last

            19   point -- at least from our firm.  We have done some fairly

            20   extensive IFRS training here in the U.S. to support our

            21   clients from the European Community.

            22             But as it relates to this question, I think the

            23   Commission may have an ideal avenue to address this whole

            24   issue of the U.S. issuers and IFRS versus U.S. GAAP when it

            25   addresses complexity at some point.






             1             It would seem to me an appropriate question on the

             2   table with respect to complexity is:  If it's good enough for

             3   X U.S. companies to report without any reconciliation, why,

             4   in the U.S. marketplace, would we not just convert to IFRS as

             5   a matter or course?  It would seem to me the complexity

             6   discussion is absolutely the right place to put that issue on

             7   the table.

             8             MR. WHITE:  Why don't we move on to our next topic.

             9   Mr. Grabar, I know this is one of your favor topics, since

            10   you suggested that I raise it.

            11             How is the due diligence process going to work -- I

            12   guess, really, for underwriters, securities counsel,

            13   auditors, and all the different gatekeepers of sorts?  How is

            14   it going to work in the world of no reconciliation?

            15             MR. GRABAR:  I like this question so much, I feel

            16   like I have already answered it.

            17             MR. WHITE:  Well, you have touched on it about

            18   three times.  But I wanted to, you know, get it here real

            19   directly for you.

            20             MR. GRABAR:  In the due diligence process today for

            21   a reporting company or a registered IPO, the reconciliation

            22   plays a very secondary role.  People review the

            23   reconciliation, try to understand what it's about, but a sign

            24   of its relative importance would be the attention that it's

            25   given in MD&A by reporting companies.






             1             And I think you will find that most reporting

             2   companies address reconciliation quite briefly in MD&A.  It's

             3   a practical matter.  They do it because their counsel and

             4   their auditors insist that they do so, not because their

             5   underwriters or their investors insist that they do so.  So,

             6   for reporting companies, the reconciliation is something that

             7   the professionals deal with, and the investors and the

             8   underwriters generally don't spend very much time on it.

             9             In 144(a) deals, of course, we have been engaged in

            10   this massive process of learning how to do without

            11   reconciliation over the last 6 to 10 years.  And, as I was

            12   mentioning earlier, some tools have emerged in order to

            13   understand the significance of GAAP differences without the

            14   benefit of reconciliation.

            15             For years, you would see in 144(a) offerings a

            16   narrative description of significant differences between U.S.

            17   GAAP and the home team GAAP.  That practice is, I think, in

            18   the process of falling away in 144(a) offerings today.  I

            19   think we see it less -- we're starting to see it less and

            20   less, in favor of the kinds of information sources people

            21   were talking about earlier -- research reports and the due

            22   diligence process itself -- sort of other ways to get at the

            23   significance of different accounting principles.

            24             I would also add that, when the issuer is reporting

            25   under IFRS, the team that is working on the transaction is






             1   liable to consist very largely of nationals of the issuer's

             2   country, who understand IFRS often much better than they

             3   understand U.S. GAAP, and the focus is on the IFRS

             4   information.

             5             When I say "the team," I'm saying the lawyers, the

             6   underwriters, the auditors.  For an offering by a registered

             7   French issuer, the personnel on the ground will French

             8   personnel of each of those institutions, who will understand

             9   IFRS better than U.S. GAAP, anyway, and that is where the

            10   focus will be.

            11             MR. WHITE:  Any other comments on, as some call it,

            12   the due diligence front?

            13             (No response.)

            14             MR. WHITE:  All right.  Then why don't I move to

            15   our last topic.  Ms. Kinney, this one is obviously for you.

            16             In part, it is:  What is the impact on our markets? 

            17   And, in part:  What are the exchanges, themselves, going to

            18   have to do to get ready for this?  It's both of those

            19   questions.

            20             MS. KINNEY:  I think that our listing standards

            21   really wouldn't change, John, because, today, they really

            22   don't recognize any particular accounting standard.  There

            23   are financials, and we rely on disclosure, and we rely on

            24   audited financial statements.

            25             So, you know, it is our view that we would continue






             1   to have one set of listing standards, the companies would

             2   choose the accounting convention, and then we would use those

             3   reported financials to determine the eligibility of a

             4   particular company for listing on the exchange.

             5             I do think, however, that there will be probably,

             6   as we said earlier, companies that will take advantage of

             7   these changes to perhaps dual-list their companies.  So we

             8   would expect companies listing in the home country, as well

             9   as U.S. markets.

            10             And I think we would still expect that companies

            11   may trade in both ADRs, and we would hope that, given some of

            12   the other work that is going on at the SEC right now --

            13   Ethiopas and a number of others -- that there may be some

            14   greater movement of capital flows among the markets on a

            15   global basis and, therefore, ordinaries may be trading in the

            16   U.S. markets with much more attention to the post-trade

            17   clearance and settlement.

            18             So, you know, it's our view that companies will

            19   list in multiple markets; that we will rely on disclosure and

            20   audited financials; that there will be no reconciliation;

            21   that investors will have this information on a very timely

            22   basis; and that the trading in the markets will be global.

            23             MR. WHITE:  That finishes my basic questions.  I

            24   had said earlier that I would give each of you a minute or so

            25   -- I think it's going to turn out to be about a minute and a






             1   half each -- to give us a final comment on anything that we

             2   have missed discussing, and, I guess, perhaps, particularly

             3   to ask if there are any recommendations you would like to

             4   give us here at the Commission, or on the staff which you

             5   would like particularly for us to take away from today.

             6             And, given my personal place in the alphabetical

             7   world, I am going to start in reversal alphabetical order

             8   with Mr. Ranzilla.  I sit my life at this end of the

             9   alphabetical world, so Mr. Ranzilla?  And then we will go

            10   that way across the --

            11             MR. RANZILLA:  I'm fairly close to you.

            12             We support -- where we sit today, I should say I

            13   support the elimination of the U.S. GAAP reconciliation

            14   within the context and in accordance with the roadmap.

            15             I think the only point that I would like to raise

            16   that hasn't been fully discussed is this issue of U.S.

            17   issuers, and we would encourage the Commission, as a part of

            18   its addressing the whole area of complexity, to really take

            19   on front and center the issue of whether or not our national

            20   financial reporting standards are something that we ought to

            21   be moving towards here in the U.S. marketplace.

            22             MR. WHITE:  Mr. Pott?

            23             MR. POTT:  John, I think, unfortunately, you seem

            24   to have picked a topic and a panel where there seems to be

            25   very little disagreement.






             1             But I will say that I think my -- just very

             2   shortly, my closing remarks are that this is a terrific idea.

             3   It can't come fast enough.  And I did caveat it earlier by

             4   saying, you know, we are still dealing with these issues, and

             5   we are dealing with conservatism among some of the players in

             6   the industry.  But they will come around.  Education will get

             7   them there.

             8             I think the SEC needs to do all it can to encourage

             9   more business here in the U.S., and this is part of that

            10   movement.  And so I think this, combined with convergence,

            11   are both terrific ideas whose time is now.

            12             MR. WHITE:  Thank you.  Ms. Kinney?  I can guess

            13   what you're going to say.

            14             MS. KINNEY:  I was going to say it's an avalanche

            15   of momentum here.

            16             I would just like to say that I think that the

            17   three steps that the SEC, as I said, has taken a particular

            18   view on -- both the changes in 404, the deregistration

            19   requirements, and then the topics that we discussed today --

            20   to Ken's point, I think all of those can't come fast enough,

            21   and the more we can do to encourage the broad listing of

            22   companies in the U.S., I think can be managed, both from the

            23   perspective of protection of investors, as well as the

            24   competitiveness of the U.S. market.  So I think we would

            25   encourage you to do it as quickly as possible.






             1             MR. WHITE:  Professor Karmel?

             2             PROFESSOR KARMEL:  Back in 1991, I was asked to do

             3   a project for the New York Stock Exchange -- I actually did

             4   that with someone who is now on the SEC staff -- having to do

             5   with how to encourage more foreign issuers to come into the

             6   U.S. and list.  And we recommended that there be an end to

             7   reconciliation by foreign private issuers.  That was a long

             8   time ago.  And so I certainly agree with those who say this

             9   can't come soon enough.

            10             I think the recent reports by -- the Paulson report

            11   which Professor Scott orchestrated, the reports done by

            12   McKenzie for Bloomberg & Schumer show that, in fact, the

            13   opposite has happened, and some of the capital markets are

            14   going abroad instead of coming here.  And so I think this is

            15   a matter of more urgency now than it was in 1991.

            16             The only advice I really can give the SEC is don't

            17   wait until you have solved every problem, until you have a

            18   perfect regulation.  As I said before, the government does a

            19   better job when they do things in an incremental way.  And,

            20   you know, take the plunge and see what happens.  But you

            21   don't have to do everything all at once.  Do what you can as

            22   soon as possible.

            23             MR. WHITE:  Thank you.  Mr. Kaplan?

            24             MR. KAPLAN:  I would also support the elimination

            25   of the IFRS-to-U.S. GAAP reconciliation.  I believe that it






             1   would remove any perception of barriers to the free movement

             2   of capital, which we think is a good thing.

             3             Also, it would remove any perception that some

             4   might have that the SEC doesn't believe that IFRS is a robust

             5   and stable accounting and financial reporting language.

             6             And it would certainly remove some of the resources

             7   that are necessary -- some of the costs in the system -- by

             8   eliminating that reconciliation.

             9             I would also suggest, as has been mentioned before,

            10   that the PCAOB, together with the SEC, consider whether or

            11   not the ongoing designated review requirement continues to be

            12   required, as a sort of corollary statement.

            13             MR. WHITE:  As you know, we have a major project

            14   going on in Corporation Finance looking at all of the IFRS

            15   filings that came in for the first time last summer for

            16   faithfulness and consistency of application and timeliness.

            17   So we are very involved in that process right now.

            18             Mr. Grabar?

            19             MR. GRABAR:  I was going to mention that process,

            20   though, because I think those comment letters are, really,

            21   terribly important as part of the acclimatization of the

            22   issuer world to the role that the SEC is going to play with

            23   respect to IFRS.  And I think that the comments have been of

            24   very high quality, and our experience has been they have been

            25   handled very well and sharply between the SEC and the






             1   issuers.

             2             But I think that there is one thing that could be

             3   done to improve that process.  The staff, I think, may have

             4   underestimated how threatening comment letters look to

             5   issuers when they get them.

             6             And your staff's philosophy -- which I think it

             7   announced pretty clearly -- of trying to understand, trying

             8   to achieve clear disclosure, and taking the hard cases

             9   upstairs, as opposed to going to the mat with issuers about

            10   interpretation of IFRS, taking them to another process, in

            11   which you talk to national regulators -- that approach is

            12   very sound, but our issuers don't really understand it.

            13             When they get a letter, I think one thing you could

            14   do that would simplify it is to describe your approach in the

            15   letter itself, so that it's clear between you and the

            16   issuer -- who are the real parties to this dialogue -- what

            17   the Commission staff thinks it is doing with the comment

            18   process.

            19             As a lawyer, the other two comments I would make

            20   about the whole process is that I think it would be valuable

            21   to clarify the timetable -- the idea that something is going

            22   to happen by 2009, at the latest.

            23             I think we need, at this point, more precision

            24   about what it is exactly that is going to happen when, and,

            25   specifically, does that mean that, on December 31, 2008, that






             1   the goal is that those financial statements can be presented

             2   without reconciliation?  Or is it softer than that -- that

             3   there will be a rule by some time?  I think more clarity

             4   about the timetable table would be helpful.

             5             And the last point I would make as a lawyer is that

             6   these rules are going to be hard to write.  They are going to

             7   be harder to write than anybody realizes until they sit down

             8   and try write them, so that an early start is going to be

             9   essential, and 2009 is right around the corner.

            10             MR. WHITE:  Just as general information on the

            11   comment process, we are looking at, I think, over 100 filers

            12   in IFRS that came in last year.  And I think we are somewhere

            13   like halfway through that at this point.

            14             We have a policy of posting those comment letters

            15   45 days after the review is completed, and I think something

            16   in the neighborhood of half of the half are already posted,

            17   and the rest are in that 45-date waiting period.

            18             So there actually is a fair amount of daylight

            19   here, in terms of companies and for everyone to be able to

            20   see what we are doing and what we are saying to people and

            21   what we are hearing back from foreign issuers, as we go

            22   through that process.

            23             Mr. Bukspan?

            24             MR. BUKSPAN:  A couple points.  One, the first

            25   point is in conjunction with the move to IFRS in Europe --






             1   from home country GAAPs to IFRS.  We have seen instances

             2   where we have actually had transparency loss, rather than

             3   transparency gains.  There is probably going to be the issue

             4   of the comment process and the review.  One would hope that,

             5   if you produce a new accounting system, all and all, you will

             6   transparency gains.  The numbers will be clearly explained

             7   and articulated.

             8             The other topic is perhaps it's an opportunity

             9   because there is a reshaping of financial reporting broadly.

            10   And the role of the SEC -- and there is many financial

            11   reporting data that is currently reported outside the

            12   financial statements.  From a user perspective, sometimes, if

            13   there is some assembly required -- I am a little bit also

            14   concerned with the discussion about whether U.S. participants

            15   will be allowed to use IFRS.

            16             Again, in the spirit of the discussion, I was

            17   hoping to something more convergent, where the two boards

            18   work together -- use efficiencies and scale of the two boards

            19   to see enhance financial reporting for all of us, rather than

            20   going out on their own way and then allowing, again, to

            21   converge and pick up whatever companies believe may be a more

            22   appropriate financial reporting method.

            23             So, again, from my perspective, ideally, we will

            24   have one starting point, clearly explained, clearly

            25   articulated, and the integration of financial reports,






             1   financial statements, and information that is outside the

             2   financial statements in the MD&A will be better integrated.

             3             MR. WHITE:  Mr. Blackett, you are going to get the

             4   last word here.

             5             MR. BLACKETT:  I don't get it at home.

             6             I'd say a couple of things.  It will help domestic

             7   institutional retail investors meet their evolving investment

             8   desires of diversification and the rest of it.  I think it

             9   will simplify foreign issuers' access to the United States to

            10   provide that service.

            11             However, I would say -- an earlier question that

            12   Neri talked about, too -- at the margin, and perhaps

            13   theoretically, it will raise potentially the cost capital of

            14   U.S. issuance, when you have foreign issuers coming into this

            15   market and if you have a finite group of demands.

            16             So I do believe reciprocity is going to be an

            17   important issue to consider.  No one likes giving up an

            18   option, okay, no matter how invaluable that option might be.

            19   And I think that, therefore, for the issuers' panel, the

            20   question is going to be how they see this world where their

            21   cost of capital could go up on the margin, and what are they

            22   going to be able to do to address that -- I mean, to be able

            23   to have acceptance of their U.S. GAAP in markets where they

            24   could, in reverse, raise capital on their equity.

            25             So I do think the issuers, with respect to






             1   accessing foreign markets on a reciprocal basis, is an

             2   important topic, because there is value -- potentially value

             3   diminution by liberalizing access to our market while, at the

             4   same time, necessarily giving them an option to go to other

             5   markets.

             6             Whether that is a practical option is to be debated

             7   because the concept of equity ownership isn't necessarily

             8   viable to most other markets.  It could very well be on the

             9   bond market side where access to lowering their cost of debt

            10   has value.

            11             So I think the reciprocal nature, and to get to

            12   Neri's point, convergence is probably the ultimate objective

            13   here, rather than sort of having two reciprocal or mutually

            14   acceptable, but not convergent, trends.

            15             MR. WHITE:  Wow.  I didn't realize you were going

            16   to drop this bomb on us at the end that it was going to raise

            17   the cost of capital for U.S. issuers.  So I've got to ask you

            18   a question.

            19             Is that partly solved if we take the second step

            20   that we are talking about of allowing U.S. issuers to choose?

            21             MR. BLACKETT:  Certainly, I think they would view

            22   that having that as an option allows them, at least, to

            23   address it.  As a practical matter, I don't see the big

            24   points of retail demand in Japan or Australia having a

            25   culture that says, "I'm buying non-Australian or Japanese






             1   stock."  I think it's more practical if one is accessing

             2   those markets from a bond side.

             3             MR. WHITE:  All right.  Well, thank you all.  I

             4   very much appreciate your coming here and doing this today.

             5             This concludes this panel.  We'll take a lunch

             6   break.  As a mentioned earlier, for the audience, there is

             7   food at Union Station.  I'm not making any comments on its

             8   quality, but there is food there.  But you have to go out

             9   through security and come back in.

            10             And we will resume at 1:45 with the panel for

            11   investors.  Thank you very much.

            12             (Applause.)

            13             (A lunch break was taken from 12:30 p.m. until 1:45

            14   p.m.)

            15                  A F T E R N O O N  S E S S I O N

            16             MR. WHITE:  Welcome back, everybody.  We are ready

            17   to get started with a second panel.  We going to cover the

            18   same broad topics that we covered this morning, but, in this

            19   case, with a special focus on investors.

            20             And joining me to moderate this panel is Julie

            21   Erhardt.  Julie joined the Commission as a deputy chief

            22   accountant in October 2004, under the then-chief accountant,

            23   Don Nicolaisen.

            24             The focus of her work is on international matters,

            25   and she is very clearly one of the Commission's leading






             1   thinkers on IFRS, the end of reconciliation, and

             2   international financial reporting from all different angles.

             3             I have gone through her bio, and you don't find

             4   this in her many bios, but if I understand it correctly, she

             5   made a substantial contribution to the roadmap at the end of

             6   reconciliation which ended up being published by Don

             7   Nicolaisen, but, as I understand it, Julie was really very

             8   much behind the process of writing that roadmap.  So we are

             9   very fortunate to have her here.

            10             A little other background:  She was a Sloan fellow

            11   at the Graduate School of Business at Stanford University, a

            12   partner at Arthur Andersen, and a practice fellow at the

            13   FASB.  And I guess she even had an interim assignment at the

            14   IASB.  So Julie has been a lot of places.

            15             So, Julie, I am very happy to turn this panel over

            16   to you.

            17             MS. ERHARDT:  Thank you, John.  And thank you to

            18   the audience members and those watching, as well as,

            19   certainly, to our panelists for taking the time to be with us

            20   today.

            21             I would certainly like to start by introducing our

            22   panelists, just from this side down to the other end.

            23             At my immediate right, we have Steve Todd, who, in

            24   simple terms, is a partner at Ernst & Young; in more complex

            25   terms, is the global vice chair for professional practice.






             1             Next to him, Joel Osnoss, from Deloitte & Touche.

             2   He is in charge of their Global Offering Services Group.

             3             Then, to Joel's right, we have Christian Leuz, who

             4   is a professor and, in particular, David Booth faculty fellow

             5   at the Graduate School of Business at the University of

             6   Chicago.

             7             To Christian's right, we have Joe Joseph, who is

             8   the managing director and the chief investment officer of the

             9   small and mid cap equity team at Putnam Investments.

            10             Then, to Joe's right, we have Greg Jonas, who is

            11   the managing director of Moody's Accounting Specialist Group.

            12             To Greg's right, we have Dennis Johnson, who is the

            13   senior portfolio manager for global corporate governance for

            14   CalPERS, the California employees' retirement system.  I

            15   think Dennis earns the award for almost traveling the

            16   farthest -- at least, domestically, and perhaps Steve,

            17   globally.

            18             And then last, but not least, to Dennis' right, we

            19   have Trevor Harris, who is the managing director and vice

            20   chair of client services at Morgan Stanley.

            21             So thank you.

            22             As John mentioned, there is really four broad areas

            23   I would like to explore and, as with this morning's panel,

            24   leaving a little time at the end for just observations from

            25   the panelists that didn't otherwise fit in, or suggestions or






             1   recommendations for our work going forward.

             2             But let me just break those four areas into two

             3   broad categories -- first, the capital markets landscape

             4   globally, and then the second category, and where we will

             5   spend more of our time, the capital markets landscape in the

             6   U.S. markets.

             7             With respect to the capital markets landscape

             8   globally, I would first just like to set the stage for the

             9   discussion to ask for comments by the panelists with respect

            10   to, you know, what factors cause investors and issuers to go

            11   to particular capital markets to buy or sell securities.  And

            12   maybe, in particular, you could focus on what causes

            13   investors to go to particular markets.

            14             I mean, to give a simple analogy, I know, when I

            15   want to buy one can of soda, I am certainly happy to go to

            16   the convenience store to buy it, but when I need a case of

            17   soda, I may be more inclined to go to the warehouse club.

            18             I don't know if such thinking applies to buying one

            19   share versus many shares or one bond versus many bonds, but,

            20   in essence, what I'm trying to get at in the first part of

            21   our discussion is just:  What motivates investors to buy

            22   securities, or, to the extent you are familiar, issuers to

            23   offer securities where they do?

            24             And, in that regard, I would like to ask Trevor to

            25   start us off, and then maybe move to Joel and Greg, and then,






             1   certainly, at that point any panelist that wants to join in,

             2   just please signal that by standing your name card on the

             3   end.

             4             So, Trevor?

             5             MR. HARRIS:  Thank you, Judy.  And thanks for

             6   inviting me here.

             7             Before I answer your question directly, Chairman

             8   Cox mentioned this morning that it's nice to have real

             9   evidence to base various comments on.  And I have been

            10   looking at this area and actually worked with 20-F

            11   reconciliations in the early '90s, in my former life as an

            12   academic.  So I have actually read and tried to analyze

            13   hundreds of these reconciliations and looked at the capital

            14   markets' effect on them, as well as working with the issuers

            15   and, clearly, investors in my role at Morgan Stanley.

            16             And I think, first and foremost -- and it almost

            17   doesn't matter which type of investor you are; the single

            18   Coke, or the soda, or the case -- is liquidity matters the

            19   most, if you go where the markets are almost liquid and, in

            20   some sense, where the transaction costs are least.  And the

            21   globalization of capital markets in various forms has changed

            22   that whole perspective.

            23             But I think it is also important to allude to what

            24   Richard Blackett had spoke about this morning.  The markets

            25   are quite diverse in terms of the buckets.  And he used three






             1   three buckets this morning -- the large cap, or large pools

             2   of investment on the institutional side; mid market; and

             3   retail.

             4             But, that, I think is not sufficient, either.  I

             5   think there is also a lot of investors who are what I would

             6   call index huggers.  And the ETF market has actually grown

             7   that a lot.  And so there is a way to access a lot of

             8   non-U.S. issuers through ETF that, historically, really

             9   wasn't available in a very liquid form.  And, clearly, the

            10   accounting reconciliations don't really play a role to the

            11   same extent in that case because you've got an intermediary

            12   dealing with it.

            13             Even in the large institutions, if you are a very

            14   active trader and that is the way you are actually looking at

            15   things, again, the accounting information set is a very

            16   different set and you clearly go where the liquidity is.

            17             Moving to the retail space, which is, I think,

            18   where there is the most information need, in some sense, I

            19   think it is also an illusion to believe that all retail

            20   investors transact just in our markets, and even that they

            21   only transact in those companies that have Level III or Level

            22   II ADRs, which are registered with the SEC and have full

            23   reconciliations.

            24             Today's Wall Street Journal talks about the pink

            25   sheet market.  It talks about two very large






             1   multinationals -- Hoffman-La Roche and Nestle -- who have

             2   chosen to operate in those markets.

             3             For a retail investor, if we have liquidity in

             4   these markets and we can deal with the foreign exchange and

             5   taxation issues, or it gets done for us through a custodian

             6   or an ADR process, then I think you will see that being done

             7   in that form.  So the reconciliation, in and of itself, may

             8   even not be known whether it exists or not to a retail

             9   investor.

            10             Two other observations on that, and then I'll pass

            11   it on is that, even in that space, today, there adverts and

            12   an online broker this is focused on the retail -- they are

            13   going to be offering trading in individual securities in the

            14   local markets, in six or seven non-U.S. markets.

            15             So, again, you don't need to even go into the U.S.

            16   markets as an individual to make transactions -- with, I

            17   think, a $20 transaction cost.  So, again, that makes it a

            18   much simpler process to actually go and do these

            19   transactions.

            20             But my experience with both institutional investors

            21   and with the more retail investor, where the size of

            22   liquidity issue is, what they are really looking for is an

            23   ability to reduce risk and uncertainty -- which was alluded

            24   to this morning.

            25             So, in my mind, it's much more having the






             1   regulatory oversight -- having the SEC actually opine and

             2   monitor what is being done that is really what we are looking

             3   for, or investors are looking for in this whole process.

             4             And I want to make an important distinction that

             5   wasn't made as much, I don't think, this morning, in this

             6   line.  There is a big difference, when we go through these

             7   discussions, between a local accounting system and a local

             8   market -- especially in an emerging market with an

             9   undeveloped capital system.  So one of the other factors is

            10   the actual nature of the system itself and the regulatory

            11   oversight.

            12             That's very different to having an international

            13   system -- or IFRS, specifically -- which is with the

            14   regulatory oversight, so the SEC.  So the reduction of

            15   uncertainty through some -- be it the auditors or the

            16   regulators opining -- I think is much more critical, in terms

            17   of where people want to go.

            18             MR. WHITE:  So when Ken was saying that he sees the

            19   need for reconciliation in the 144(a) offerings today, that

            20   is less the case, from your perspective, if the underlying

            21   reporting system was IFRS?

            22             MR. HARRIS:  There is no question.  And this is --

            23   many of the issuers he is alluding to -- because he and I

            24   actually were talking earlier this morning -- are actually

            25   coming from the emerging markets.  And, in that case, people






             1   are, firstly, unfamiliar -- and this is even many

             2   institutional investors -- with the idiosyncracies of that

             3   reporting regime.

             4             And, you know, if -- again, this is probably a

             5   little later in the panel, but if we get into the specifics

             6   of what these reconciliations are, as Neri mentioned this

             7   morning, I have never found, both in my buy side clients and

             8   working with sell side analysts in two institutions, anyone

             9   who actually makes a forecast based on those reconciliations.

            10   They forecast in the local GAAP, and then they look to the

            11   disclosures to see what else they can learn. More information

            12   is always preferred, especially if it's costless to us, as

            13   investors -- at least, directly costless. Indirectly, it is

            14   always costly, as Chairman Cox said.  So I think that is what

            15   he was alluding to.

            16             And there is one other issuer that he is dealing

            17   with right now, where there is some demand for U.S. GAAP, but

            18   it's from a small subset of investors because it's a very

            19   narrow placement, in some sense.  And they are undereducated,

            20   going back to what you were talking about this morning.

            21             I think, if the system understood that this was

            22   acceptable to you at the Securities and Exchange Commission,

            23   I think that's 90 percent of the work done.

            24             MR. OSNOSS:  First of all, thank you very much for

            25   the opportunity to participate in this group.






             1             I have to say that, just to allude to the analogy

             2   of the roadmap, we are all sort of communicating, and that's

             3   the most important thing.  And it's good that we don't have

             4   to pride to refrain from rolling down our windows and asking

             5   for directions.  I think my wife would really love for me to

             6   take that as an example.

             7             Just in terms of what an investor looks for, you

             8   know, I think a good investor will look for a good investment

             9   anywhere, no matter where it is.  But, having said that,

            10   there are factors at play that really drive that decision of

            11   the investment banks, some of which are out of my

            12   purview -- you know, things like market factors, liquidity,

            13   currency risk, depth of analyst and media coverage.

            14             In looking into the foundation of how the investor

            15   makes those decisions, the investor, I think, will gravitate

            16   towards, all other things equal, that market that is

            17   regulated better, that has more transparent financial

            18   reporting requirements, the degree to which the standards are

            19   enforced and respected.

            20             And also I think that investors -- and this might

            21   be a controversial point, but I would argue that investors

            22   would like to view making investments overseas through their

            23   their own lens to understand what those financial statements

            24   would look like, if there was -- you know, to basically give

            25   them comparability between their own investments and their






             1   own markets and an investment overseas.

             2             And, to that point, I do believe that, while I

             3   agree that the reconciliation should be eliminated, I do

             4   think that it would be appropriate for companies to continue

             5   considering disclosing the large reconciling items between

             6   the two GAAPs, so that investors want to look at the company

             7   through their own market's eyes to actually get a good view

             8   of what that company would look like.

             9             And also, by the way, it provides a degree of

            10   discipline in the process to have companies actually

            11   disclosing these differences.  I think we shouldn't lose

            12   sight of the fact that U.S. GAAP is a very mature set of

            13   standards, has been around for many years.  You can stack

            14   U.S. GAAP from the floor to the ceiling.  IFRS had been

            15   around for, well, many years, but it has really come into its

            16   own over the last about 5 to 10 years.

            17              And I think that it gives preparers an

            18   opportunity -- when they have to think about, "How would I

            19   view this under U.S. GAAP -- "  In a framework that is quite

            20   similar, in a lot of respects, to similar to IFRS, "How would

            21   I view this under U.S. GAAP if I were to be reporting under

            22   U.S. GAAP?"

            23             Conversely, I do think also that companies inside

            24   the U.S. should be thinking about comparing to companies

            25   outside the U.S. and trying to -- I think companies should be






             1   thinking about, "What would we be doing under IFRS?"  And I

             2   think it would improve the whole process of financial

             3   reporting as a result.

             4             MS. ERHARDT:  Greg, do you want to chime in?

             5             MR. JONAS:  Thanks, Julie,  I also appreciate the

             6   opportunity to be with you today.

             7             I cannot directly answer the good question that you

             8   asked through the lens of investors and issuers, but let me

             9   comment on your question through the lens of a rating agency. 

            10   Let me do so by making three observations and then draw a

            11   conclusion from the observations.

            12             The first observation is the rating business is

            13   very much a global sport.  We rate companies, as we all know,

            14   from all over the world.  But, in recent years, we have

            15   applied global rating methodologies industry by industry.  We

            16   have global standard adjustments that we make to financial

            17   statements to fix certain things that we think can be better

            18   for financial analysis than they are.

            19             We have standard definitions of the metrics that we

            20   use to derive ratings.  More on that in just a second.  We

            21   have a standard communication format, standard packages of

            22   data that go to rating committees.  And we perform global

            23   portfolio reviews that we hope promote consistent ratings

            24   across geographic boundaries.  So the first observation is

            25   global sport.






             1             The second observation is boring old reporting

             2   standards turn out to be critically important to us.  The

             3   metrics derived from public financial data, the fact is,

             4   drive credit ratings for most companies in most industries.

             5             In each industry, there are, typically, 7 to 12

             6   metrics that are particularly important to our perceptions

             7   about credit risk, and we derive about three-quarters of

             8   these metrics from public financial data.

             9             Importantly, we feel we have no choice but to live

            10   with much of the diversity that comes from multiple GAAPs.

            11   That is, when comparing companies across GAAPs, we pretend

            12   that the reporting amounts are comparable, even though we

            13   know that they are not.

            14             Generally, we are not able to adjust reported

            15   numbers to achieve comparable reporting across GAAPs, even

            16   though we have access to inside information in most

            17   jurisdictions.  The fact is companies don't have the data to

            18   do so.

            19             We do adjust financial statements, as I mentioned

            20   earlier, in eight areas for corporations.  But these

            21   adjustments generally serve to improve GAAP in areas that we

            22   think are broken, not to improve the comparability across

            23   GAAPs.

            24             So my bottom line here is that non-comparable

            25   reporting undermines rating quality, and there isn't much we






             1   can do to fix it without help.

             2             So now the conclusion:  Financial analysis, I feel

             3   very strongly, is best served -- essentially served -- by a

             4   single body of global GAAP, uniformly applied and accepted

             5   everywhere.  Multiple languages may be good for human

             6   culture, but multiple GAAP languages stink for financial

             7   analysis.

             8             Comparability of companies is key.  It is essential

             9   to what we do.  Due to the globalization of product and

            10   securities markets, we are increasingly trying to compare

            11   companies on a global basis.  Global portfolio reviews, as I

            12   mentioned, global industry methodologies, and global comps

            13   for companies at similar rating levels are all standard fare

            14   at rating committees.

            15             Our analysts are located all over the world, and

            16   they have highly diverse experience with financial reporting

            17   standards, underscoring the need for a common analytical

            18   language -- that is, global GAAP, uniformly applied.

            19             Now, there are two other benefits from global GAAP

            20   I want to mention before contrasting what I'm talking about

            21   to the roadmap.

            22             One of those benefits is that it promotes investor

            23   understanding and, thus, confidence in reported amounts,

            24   which, in turn, promotes capital formation and reduces, it

            25   seems to me, the average cost of capital.  It also greatly






             1   improves the efficiency of financial analysis.

             2             I believe that the roadmap is very important, but

             3   the roadmap is to a rest stop.  It is not the final

             4   destination.  The final destination has to be a single body

             5   of GAAP, consistently applied.

             6             And to do that, we need conversions, not only of

             7   accounting standards -- which has gotten a lot of discussion

             8   and where I think we have made the most progress -- but the

             9   importance the convergence for auditing standards, as well as

            10   global regulatory standards are things that I think need

            11   equal attention, if we can get the uniformly applied part of

            12   the vision in place.

            13             MS. ERHARDT:  Thank you.  Would anybody else like

            14   to comment, just on this global landscape?  I don't see any

            15   tents up, but I see a pencil up.  So Joe?

            16             MR. JOSEPH:  As an equity investor, who is running

            17   about $5 billion globally in small cap money, all I do every

            18   day is buy and sell shares across the world and compare

            19   companies across the world.

            20             And to answer your question as to buying stocks in

            21   specific locations, it comes back to something that Trevor

            22   said, which is:  Where is the biggest pool of liquidity

            23   available where the bid-ask spreads are the tightest?

            24   Transaction costs are critical.  In the rare event that there

            25   is a pricing arbitrage somewhere, we will, obviously, go






             1   where we can move that arbitrage.

             2             But then the other part of it is:  How is research

             3   structured?  And, within our company and increasingly across

             4   the sell side shops, research is structured across global

             5   sector lines, and not company lines.  So the ability to

             6   compare using a common set of financial standards is

             7   critical.

             8             And because a lot of the research then -- a

             9   corollary of that is a lot of the research becomes available

            10   first in local markets.  And if that information becomes

            11   available immediately there, that's when we would go in to

            12   take advantage of that new insight that we get.

            13             So it really comes down to liquidity, where the

            14   insight is first made available, where the information is

            15   first disclosed, and to the extent that we have global

            16   industry analysts leads covering the stocks.

            17             MS. ERHARDT:  Dennis?

            18             MR. JOHNSON:  First, let me say that CalPERs

            19   appreciates being a participant in today's roundtable

            20   discussions.

            21             Secondly, I think it's important to realize, from

            22   our vantage point, that we are a long-term, if not arguably a

            23   permanent investor, in public equities around the globe.  And

            24   so I thought it would be beneficial to bring that point of

            25   view to this particular topic.






             1             We think about going to markets in the context of

             2   returns -- return opportunity, certainly, relative to our

             3   actuarial rate of return -- but also looking at that return

             4   relative to a given level of risk.  And there are several

             5   macro and micro factors that we consider in assessing risk,

             6   and I would just like to comment on a couple of them.

             7             First, political risk and, specifically, the

             8   adherence to law and rules and regulations are very important

             9   to us.

            10             Secondly, the existence of corporate governance

            11   practices, both in the marketplace as well as at the company

            12   level, are extremely important to us -- the respect for

            13   shareowner rights, if you will.

            14             Third, the effectiveness of the exchanges to

            15   function, and also the ability to settle and report on

            16   transactions of the markets are of key importance to us.

            17             And then the last point I would note would be the

            18   quality of the financial reporting and, as it was noted

            19   earlier, the comparability of that reporting is a

            20   consideration that is very important, as we look around the

            21   globe to make potential public equity market investments.

            22             MS. ERHARDT:  Trevor?

            23             MR. HARRIS:  Just one added comment that I was

            24   reminded of by some of the comments that were made.  The

            25   timeliness dimension is also important.






             1             There are always information gaps between what a

             2   company knows and is telling us and what they are actually

             3   going to transact in the markets and where investors are

             4   going to look for investment opportunities.

             5             So to the extent we can get more timely information

             6   from one source or another -- and that, frankly, may not be

             7   the financial reporting domain -- that's going to actually

             8   drive a lot of where the transaction takes place and,

             9   clearly, where either issuers or investors are going to go.

            10             And to the extent that things like reconciliations,

            11   as was mentioned this morning, take a long time to actually

            12   be made available to the market, there is a lot of other

            13   sources one is going to look to to do that.

            14             And related to that and to Greg's comment, when I

            15   started in the early '90s trying to do global comparisons to

            16   30 companies, we made a decision not to go to a single GAAP.

            17   We looked to -- what we labeled apples to apples was, really,

            18   to go what is the underlying economics.

            19             So I think, in answering a lot of this, it is where

            20   we go to in terms of this information set that is going to

            21   give us the best correlation or association with what is

            22   actually happening in the companies.  And that may be in

            23   different markets, different regimes, different reporting

            24   regimes, subject to all of the things that Dennis alluded to.

            25             MS. ERHARDT:  Steve, and then we will go to






             1   Christian.

             2             MR. TODD:  Thank you.  I, too, am glad to be here.

             3   I appreciate the invitation.

             4             I just want to follow up on a point made by Greg a

             5   little bit ago about convergence of auditing standards.  I

             6   think that is extremely important, given the complexity of

             7   IFRS standards and U.S. GAAP.  And even though IFRS is

             8   principles-based, it clearly has complex standards.

             9             And, particularly, fair value standards require

            10   really robust auditing procedures to determine that the right

            11   calculations have been made and the right presentations have

            12   been made.

            13             So one of the things that I know concerns me quite

            14   a bit is that, even if you have a robust IFRS framework

            15   around the world, the auditing standards and the application

            16   of them are extremely important in deterring the right final

            17   accounting and financial reporting.  So hand-in-hand with the

            18   convergence, I think the convergence of auditing standards is

            19   extremely important.

            20             MR. LEUZ:  First of all, I would also like to thank

            21   you for the opportunity to participate in this panel.

            22             I would like to add a comment to the points that

            23   have been made about the liquidity issue and sort of add an

            24   empirical perspective.

            25             There is actually -- if you look out in the






             1   research and the literature, in terms of studies that people

             2   have done on the effects of accounting standards per se,

             3   there is relatively little evidence that would say that the

             4   markets really reward one standard over the other, when you

             5   try to put the standards, really, on a level playing field --

             6   which has been pretty difficult to do empirically, but, in

             7   recent years, because we have had more and more settings

             8   where, in the same country under the regulatory regimes,

             9   companies were operating under different standards, and you

            10   were able to sort of do comparisons.  And there is, as I

            11   said, relatively little.

            12             What we have evidence of and what the markets do

            13   reward, however, is a firm's commitment to transparency --

            14   the seriousness of their disclosures, the actual -- part of

            15   that is the actual reporting quality, but it's not the

            16   standards per se.  It's sort of to what extent firms disclose

            17   in good and bad times and how forthcoming they are. Those are

            18   the things that we find are rewarded in terms of the cost of

            19   capital, bid-ask spreads, or the liquidity in the markets.

            20             And so, in my view, there is often too much focus

            21   on the accounting standards per se and too little emphasis on

            22   some of the underlying forces that drive reporting quality as

            23   an outcome -- which, I guess, is what we ultimately care

            24   about.

            25             And so the reconciliation issue -- I'll come back






             1   to this theme -- is, in some sense, just an application of

             2   that general point, which I think is important.

             3             MS. ERHARDT:  Sort of an element of transparency,

             4   but not the be-all/end-all concept, if you will.

             5             MR. LEUZ:  Yeah.  But what I meant more is I think

             6   that the reconciliations are particularly focused on the

             7   standards, rather than being focused on the reporting quality

             8   and the outcomes that I think is what really matters to the

             9   markets.

            10             MS. ERHARDT:  So, in essence, the reconciliation is

            11   an element of the standards, and the standards themselves are

            12   only one element of transparency.

            13             MR. HARRIS:  Judy, sorry.  It's Trevor.  I just

            14   think it's -- to pick up on Christian's point, it's a

            15   commitment device.  A company is committed to be held to a

            16   standard which is considered robust.  That is the issue more

            17   than the actual number itself that you are reconciling.

            18             MS. ERHARDT:  Okay.  Well, with that, let's move

            19   away from the global stage, if you will, and get back to the

            20   practical question at hand -- the policy question for the

            21   Commission.

            22             And that is, in our capital markets, what happens,

            23   if you will?  What are the consequences, opportunities,

            24   effects of going to a two-GAAP system -- U.S. GAAP and IFRS?

            25             And, in that regard, I guess I would like to break






             1   the conversation into three pieces, which dovetail with the

             2   three aspects of our mission because, in the end, while I'm

             3   not a Commissioner, if I were, I would say, "Okay.  Well, my

             4   responsibilities are to carry out the mission.  I have this

             5   policy question.  So what happens -- you know, am I

             6   discharging my duty if I decide X or Y on the question?"

             7             And, as everyone knows maybe -- at least, the

             8   lawyers in the room -- the first element of our mission is to

             9   facilitate capital formation -- you know, in essence, have a

            10   capital market functioning in the U.S.

            11             And so, starting with Joe and then maybe to

            12   Christian and Trevor, I mean, what happens, if anything, to

            13   the availability of capital, the opportunities for investors

            14   to put it to work?

            15             I mean, would it be kind of the day before and the

            16   day after, if you will, that you drop the reconciliation

            17   requirement?  Would the newspaper headlines be the same, or

            18   would there be a huge headline, you know, "Today is the first

            19   day without a reconciliation and" -- dah-dah-dah-dah-dah-dah

            20   -- "a lot has happened to the markets"?  Or is it more nary a

            21   blip, if you will, to the capital markets as a whole?

            22             So Joe?

            23             MR. JOSEPH:  I think the headlines would say,

            24   "Today is the first day without reconciliation," and then the

            25   capital markets would yawn.






             1             So let me explain to you, as a practitioner, how it

             2   would affect us.  And I guess the conclusion, really, is that

             3   it's very difficult to find value-relevant information in

             4   GAAP.  And, basically, what I mean is information that helps

             5   me forecast futures cash flows, future returns on capital,

             6   and changes in risk.

             7             And so, you know, being forced to compare companies

             8   across the world, given that I cannot get into the accounting

             9   that went -- you know, all I get is the actual financial

            10   statements themselves -- we have to make a number of

            11   adjustments.

            12             And, roughly, if I could scale it, 70 percent of my

            13   investable universe, which is mostly a developed market

            14   universe, has adopted IFRS, or will in the next year or so

            15   -- Japan and, obviously, the U.S. being the exceptions.

            16             And, in a lot of instances -- because, again, the

            17   way we have structured and analysis is on global sector lines

            18   -- we have adopted IFRS-type accounting, even for some of our

            19   U.S. companies.  And then I'll just run through some of

            20   -- the usual suspects of this is R&D expensing, pensions,

            21   debit charges.  You know, we basically unwind a lot of that

            22   stuff to put companies on a comparable basis.  So I can now

            23   compare companies.

            24             Then, on the valuation side, we use a residual

            25   income-type approach, where the only requirement for that to






             1   work is clean surplus accounting.  And as long as clean

             2   surplus accounting is adhered to, which IFRS does, we can

             3   value these businesses.

             4             So there is nothing in the 20-F that we can see

             5   that would prevent us from doing this.  And I think Trevor

             6   mention the accounting standards and the oversight that a

             7   local regulator would have.  And, clearly, yes.  You know, I

             8   would prefer to buy a stock in Hong Kong, as opposed to

             9   China.  And if you assume that most developed markets that

            10   have IFRS or will adopt IFRS do actually have some degree of

            11   oversight, then that's not really an issue for us.

            12             So sitting here, from my perspective, I don't see

            13   anything changing, really, if the reconciliation goes away.

            14             MR. WHITE:  Did you say companies that report in

            15   U.S. GAAP, that you would deconstruct them over to IFRS?

            16             MR. JOSEPH:  Yes.  And I can give you -- a classic

            17   example is the airlines.  If I had to look at airlines, and I

            18   wanted to compare Continental Airline with, say, British Air

            19   or Air France, what do I do with the leases?

            20             MR. WHITE:  And can you do that off of the

            21   information that is in the public financial segments?

            22             MR. JOSEPH:  Not really.  But you try and do the

            23   best you can.  So, at a very simplistic level, you take the

            24   rent and add it back, and you capitalize for the rental

            25   expense on the balance sheet.  That's really all you can do.






             1             MR. WHITE:  I mean, where I was going is --

             2             MR. JOSEPH:  It's probably completely -- it's not

             3   probably the perfect way to do it, but that's all I have, as

             4   a investor.

             5             MR. WHITE:  So Chairman Cox's vision that you could

             6   do this with XBRL isn't actually a reality then?

             7             I mean, Chairman Cox, if he had his way about this,

             8   you would be able to take U.S. GAAP financials and have them

             9   filed in XBRL, and you would be able to convert into GAAP

            10   instantaneously.  But it sounds like that isn't really

            11   doable, from what you are saying.

            12             MR. JOSEPH:  Probably not, yes.

            13             MR. HARRIS:  Can I answer that question?

            14             MR. ERHARDT:  Jump in briefly, and then we'll get

            15   back to Christian.

            16             MR. HARRIS:  I was actually going to allude to the

            17   XBRL dimension later.  But when we move to interact the data

            18   for XBRL, as is inevitable in my mind, what Joe is talking

            19   about doing and what Greg has talked about doing and what we

            20   do to some extent would be facilitated significantly.

            21             I don't think you can say we would do everything --

            22   because it's a question of what the companies supply us with

            23   -- but he would be able to do in more detail, much more

            24   quickly, and much more persistently the aggregation to a

            25   single framework that is suitable for him and the way he






             1   invests much more easily with that probably.

             2             MR. WHITE:  So you could have a separate software

             3   program that would write in whatever the algorithms you are

             4   using to --

             5             MR. HARRIS:  Yes.

             6             MR. WHITE:  So even though it wouldn't come

             7   directly, you could take the XBRL -- you could take the data

             8   and, in effect, convert using assumptions.

             9             MR. HARRIS:  We had actually created that.  I

            10   presented that at the roundtable here.  I mean, I did a live

            11   presentation, so it's on your website.  But we actually have

            12   done specifically that using an XML-XBRL type technology to

            13   do it.

            14             MS. ERHARDT:  Okay.  Christian, we were kind of on

            15   this morning after.  The headline says, "Reconciliation

            16   gone."  Is there any more to the story, or not?

            17             MR. LEUZ:  Well, I would expect the same reaction

            18   as Joe, in the sense that the news will report about it, but

            19   then the markets will probably yawn.

            20             But before I sort of answer your question and

            21   explain a little bit more why I think this would happen, let

            22   me also give you some general, I think, empirical evidence

            23   which I think will put the comments a little bit into

            24   perspective.

            25             We do have a fair amount of evidence that firms






             1   from countries with strict securities regulation do enjoy a

             2   lower cost of capital.  We also have evidence that strict

             3   securities regulation is associated with more developed

             4   capital markets, with higher investor participation, and

             5   greater market liquidity.

             6             So we have a fair amount of evidence that strict

             7   securities regulation can offer substantial benefits, along

             8   the lines of, you know, the SEC mission statement of things

             9   that you are looking for looking for.

            10             Perhaps more importantly -- and Trevor sort of

            11   briefly alluded to this -- we also have evidence that one key

            12   reason -- certainly not the only one, but a key reason why

            13   firm come across in the United States on U.S. exchanges is

            14   because they want to show that they are willing and committed

            15   to play by very tough rules.  They are seeking the

            16   environment with strict enforcement and market monitoring.

            17             And what we also see, then, on the flip side is

            18   that, actually, the markets reward this commitment on the

            19   part of the companies, and it helps their ability to raise

            20   finance and, again, lowers their cost of capital and helps

            21   their equity valuations.

            22             Interestingly, we don't have similar evidence for

            23   other markets, and we also don't see this evidence in the

            24   U.S. OTC markets or the pink sheets that Trevor has

            25   mentioned, or we don't see this in the private placement






             1   market, either.

             2             So, in my mind, the question is not at all whether

             3   we should lower the standards or should reduce the investor

             4   protection.  I think the key issue is:  Is the reconciliation

             5   an important part in that?  And this is where I'm skeptical

             6   and where I doubt that is actually does play a key role.

             7             And to give you an example why I think that is the

             8   case -- and it is admittedly an extreme example -- but take a

             9   foreign company that reports under IFRS, and just assume for

            10   the sake of the argument that you didn't fully trust their

            11   financial statement.  Let's say you thought they weren't as

            12   forthcoming about their true economic performance.  Why would

            13   you trust that same company when it reconciles to U.S. GAAP?

            14             As Chairman Cox sort of alluded to this morning,

            15   accounting standards offer substantial discretion, there is

            16   differences in interpretation, and there is lots of estimates

            17   involved.  And so a firm that does not want to be forthcoming

            18   in terms of its economic performance will find ways to

            19   obscure, in my mind, under IFRS, under U.S. GAAP, or any

            20   other local GAAP.

            21             And so, while this is an extreme example, I think

            22   this takes us back to the general point I made -- that I

            23   think we shouldn't focus so much on the standards per se, but

            24   should also think about these other forces and factors that

            25   are really important for the reporting quality.






             1             And what are, in my mind, the key elements in this

             2   regard are the 20-F disclosures, is the SEC oversight and, in

             3   particular, the SEC disclosure activities and the comments

             4   that are provided to the issuers.  In the U.S. markets, the

             5   threat to litigation is, to some extent, an enforcement

             6   mechanism.  And it is, obviously, high-quality auditing in

             7   marketing monitoring that plays a key role in that.  And

             8   those elements, in my mind, are sufficient to ensure

             9   high-quality reporting.

            10             And just sort of backing this up with some

            11   empirical evidence and consistent with this view, when firms

            12   come and cross-list in the United States, and you look at

            13   their home country GAAP -- their local GAAP -- and compare

            14   that to firms that aren't cross-listed in the United States,

            15   you actually find that the quality of financial reporting

            16   goes up for these cross-listed firms -- which can't be the

            17   GAAP because you are holding that constant.  The firm is

            18   still reporting under German, French GAAP, or what have you.

            19   And so it really is these other factors that are driving that

            20   quality improvement.  And so I think that's the key element.

            21             So going back sort of to your question, I think the

            22   reconciliation requirement wouldn't substantially change that

            23   or is not a key input.  It's these other things that I

            24   mentioned that are likely to be the key factors.  And we're

            25   not talking about changing those.






             1             MS. ERHARDT:  Trevor, did you want to join in on

             2   the morning after headline?

             3             MR. HARRIS:  Yes.  I think there is a more positive

             4   dimension to it.  I think the Joe Josephs of the world can

             5   yawn because he is already sophisticated enough and doing

             6   investing enough to do it.

             7             If you take Christian's point, what you would have

             8   done by doing that is taking away a significant cost and risk

             9   to the issuers listing in the United States and providing

            10   them some additional benefits.

            11             One of the reasons issuers -- historically, anyway

            12   -- have come here is actually to get closer to the consumers

            13   and their customers and to demonstrate a commitment to our

            14   country.  That is going to continue.

            15             So, to the extent that it attracts -- as you heard

            16   this morning -- more companies to come and list in the United

            17   States, for the retail investor and the less sophisticated

            18   than Joe Joseph, you have now actually brought all these

            19   other positive dimensions to a new set of investors that

            20   really are transacting more and more outside our markets,

            21   probably at higher cost, without the regulatory oversight in

            22   the same context.

            23             So you have leveled the playing field that I think

            24   would actually help the set of investors that probably need

            25   it the most.






             1             MS. ERHARDT:  Let's move on, then, to the second

             2   aspect of our mission, which would be the second part of the

             3   analysis, which is, in colloquial terms, keep the trains

             4   running on time with respect to the markets.  So, in more

             5   sophisticated, in the words of those that drafted the '33

             6   Act, it's to maintain fair, orderly, and efficient capital

             7   markets.

             8             And what I would like people to comment on here is

             9   just what thoughts do they have on what are the opportunities

            10   and consequences -- and for whom -- of going without a

            11   reconciliation.

            12             And I know we have sort of alluded to some of

            13   those.  Trevor just made some comments about opportunities

            14   for, in essence, retail investors.  But just examining it

            15   more broadly, where do you see the shift, if any?  Where do

            16   you see opportunities?  Where do you see consequences?

            17             And since we will go to our third aspect of our

            18   mission of protecting investors in a second, maybe focus on

            19   -- certainly, you can talk about investors, but think even

            20   more broadly, if you'd like to, about those opportunities and

            21   consequences.

            22             And let's start with Greg and then Steve, Dennis,

            23   and Joel, and then whoever else would like to chime in.

            24             So Greg?

            25             MR. JONAS:  Well, let me start with a confession,






             1   and then I can't help but give you all some advice.

             2             So, first, the confession.  Our analysts don't use

             3   the 20-F reconciliation in their day-to-day work of analyzing

             4   companies.  And there is four reasons for this system.  Some

             5   of this was a little surprising to me, but let me relate what

             6   I have come to understand.

             7             First of all, increasingly, our analysts of foreign

             8   private issuers, our analysis of a foreign private issuer is

             9   done in IFRS.  For most IFRS filers, our lead analyst is not

            10   based in the U.S. and has not grown up with U.S. GAAP.  IFRS

            11   a rapidly becoming the universal language.  It's becoming the

            12   language of our analysts.

            13             Let me give you a couple statistics that underscore

            14   this point.  We rate about 165, if my calculation is right

            15   -- about 165 foreign private issuers that file financial

            16   statements from countries that have adopted some form of

            17   IFRS.  And of those 165 companies, in only 13 cases is the

            18   analyst inside the U.S.  So in the vast majority of the

            19   cases, the analyst is outside the U.S. and is thinking in a

            20   language that is very different than U.S. GAAP.

            21             So, if anything, that analyst would be predisposed

            22   -- if they could put companies on absolutely comparable

            23   footing, they would probably want everybody on IFRS, as

            24   opposed to think that they were going to convert everybody to

            25   U.S. GAAP.






             1             The second reason why our people don't use the

             2   reconciliation is, for the typical foreign private issuer,

             3   its peer group is not primarily based in the U.S.  So

             4   converting foreign private issuers to U.S. GAAP would not

             5   result in a comparable data across the peer, anyway.

             6             The third reason is the reconciliation -- this has

             7   been mentioned several times, both this morning and even on

             8   this panel -- the reconciliation is filed too late for our

             9   purposes.  Most companies, of course, file the 20-F very near

            10   the file deadlines, a full six months after their year-end.

            11   And long before that time, they have reported their financial

            12   results in international or local GAAP.

            13             By that time, we have updated our analysis of the

            14   company.  We have decided whether to hold a rating committee.

            15   We have made decisions, and life has moved on.  So it's

            16   interesting information, but it's too late for our purposes.

            17             And, finally, the fourth reason why is it the

            18   reconciliation does not provide enough data to compute some

            19   of our key metrics, even if we wanted to try to compute the

            20   key metrics from the data.

            21             Two examples of key metrics we often use are what

            22   we call funds operations and cash flow measures, where I need

            23   to understand each of the working capital components

            24   reconciled to U.S. GAAP -- which most companies don't give

            25   us.  And even EBITDA we have difficulty based on the 20-F






             1   information.

             2             So for those four reasons, our folks just not using

             3   that.

             4             And I fully appreciate the many practical reasons

             5   why giving up on the reconciliation could help, many of which

             6   were mentioned this morning, and other reasons were given

             7   here in this panel, so I won't repeat them.

             8             But I have to tell that, viewed in isolation -- if

             9   you just ask me, "Greg, as a user of these financial

            10   statements every day, if I gave on the reconciliation, does

            11   that mean you don't care because your people don't use it

            12   every day in setting ratings?" I would say, "Wait a minute.

            13   Viewed in isolation deleting the reconciliation isn't really

            14   helpful.  We're not just giving up nothing."

            15             And here is why:  First of all, it removes some

            16   benefits to companies and auditors that we perceive result

            17   from the discipline of reconciliation.  And those benefits

            18   may be improved detection of errors in both GAAPs, not just

            19   just U.S. GAAP; better competence in reporting standards and

            20   requirements; and greater discipline and control in the

            21   company's financial reporting generally.

            22             So we think the fact that you all, Julie, have

            23   required this reconciliation, as imposed into the process, a

            24   discipline that otherwise would be either absent or less so,

            25   and that could be very helpful to us.






             1             Also viewed in isolation, dropping the

             2   reconciliation will reduce the data that helps people measure

             3   the extent to which companies are applying IFRS consistently.

             4             You know, we have said time and again it's not only

             5   important that we have IFRS standards; we have got to have

             6   them uniformly applied by folks.  And the reconciliation

             7   helps us gauge the extent to which there is uniform

             8   application.  I know, Julie, you are engaged in a study, as

             9   best as you can at this point, to try to gauge that in your

            10   work.

            11             And finally -- and I think this may be most

            12   important -- and unintended consequence of dropping the

            13   reconciliation could be -- could be -- reduced pressure for

            14   convergence to a single body of global GAAP.

            15             Progress for convergence to a single body of global

            16   GAAP has been, in part, due to the desire of foreign filers,

            17   the IASB, and non-U.S. regulators and legislatures to win

            18   acceptability of international standards in the U.S. Let's

            19   face it, that has been an important reason for the remarkable

            20   progress of convergency to date.

            21             With that victory in hand, will the pressure be off

            22   for continued progress toward a single body of global GAAP?

            23   Remembering, I am not worshipping at the altar of U.S. GAAP.

            24   I am saying we needing a similar quality as GAAP, and we

            25   don't want to screw up the kind of great thing we've got






             1   going right now with convergence, and would the reduced

             2   pressure, if you all gave up on the reconciliation, undermine

             3   that?

             4             But, having said that, I'm balanced.  I would be

             5   willing to give it up if you all conclude that you've got to

             6   do it in order to get to the promised land.

             7             MR. WHITE:  How does the reconciliation help you

             8   determine that you have a more consistent application of

             9   IFRS?

            10             MR. JONAS:  Well, if you see two industry players,

            11   John, for example, that you consider to be peers, and they

            12   file a set of IFRS statements, and they look on the surface

            13   to be comparable, but then you look in the 20-F and you find

            14   radically different reconciling items to the same U.S. GAAP,

            15   I would conclude from that the differences must be with the

            16   IFRS application.  That's what I would say.

            17             MS. ERHARDT:  Steve, did you want to join in on

            18   consequences or opportunities in particular you see in your

            19   work?

            20             MR. TODD:  Maybe just to add to a couple of Greg's

            21   points.

            22             You know, I think I have a little different view on

            23   the reconciliation than what we have heard a lot throughout

            24   the day.  You know, a lot of attention has been focused on

            25   the fact that the reconciliation doesn't seem to be used by






             1   analysts.  But following up on some of Greg's points, to me,

             2   it's clear that the reconciliation requirement -- to me --

             3   has helped IFRS be implemented more consistently around the

             4   world.

             5             And it's interesting -- Chairman Cox talked this

             6   morning about, you know, IFRS being principles-based.  There

             7   is a lot of room for interpretation.  There is very little

             8   practical guidance.  There is not a whole lot of EITF-type

             9   things out there.  And so there is a lot choices that

            10   companies can make.

            11             And if you are a filer into the U.S. market, and

            12   you have to have to reconcile to U.S. GAAP, you start looking

            13   at transactions -- as least, most of our clients seem to do

            14   it this way -- they look at a transaction or a revenue

            15   recognition issue and say, "Well, I have to reconcile to U.S.

            16   GAAP, so I have to kind of report it under both.  What makes

            17   sense?"

            18             And what I have seen happen is the U.S. GAAP people

            19   and the IFRS people will get something together and try to

            20   make a determination.  Most of the time, you would say, -- if

            21   it's an impairment charge or a valuation reserve for income

            22   taxes or recognizing revenue, something like that, you would

            23   say, "Well, why wouldn't you try to have the same accounting

            24   under both?"

            25             Now, obviously, we all know that there is different






             1   rules or principles in some cases that would lead you to

             2   different accountings, but most investors would like to know

             3   why you wouldn't have a valuation reserve under IFRS if you

             4   have one under U.S. GAAP.

             5             And what I think has happened -- and it goes toward

             6   maybe discipline, or whatever, but when you think about

             7   people that have companies that have adopted IFRS around the

             8   world, coming from totally different backgrounds, different

             9   national accounting systems, trying to go to IFRS and, at the

            10   same time, reconciling to U.S. GAAP, I think, has had a major

            11   influence in the adoption and implementation of IFRS,

            12   consistently for those filers in the U.S. market.

            13             And, earlier, one of the panelists made the comment

            14   about home country GAAP improving, or having higher quality

            15   home country GAAP because of filing in the U.S. market. Well,

            16   a lot of that, again, in my view, has happened because of the

            17   reconciliation requirement, you know, pre-IFRS.

            18             If you are in a home country GAAP, and you are

            19   recognizing revenue on a transaction or not having a

            20   valuation reserve, but you have to reconcile to U.S. GAAP

            21   and, all of sudden, under U.S. GAAP, you don't have the

            22   revenue -- you know, you have a valuation reserve, and then

            23   sometimes people go back and kind of challenge the home

            24   country GAAP, which maybe has not quite, again, the guidance

            25   or practical application, and make an adjustment.






             1             So it's interesting because you could say the same

             2   thing about an audit.  Nobody reads the auditor's opinion too

             3   much, other than to see that it has the appropriate number of

             4   paragraphs, but it is nice to know that financial statements

             5   have been audited.

             6             And though the footnote, which I can understand why

             7   lot a people wouldn't want to read, that has the U.S. GAAP

             8   reconciliation, at least, in my view, the underlying IFRSs

             9   have been -- you know, during the year, have been reconciled

            10   to U.S. GAAP.  And I think that that really adds a lot to the

            11   discipline process.

            12             Now, like everybody here, I think, at some point in

            13   time, when IFRS is at a stage where it is robust and it has

            14   been applied consistently around the world, both for various

            15   subject matters or industry, you know, I think it should be

            16   dropped.  And when we look at the roadmap, you're talking

            17   2009.  Well, at the end of 2008, there would be five full

            18   reporting years under IFRS into the U.S. market.  You know,

            19   on the roadmap time line, to me, it would seem like we are on

            20   target for that.  But I don't think it would be a great idea

            21   to drop it, like, say, in the next year.

            22             MR. WHITE:  I'm just a lawyer here trying to

            23   translate what you said, but did you say that the end of

            24   reconciliation would result in more aggressive

            25   principles-based choices under IFRS?






             1             MR. TODD:  No, I didn't say that.

             2             MR. WHITE:  Okay.  I just --

             3             MR. TODD:  What I said was-- and we used and we

             4   used an earlier word, "discipline."  I'm saying that, as you

             5   look back over the last few years -- the key years, where

             6   companies have come from their home country GAAP to IFRS, and

             7   they have had to adopt various IFRS accounting and,

             8   obviously, reporting standards -- while they are doing that,

             9   and there is a lot of leeway in the standards or, to say

            10   another way, not a lot of practical guidance out there --

            11   well, they know that, if they going into the U.S. market,

            12   they are going to have to reconcile to U.S. GAAP.

            13             U.S. GAAP has a lot of guidance.  You may argue

            14   whether it's practical or not, but there is a lot of guidance

            15   out there.  And there is a lot of interpretations.  And what

            16   I have seen is that a lot of that guidance that is there has

            17   been utilized in adopting the most appropriate, say, IFRS

            18   standard or interpretation of the standard.

            19             I'm saying that, to me, even though maybe no one

            20   reads -- I look at the reconciliation footnote as not so much

            21   what the reconciliation is.  We don't go in there with the

            22   idea of trying to identify the differences.  It's more like,

            23   if you have a transaction, why should there be a difference?

            24   And, if there is a difference, fine, and everybody agrees

            25   that there should be a difference.






             1             But I think a company that is transparent doesn't

             2   go in with the idea that, "I'm going to have a whole

             3   different mindset for IFRS and a whole different mindset for

             4   the U.S. GAAP."

             5             MR. WHITE:  So in the world after reconciliation

             6   ends, then where are we?

             7             MR. TODD:  Well, I'm saying, after five years, I

             8   think you're going to have some established positions on

             9   various technical matters or industry-related matters.  And I

            10   think, at some point, a discipline has gone -- you know, you

            11   have used it in five years of working through the process and

            12   having a very robust IFRS consistently applied around the

            13   world.  And I think the usefulness of the reconciliation may

            14   not be quite the same.

            15             MS. ERHARDT:  Let's move to Dennis.  We're talking

            16   about kind of consequences and opportunities.

            17             MR. JOHNSON:  In terms of opportunities, I would

            18   say one opportunity exists for the investor at large to make

            19   a more informed decision about investment opportunities, as

            20   they have greater insight into the real economic performance

            21   of companies.

            22             In addition to that, I would say that the New York

            23   Stock Exchange -- as it was alluded to earlier today

            24   Catherine Kinney -- and related parties would also

            25   potentially benefit from the adoption of IFRS.






             1             A suggested unintended consequence would be the

             2   agenda for the accounting standards boards around the globe,

             3   which was alluded to earlier.  How that agenda is set,

             4   prioritized, and then executed, I think, deserves great

             5   consideration.

             6             And in the category of challenge, I would just

             7   point out the PCAOB, specifically here in the U.S., and the

             8   implementation of IFRS to the accounting industry -- that is

             9   something worth noting, and, specifically, the adequacy of

            10   the staff and the resources to the oversee the effective

            11   implementation of IFRS.

            12             MS. ERHARDT:  Thank you.  Joel, do you want to

            13   follow up?

            14             MR. OSNOSS:  Sure.  Not to beat a dead horse, but I

            15   do think that the reconciliation has been a huge source of

            16   the quality in the implementation of IFRS.

            17             IFRS, as I mentioned, is still a relatively new

            18   standard.  A lot of people had to apply this for the first

            19   time for the year ended 2005.  And different people from

            20   different countries, different viewpoints -- all brilliant

            21   people -- trying to figure out the set of standards.

            22             And, you know, what better way to try to, you know,

            23   figure out what to do than to kind of look at a mature set of

            24   standard that has a similar framework, to try to put it all

            25   together and try figure out what the numbers should look






             1   like.

             2             That is why I'm still espousing some form of a

             3   disclosure of the major differences, because it will enforce

             4   that kind of discipline.

             5             I am also concerned, as Greg mentioned, that, as a

             6   result of eliminating the reconciliation without any added

             7   level of disclosure, there is possibly going to be a little

             8   relaxation on both sides of the pond on this issue, and I

             9   think that that is a very serious matter and, you know, we

            10   should be looking at this as am intermediate step towards one

            11   language -- one global language -- not towards IFRS in one

            12   part of the world and U.S. GAAP in another.

            13             MS. ERHARDT:  Trevor, I see your name up.

            14             MR. HARRIS:  I'm sort of a little puzzled by some

            15   of these conversations because, while I understand that, for

            16   the first time adoption of IFRS, one may look to other

            17   sources to help come up with what is the appropriate

            18   accounting or representation, I think it's a somewhat

            19   dangerous path to argue that that means these things should

            20   persist indefinitely.

            21             And if I hear from several people -- Greg, Steve,

            22   and Joel -- that it provides better analysis, discipline and

            23   control, consistency, and helps us to capture errors, the

            24   inference I would make from that is maybe we should require

            25   U.S. companies to reconcile to IFRS because it's going to






             1   help auditors and companies capture areas, and go down that

             2   list.

             3             I think it's also a little presumptuous to believe

             4   that a standard that was set in the United States -- like

             5   Financial Accounting Standards 5, which, I think, was set

             6   before I finished college -- is necessarily going to be a

             7   higher quality standard than something that was set maybe two

             8   years ago.  We learn from our mistakes and from how the world

             9   evolves.

            10             So, again, I think it's a little -- we have to be a

            11   bit careful about always presuming that this is the single

            12   best solution.

            13             And, frankly, just as a final point, I think that's

            14   a really important process, but I think the defining

            15   benchmark should not be a single national standard -- or,

            16   frankly, even IFRS -- but it should be:  What is the economic

            17   reality?  And so, if we assign "Does this represent the

            18   economics that an investor, or a corporation, frankly, can

            19   actually make a good business decision from?" then I think

            20   we've got the right benchmark.

            21             MS. ERHARDT:  Christian, do you want to comment?

            22             MR. LEUZ:  I just want to comment on the concerns

            23   that have been raised about consistency and the argument that

            24   the reconciliation sort of imposes discipline.  I mean,

            25   Trevor sort of already made some important points in this






             1   regard, so I'm going to be brief.

             2             I share the concern for consistency, but I also

             3   don't think that the reconciliation is sort of the right tool

             4   to address this issue.  Trevor sort of hit it on the head by

             5   sort of saying, "Should we should then require the U.S. firms

             6   to also reconcile to some other GAAP or IFRS?"

             7             But I also don't think that we can pinpoint the

             8   benefits that we have seen -- sort of the increased reporting

             9   quality of firms that come and cross-list here -- that we can

            10   pinpoint that in any way to the reconciliation, when, at the

            11   same time, you have the SEC oversight and you have the SEC

            12   looking, for instance, at the local GAAP or the IFRS

            13   statements.

            14             In my talking to companies, my sense is always that

            15   that process is a really important one, and that is one that

            16   changes, to some extent, their local GAAP.

            17             And I would say, if we are concerned about

            18   consistency, let's rather hit that issue head on, rather than

            19   sort of go around the bush and sort of do it through the

            20   reconciliation.  I'd rather sort of see people spend time on

            21   the consistency issue and the problems that are associated

            22   with that, rather than sort of doing it sort of in an

            23   indirect way via the reconciliation.

            24             MS. ERHARDT:  Joel?

            25             MR. OSNOSS:  This is going to get good now, I






             1   think, because, you know, Steve and I are sitting down here

             2   at the end of the table.  We are the guys that are actually

             3   in the trenches, working with clients to reconcile their

             4   financial statements.

             5             And, you know, frankly, first of all, I think that

             6   -- for the avoidance of death, I am not espousing continuing

             7   with the reconciliation.  I think the reconciliation should

             8   be done away with.

             9             There is a lot time spent in, I would say, tracking

            10   down the unnecessary reconciling items that aren't going to

            11   be important to master, but I do think that some form of

            12   disclosure outside the financial statements -- perhaps as

            13   part of the critical accounting estimates, which would fit

            14   elegantly with the staffs' interpretative release of a couple

            15   of years ago.

            16             And I'm a little concerned about the observation

            17   that, once you have actually adopted IFRS, everything should

            18   be okay, so you should be able to just do away with any kind

            19   of disclosure of the differences.  But you can't forget that

            20   there are ongoing transactions that happen.

            21             And just to FAS 5 as an example -- yes, FAS 5 is a

            22   very old standard, but it's actually a very good standard.

            23   And the way that U.S. companies have dealt with FAS 5 has

            24   been documented for many years.  There have been many

            25   different types of transactions that have been dealt with in






             1   the context of FAS 5.

             2             So now you have people looking at IFRS for the

             3   first time.  You would think that they might want to look to

             4   FAS 5 and how it has been applied in the past.  Is it the

             5   right way?  I'm not saying it's the right way.  But it is a

             6   way that has been researched over many years, and you have to

             7   give some credit to that.

             8             The flip side of that, on the other hand, is I do

             9   believe that it might be appropriate for U.S. companies to

            10   have some form of an analysis as to what the effects would be

            11   of applying IFRS because IFRS is, you know, the standard that

            12   is being adopted by many companies and it deserves that kind

            13   of review.

            14             MS. ERHARDT:  That's a great segue to the last

            15   section, and perhaps even the most important to this

            16   panel -- the SEC's mission, which is just outright to protect

            17   investors.

            18             So let's just start with Dennis, who is every day,

            19   like Joe, investing money, making those decisions, and then

            20   go to Christian and Joel and Steve.

            21             I mean, what happens to investors directly

            22   -- maybe, in particular, are they still going to seek

            23   reconciling information?  I mean, I have colloquially, on

            24   this hypothetical morning, you know, will you see the new

            25   shingle outside somebody's storefront will be, you know,






             1   "Reconciliations 'R' Us," and there is new entrepreneurial

             2   opportunities there.

             3             So, you know, are we shifting the costs that

             4   investors incur to, now, they write a check to

             5   Reconciliations 'R' Us?  Or, indeed, is that not the case

             6   because issuers would be incented to provide the information

             7   voluntarily?  Or it will just disappear into the system, to

             8   some of the points that Joe and Greg have made that they are

             9   not doing their analysis off of it, to begin with.

            10             So, Dennis, whatever comments you would like to

            11   make.

            12             MR. JOHNSON:  Let me start out by saying that we do

            13   not believe that investors will seek reconciliation.

            14             Secondly, just over lunch, I heard an interesting

            15   discussion about the prospects of the cost of the entire

            16   audit going down through the combination of implementing

            17   IFRS, as well as, potentially, XBRL.  So, from a shareowner's

            18   standpoint, if there is a more efficient use of that capital,

            19   that would certainly be in the best interest of investors.

            20             I would just broadly say, though, that the interest

            21   of the owners of public companies should be the primary focus

            22   of the roadmap that is being discussed.  Directors of public

            23   companies are required to and should be held accountable for

            24   presenting financial statements that are a true reflection of

            25   the economic performance of the company, and we believe IFRS






             1   is certainly a step in that direction.

             2             I would just reiterate, though, that the auditor,

             3   we believe, will play a very important role in this process

             4   in ensuring that the financial statements accurately reflect

             5   the conditions of the corporation.  And, as you go down the

             6   path of implementing IFRS, we just encourage the SEC to think

             7   about the role and the importance of the role that the

             8   auditor will play here.

             9             MS. ERHARDT:  Christian?

            10             MR. LEUZ:  I would say, to get straight to your

            11   question, I think, based on the empirical evidence that I

            12   have seen, removing the reconciliation requirement is

            13   unlikely to change investor protection much.

            14             The reconciliation might offer a translation

            15   benefit to investors, in the sense that it might help them

            16   IFRS financial statements.

            17             But, again, let's consider the role of the

            18   reporting incentives of the issuer.  A firm that wants to

            19   make sure that U.S. investors understand its IFRS financial

            20   statements can provide additional disclosures and can provide

            21   even a reconciliation, if the firm deems that that is useful.

            22             But do we think that a reconciliation of a firm

            23   that has very little interest in conveying this information

            24   forward, doesn't think that the reconciliation is all that

            25   useful -- that forcing this firm to provide the






             1   reconciliation is going to be all that useful?  I doubt that

             2   that is going to be the case.

             3             But those are particularly the firms that we would

             4   care about from an investor protection perspective or that

             5   are relevant in terms of the requirement -- because, again,

             6   companies can voluntarily provide that information, if they

             7   think it's useful.

             8             Sort of being the academic here, and given that

             9   Chairman Cox mentioned this morning that the SEC has an

            10   empirical approach, let me sort of also bring some other

            11   empirical evidence to the panel.

            12             We have evidence where people have looked at the

            13   properties of U.S. GAAP earnings of both foreign issuers and

            14   U.S. companies -- sort of comparing the two, holding the

            15   standards constant.

            16             And what you find is that the properties of these

            17   numbers, despite the fact that they are using the same

            18   standards, are very different.  In fact, when people look at

            19   sort of ranking equality metrics, you find that they are not

            20   of the same quality.

            21             But that's not really surprising if you sort of

            22   look -- and people have sort of mentioned this, both in the

            23   morning, as well as in this panel -- that, around the world,

            24   these firms are operating under very different institutional

            25   environments, under very different enforcement regimes, but






             1   there is another sort of element -- the markets are very

             2   different.

             3             And it's also the ownership structures.  The

             4   typical foreign issuer that comes to the United States has a

             5   relatively concentrated ownership structure compared to the

             6   typical U.S. firm, which also means that they are going to be

             7   communicating very differently.  So I don't think it is

             8   surprising in the end that those numbers are going to look

             9   very different and have very different properties.

            10             In addition, we have evidence where people have

            11   specifically looked at the information content of

            12   reconciliations.  And, actually, Trevor Harris, in his former

            13   life as an academic, has been a pioneer in that area.

            14             And the evidence is quite sobering, in the sense

            15   that I don't think we have much evidence that would say that

            16   the reconciliation has a lot of information content or is

            17   very useful to investors -- which, as people have pointed

            18   out, they come out late; firms that have an incentive to get

            19   this information across will do so, anyway, and they will do

            20   so in a timely fashion, so the reconciliation is sort of

            21   after the fact.

            22             Having said all that, let me sort of add one word

            23   of caution, which is along the lines of what several other

            24   people have said here.  I think one of the implications of

            25   sort of this view that the underlying factors -- the






             1   institutional environments, their enforcement environments,

             2   and so on -- shape the quality of reporting is that the IFRS

             3   around the world is not going to be of homogenous quality.

             4             So if the reconciliation is removed and -- to some

             5   extent, that gives the stamp of approval to IFRS -- I think

             6   one of the dangers is that investors will have unrealistic

             7   expectations as to the quality or the consistency -- I think

             8   it's more the consistency than the quality -- of IFRS

             9   financials that they are seeing.

            10             And I think there will be heterogeneity because of

            11   those different environments that firms are operating under

            12   around the world, and it's those differences, I think, that

            13   -- or those factors that are not going to go away.

            14             And, to some extent, I would say let's not worry

            15   about the reconciliation as much, but sort of take on this

            16   issue head on, which, in my mind, is the real issue and,

            17   actually, has always been the real issue, even before sort of

            18   IFRS came to the center stage.

            19             MS. ERHARDT:  Thanks.  Joel, any comments?

            20             MR. OSNOSS:  (Shaking head.)

            21             MS. ERHARDT:  Okay.  How about, Steve?  Just the

            22   broad question of protecting investors.

            23             MR. TODD:  Well, I think a lot has been said and,

            24   as I mentioned earlier, I think the reconciliation had a role

            25   to play in helping develop IFRS consistently around the






             1   world.

             2             I do think that, from an investor protection

             3   standpoint, if the reconciliation -- or when it is dropped,

             4   you are, in effect, de facto saying that IFRS is ready, and

             5   we're at the stage where everybody wants it to be -- it's a

             6   robust standard being applied as consistently as possible

             7   around the world.  And I think that will be a definite

             8   message to the markets, which, hopefully, will be positive

             9   and accurate at the same time.

            10             So I go back to the original timetable of the

            11   roadmap -- a four- or five-year period of having the

            12   reconciliation.  I think the original intent was, after that,

            13   it probably wouldn't be needed.  I think that's correct.

            14             MS. ERHARDT:  Before I call on those with their

            15   name card up, let me just add on to something Steve said.  He

            16   said, in essence -- and I don't want to put words in your

            17   mouth, but some sort of validation or a positive statement

            18   about IFRS.

            19             There certainly are jurisdictions or companies who

            20   don't use IFRS.  I mean, will it be a spur, if you will?  In

            21   other words, would people expect, in essence, the second wave

            22   of adopters?  Or is this just about what people who are

            23   currently using it -- you know, whether they have to add on

            24   into their footnote?  Or is there more to it than just those

            25   people?  It is also a signal or an incentive for those that






             1   haven't gone to IFRS that, "Hey, maybe this will stick, and

             2   I'll go"?

             3             MR. TODD:  I would think so.  We mentioned earlier

             4   that the reconciliation requirement has been around for over

             5   20 years?  This is certainly the first framework, I would

             6   think, that the SEC has considered dropping the

             7   reconciliation requirement.  And so I think it is going have

             8   a significant impact.

             9             MS. ERHARDT:  Joe, do you want to chime in?

            10             MR. JOSEPH:  I would break investors up into two

            11   groups -- the price setters, which would probably most of the

            12   large investors, and price takers, who for better or for

            13   worse, might be individual retail investors.

            14             And the price setters tend, I believe, to reconcile

            15   to an economic GAAP as soon as the information is available.

            16   So the underlying explicit accounting standards or the

            17   reconciliation is not really relevant there.

            18             We have not really been able to find any

            19   differences in cost of equity within sectors across the world

            20   based on economic standards.  In other words, once you adjust

            21   for the differences and come to an economic kind of a GAAP,

            22   the differences in cost of equity are explainable by business

            23   model or operating risk, as opposed to an accounting

            24   standard.  And I don't know if the academics here have any

            25   studies to either confirm that or not.  And I guess,






             1   obviously, if the costs come down because they don't need to

             2   reconcile, that's a good thing for everyone concerned.

             3             And I would just -- I have one last thing. What

             4   keeps me up and makes me worried is not so much

             5   reconciliation, but the fact, for example, that sell side

             6   analysts for U.S. companies today, in their pro forma

             7   estimates, exclude stock compensation.  They make a whole

             8   bunch of adjustments to the quantity of earnings for U.S.

             9   companies -- this has got nothing to do with accounting or

            10   accounting standards, but, to me, that is the biggest risk

            11   today that drives up the cost of equity for, I would say,

            12   U.S. companies, as opposed to international companies because

            13   they do not file any reconciliation statement.

            14             MS. ERHARDT:  Just moving along, Greg?

            15             MR. JONAS:  Julie, let me address two issues.  The

            16   first is -- I think your question, as I interpreted it, was,

            17   as more and folks pile on the international standard

            18   bandwagon, will those who choose not to, or a country who

            19   chooses not do so -- would that be tainted in the minds of

            20   the capital markets?

            21             And I can tell you that, today, Moody's is much

            22   more willing to take a negative rating action on a company

            23   that we perceive has less than transparent reporting that we

            24   ever have been in the past.  We don't wait any longer for the

            25   bad news to manifest itself in a reporting disaster.  If we






             1   perceive aggressiveness or non-transparency, I think our bias

             2   is to try to do to something in the rating discussion.

             3             So if we envision a world where, you know, most of

             4   the world is following international standards, and then you

             5   have folks who we perceive to be outliers, and we perceive

             6   the outlier to be of a less transparent nature, I think that

             7   could manifest itself in rating discussions and negative

             8   rating actions.

             9             The second topic I wanted to address is just to say

            10   a couple words about -- I just can't help it -- XBRL.  Let me

            11   preface this by saying that I am a big fan of XBRL in the

            12   hope that it can that really help financial analysis.

            13             But I have read with interest, you know, rumors

            14   that circulate that XBRL is going to cure cancer.  And it is

            15   my belief the we need to be realistic about what it can and

            16   cannot do.

            17             And let me give you a very simple example of just

            18   how difficult it might be to use XBRL to try to correct for

            19   non-comparability because it comes from different accounting

            20   machines.

            21             Let's say I have just two retailers, and retailers

            22   have latitude as to where they put their store costs.  Some

            23   retailers could call it cost of sales.  Other retailers could

            24   call it SG&A.  This is the case, for example, in U.S.

            25   reporting today.






             1             So we have noncomparability among retailers.  And

             2   let's say we wanted to use the magic of XBRL to fix it, so

             3   people like myself could go in and adjust financial

             4   statements to fix that.

             5             Well, what we would need to tag is information

             6   that, today, is not disclosed, right?  We would need to know

             7   store costs, which are not disclosed, and we would need to

             8   know where each of the companies put the store costs, so we

             9   could undo one of them and make it comparable to the other.

            10             So if we are really serious about XBRL improving

            11   comparability, we've got to have the technology, we've got to

            12   have people who know how to use it, but, importantly, we need

            13   to be tagging some stuff that isn't disclosed.  If we keep

            14   that in mind, it's not a cheap thing to use XBRL to achieve

            15   better comparability.

            16             MS. ERHARDT:  Thanks.  Trevor, I see you have your

            17   sign up.

            18             MR. HARRIS:  Thank you.  I want to bring some of

            19   these things together because the roadmap talks about 2009.

            20   So if we push ourselves to thinking, from an investor's point

            21   of view, what would help the broad array of investors in that

            22   time frame.

            23             Right now, both from my colleagues down at the end

            24   there in the audit profession, the issuers, and many of us

            25   spend a lot of time developing, working with the standards






             1   and the information that it provides, including the

             2   reconciliation.

             3             If we could take away that time and reinvest it

             4   somewhere else -- and several people have worried about what

             5   the standard setters would to keep convergence going -- they

             6   might actually tend to focus on a number of other issues that

             7   actually more relevant to us.  And Greg has alluded to one,

             8   in the case of the stores and the retail business, where,

             9   actually, that might be much more important information for

            10   protecting investors.

            11             But let me give you one that I think is sort of

            12   pertinent, and it relates to a discussion that was taking

            13   place this morning, as well.

            14             If we think about transportation companies, and you

            15   think about one of the primary drivers of what would affect

            16   the valuation of that company or the economics of that

            17   company, it's going to be the cost of capacity, be it planes,

            18   be it rail cars, whatever it may be.

            19             Right now, under U.S. GAAP or IFRS, companies,

            20   basically, have the freedom to choose their depreciation

            21   schedule, their leases, and so on.  And the reality is that

            22   the way most investors, even the sophisticated investors,

            23   tend to deal with this is they add back the accounting charge

            24   called depreciation.  And, as you heard this morning, they

            25   will often use something called EBITDA -- earnings before






             1   interest, tax, depreciation, and amortization -- which means,

             2   essentially, you've got a zero cost in that summary

             3   statistic, or EBITDA, in an earnings-like number in order to

             4   represent that capacity cost.

             5             If, instead, we had the standard setters and the

             6   auditors and the issuers focus on providing a number that

             7   better reflects the true cost of capacity to sustain that

             8   business, and if it could get tagged in a number of ways, so

             9   that Joe, in his way, or Greg, for protecting his ratings,

            10   would be able to interpret it, then we have moved everybody

            11   to a much more efficient system, where investors are

            12   protected to a much greater degree.  And that will never get

            13   dealt with in a reconciliation or, in some sense, within

            14   current GAAP.

            15             So I think what this is suggesting is transferring

            16   the same investment of dollars that is being done in various

            17   forms of reporting and putting it in the right place is how

            18   we really get this whole thing moving forward.

            19             MS. ERHARDT:  Other comments on the broad topic of

            20   protecting investors or seeking that reconciling information?

            21             (No response.)

            22             MS. ERHARDT:  John, did you have a question?

            23             MR. WHITE:  I wanted to go back, because I guess I

            24   was troubled by the closing remark in this morning's

            25   discussion, when Richard Blackett said that eliminating






             1   reconciliation for more private issuers would increase the

             2   cost of capital for U.S. domestic issuers -- presumably,

             3   because there is more competition for a fixed supply of

             4   capital that you guys control.

             5             I'm not sure it's the right question for you, but,

             6   I mean, do you agree with that, or not?  I mean, at least, it

             7   caught me by surprise when he said that.  But you're the guys

             8   that have the capital, and he was talking about you would

             9   dole it out differently.

            10             MR. HARRIS:  I think we can cosset in the investor

            11   protection discussion the following sentence:  If that is

            12   truly the case, what that says is there are going to be

            13   higher quality -- there are going to be corporations that

            14   come to the United States markets that actually attract the

            15   capital because they are perceived of higher quality in terms

            16   of taking away, let's say, an information gap.  And, in that

            17   way, they will raise the bar.

            18             But, actually, from an investor protection point of

            19   view, I view that as hugely valuable, because what he would

            20   be saying is, actually, there is an arbitrage opportunity

            21   right now and a mispricing of certain companies because of a

            22   lack of transparency.

            23             So if removing this improves transparency in such a

            24   way that their uncertainty is reduced for a number of

            25   issuers -- given that the Joe Josephs of the world and,






             1   frankly, more and more retail investors are moving up to

             2   invest in non-U.S. companies, anyway -- I only view that as a

             3   positive, from an investor's point of view.

             4             So to take his point to the literal extension of

             5   it, it is actually valuable from an investor protection point

             6   of view.

             7             MR. WHITE:  Joe?

             8             MR. JOSEPH:  If I could just come back to that,

             9   presumably, if a lot of them find lower cost of capital -- if

            10   a lot of foreign issuers come to the U.S. because the cost of

            11   capital here is lower than the foreign market, that's going

            12   to get arbitraged very quickly.

            13             And, again, I'm not sure what would happen to a

            14   U.S. company, but it if the cost of capital is rising here,

            15   they might go abroad to raise capital.

            16             So I don't agree -- or I don't see that happening,

            17   and I find it very difficult to see that actually happening.

            18             MR. WHITE:  I mean, I thought maybe what you were

            19   going to say in part was that you would just go -- at least,

            20   you not being investors, in particular -- that you would just

            21   go directly to the foreign market and buy directly there.

            22             MR. JOSEPH:  Yes, that is actually happening now.

            23   And I would also say that --

            24             MR. WHITE:  Based on the information that is there

            25   today.






             1             MR. JOSEPH:  Yes.  It's happening now.  And I would

             2   say that the average U.S. investor has about maybe 20 percent

             3   of their net worth in international equities, and I think the

             4   benchmark is 50 percent.  So it is structurally underweight

             5   internationally.  So I don't know what effect that would have

             6   on the way investors would allocate capital.

             7             MS. ERHARDT:  It's interesting.  I mean, if I could

             8   just make one observation.  You know, you could articulate

             9   this policy question as, you know, absent the reconciliation,

            10   in essence, would investors be driven to put their money in

            11   the bank, if you will, as opposed to the capital markets?

            12             Yet, what I take away from many of the comments,

            13   including these last ones, is it's not a question of, now, my

            14   only alternative is to put my money in the bank because I

            15   have been scared away, but, rather, it's a discipline that

            16   will bring to light where the best opportunities are.

            17             And because, due to the electronic systems, it's

            18   easy, functionally, to buy or sell where those best

            19   opportunities are, it actually would increase the overall

            20   efficiency for investors -- increase their return because

            21   it's just going to be better information.

            22             So it's sort of an upgrade to the whole system, if

            23   you will, as opposed to a, "We have abandoned investors.  You

            24   know, the only choice is to put money in the bank."

            25             Whereas perhaps -- with all due respect to this






             1   decision the Commission made, you know, 30-some years ago,

             2   perhaps that wasn't the alternative.  It was more of, you

             3   know, "If we don't do this, people are going to put their

             4   money in the bank" -- with no disrespect to what you earn

             5   when you put your money in the bank.  I certainly have some

             6   money there myself.  But that that was the alternative, and

             7   so, now, you know, reconciliation helped the confidence and

             8   drew them out, whereas, today, the landscape is just

             9   different.

            10             And so that isn't what is at stake.  Now, it's

            11   almost what is at stake is how do we take advantage of the

            12   scenario to get things most efficient.  And this is a lever

            13   in that process.

            14             Okay.  That's well my one-minute summary.  Let's

            15   take the time that we have, then, and just go maybe from my

            16   right in order.

            17             And just, as we did this morning, I would certainly

            18   welcome any comments, thoughts, observations,

            19   recommendations, life and death potential transition issues

            20   if the Commission went this way, comments on timing, comments

            21   on the overall idea -- just whatever comments you might want

            22   to make or points you thought you wanted to make that so far

            23   haven't come out.

            24             So, Steve, do you want to start us out?

            25             MR. TODD:  Thank you.  Well, first of all, I do






             1   think that the whole adoption of IFRS across the EU and then

             2   around the world has been wildly successful, and I think we

             3   certainly are on target for, at some point, dropping the

             4   reconciliation requirement.

             5             One thing that was discussed this morning, though,

             6   that I find interesting -- and you had mentioned this to me

             7   the other day, Julie -- about the U.S. would, in effect, have

             8   a two-GAAP system.  And I never really thought about the fact

             9   that, if we have a two-GAAP system, maybe a result of that

            10   would be that U.S. companies -- whether you would call them

            11   10-K filers, or whatever -- but U.S. domestic companies might

            12   have an option of adopting IFRS.

            13             If you are going to consider that, I think you

            14   should need to make that decision pretty quickly because, you

            15   know, unlike our European brethren, who are little more

            16   attuned to different languages and different accounting

            17   systems, everybody that I know in the United States knows

            18   U.S. GAAP to the best of their ability, and we don't have a

            19   lot of IFRS expertise floating around, either in public

            20   accounting or in industry to the level that it would take.

            21             There was, as you know, a massive effort for our

            22   overseas friends to get to IFRS.  It may not be quite the

            23   same because U.S. GAAP has lot of the same underlying

            24   principles, but there is numerous, numerous differences --

            25   audit transition-type things.  So if that were to be part and






             1   parcel to dropping the reconciliation requirement, it would

             2   be nice for everybody to know that a little bit in advance.

             3             MR. OSNOSS:  Thank you for the opportunity.  Again,

             4   I appreciate the time.

             5             Just to reiterate my points, I just think we should

             6   be eliminating the reconciliation.  We just need to walk

             7   before we run.  I think eliminating it before the year-end of

             8   December 31, 2008 is fine, but I do think that there should

             9   be some discipline kept in the process and, for that purpose,

            10   we should have some disclosure in potentially critical

            11   accounting in filings with the Commission.

            12             And, lastly, I think regulators should continue to

            13   dialogue amongst themselves across the borders.  Obviously, I

            14   commend the Commission's joint work plan with CESR, and I

            15   think that the commissions talking will help to bring

            16   together some of the these different views that are held

            17   around the world.

            18             And, lastly, I would just advise U.S. companies, by

            19   the way, that IFRS is really here to stay.  And, in fact,

            20   U.S. companies should be thinking about their subsidiaries

            21   who are now currently filing statutory reports under IFRS. So

            22   we all in the U.S. need to start really thinking about IFRS

            23   because it is really gaining steam.

            24             MS. ERHARDT:  Thank you.  Christian?

            25             MR. LEUZ:  Let me make one point that sort of






             1   hasn't come up yet.  So far, it has sort of sounded as if the

             2   reconciliation maybe provides information that is not all

             3   that useful.  But I can also see sort of one point where a

             4   reconciliation could actually be -- sort of, to some extent,

             5   be harmful.

             6             Let's take the fact that -- you know, usually, you

             7   would think, when you get two pieces of information, you are

             8   better off than having one piece of information.  But one

             9   thing to keep in mind is that, you know, when people report

            10   two profit figures, people may be asking, "So which one is

            11   the right one?"

            12             And we all remember sort of -- I certainly do,

            13   being German myself -- sort of Daimler Benz' first time

            14   reconciliation and sort of the whopping difference that they

            15   had in their numbers and how often that has been cited.

            16             And I think, as a result of that and, largely, to

            17   avoid these differences, I could see companies actually

            18   reporting both their local GAAP or their IFRS and the U.S.

            19   GAAP -- the reconciled numbers -- with a desire to make them

            20   close, rather than sort of reporting one that properly

            21   reflects the underlying economics and gives you a good idea

            22   what their sort of economics performance is.  And this, I

            23   think, is sort of what we care about.  So that is sort of a

            24   point that hasn't come up.

            25             In closing, I would agree with the previous






             1   panelist that -- I would support sort of removing the

             2   reconciliation and say it's sort of not the key issue to

             3   worry about.

             4             But I would say let's be very serious about IFRS

             5   implementation for cross-listed firms in the United States,

             6   as well as around the world, and worry about the enforcement

             7   and institutional differences around the world that continue

             8   to sort of exist and be clever to sort of how address those.

             9             And I'm not as optimistic as some of the previous

            10   comments that we can get convergence in all these areas. And

            11   the reason is that these institutional differences that we

            12   see arose because of economic and cultural differences across

            13   these countries, and they are not going to go away overnight.

            14             And so I think we will continue to have to live

            15   with differences in reporting quality that we see from

            16   different companies.  But, in my view, that's okay, because,

            17   as we have heard, the issuers can make these trade-offs in

            18   terms of their cost of capital, liquidity, their capital

            19   raising.  And the intermediaries and the investors are sort

            20   of also in a position to sort of deal with things.  We have

            21   heard sort of what the investors are actually doing and the

            22   solutions that the intermediaries are offering.

            23             And so, in my view, you know, if it restricted to a

            24   certain number of GAAPs -- and we're not talking about many

            25   anymore -- I think, in the future, I think that that is okay.






             1             MS. ERHARDT:  Thank you.  Joe?

             2             MR. JOSEPH:  I'll be quick here.  Basically, if you

             3   did away with the reconciliations, it wouldn't have any

             4   effect on the way we actually price securities.  Nothing

             5   would change.

             6             And I think one of the ideas that has been thrown

             7   around at some point today was, "Well, what if we allow U.S.

             8   companies to adopt IFRS?"  That might be an interesting

             9   exercise, and it might actually make my job easier because,

            10   now, I have the whole world on one standard, if they want to.

            11             And I would really encourage the SEC -- and I think

            12   this is -- it's not relevant to this discussion, but there is

            13   a huge disconnect today between what companies report under

            14   whatever accounting system and what the analysts and the data

            15   base providers put as forecasted earnings for these

            16   companies.  And I think the retail investor is significantly

            17   hurt when they make arbitrary adjustments in violation of all

            18   the accounting rules, and I think that is an area that we are

            19   concerned about, as opposed to reconciliation itself.

            20             MS. ERHARDT:  Okay.  Thank you.  Greg?

            21             MR. JONAS:  Well, the move in recent years toward

            22   international standards has been wonderfully beneficial for

            23   our analysts.  You know, when you are used to dealing with 15

            24   different GAAPs in your portfolio of companies that you

            25   analyze, and it drops down from 15 to maybe 2 or 3, it's a






             1   better day.  It means you can spend more time trying to

             2   figure out the underlying economics of what you are looking

             3   at and less time trying to fight the different languages of

             4   people speaking in different tongues.

             5             I'm anxious, in my comments, to encourage you to

             6   find ways to keep this momentum going.  And, to that end, I

             7   would go ahead and follow the roadmap.  I think it's a wise

             8   roadmap -- but only if you believe two things deep in your

             9   hearts.

            10             Number one is that you view the roadmap destination

            11   as only a rest stop on the course to the real goal of a

            12   single body of global GAAP being applied.

            13             And, number two, that you believe that the club of

            14   global regulators -- the big ones in the major capital

            15   markets -- that the club of global regulators is committed to

            16   convergence.  That doesn't mean just uniformity of standards.

            17   It means we converge to higher quality standards.

            18             As Trevor pointed out, the goal isn't just

            19   standards.  It is standards that accurately portray economic

            20   reality.  I think that is the magic of convergence to date,

            21   and think it's very helpful.  So that's one thing we want the

            22   regulators committed to jointly.

            23             And second, as I mentioned, I think global auditing

            24   standards are critically important, and I hope the regulators

            25   are committed to that, as a club.






             1             And third is I think -- you know, there is a whole

             2   lot of global regulatory structure that I think would be very

             3   helpful.  It doesn't do much to have great global converged

             4   standards and have absolutely no enforcement in major parts

             5   of the world.  So the club of regulators needs to be as

             6   committed to enforcement and trying to get -- I appreciate

             7   that we can't get perfect comparability, but, by God, we've

             8   got to try.  And have regulators play an important role in

             9   that.

            10             MS. ERHARDT:  Thank you.  Dennis?

            11             MR. JOHNSON:  Two closing points.  We support the

            12   formal adoption of IFRS.  We think it's a net benefit to

            13   investors.  And, secondly, we do not see the elimination of

            14   reconciliation causing any harm to investors.

            15             MS. ERHARDT:  Understood.  Thank you.  And Trevor?

            16             MR. HARRIS:  Very briefly, given I have spoken so

            17   much, if you choose to follow the roadmap and review the need

            18   to reconcile across these GAAPs, and even one company chooses

            19   now to list in the United States from a -- let's say an

            20   under-regulated environment, you will have helped U.S.

            21   investors.

            22             MS. ERHARDT:  Okay.  John, did you have anything

            23   else?

            24             MR. WHITE:  No.  I think that sounds good.

            25             MS. ERHARDT:  Okay.  Well, there is no shame in






             1   finishing three minutes early.  It just means we have been

             2   efficient, which, of course, is what we want the capital

             3   markets to be.

             4             So please join me in very sincerely thanking our

             5   panelists for sharing their insights today.  It's very

             6   welcome to hear from those outside the building about what is

             7   going on and your thoughts.

             8             And we will reconvene at 3:45, with the issuers.

             9             (Applause.)

            10                               * * *

            11             MR. WHITE:  We are back from the break.  We are

            12   ready for our last panel today, which is the effect on

            13   issuers in the U.S. capital markets.  Conrad Hewitt has

            14   re-joined us as a moderator.  And Kathleen Casey, our newest

            15   Commissioner -- she was in the audience this morning, and she

            16   actually sat in the audience during the last panel, but she

            17   is now on stage with us.

            18             The rules are that, if you have questions, you can

            19   just put your tent card up or just ask.  You are allowed to

            20   ask questions, as well as make comments -- whatever you would

            21   like to do.  We are very pleased that you are here.

            22             So let me introduce the panelists first, and then I

            23   will get into sort of what we are going to do in terms of

            24   questions.

            25             Starting at far end of whatever we call this, we






             1   have Meredith Cross.

             2             Ms. Cross is co-chair of the corporate department

             3   at the law firm of Wilmer Hale.  Prior to joining Wilmer

             4   Hale, she was the deputy director of the Division of

             5   Corporation Finance here at the SEC.

             6             And although that was a very important position,

             7   more importantly for this panel, she also served as the

             8   associate director responsible for the Division's

             9   international corporate finance activities and, in that

            10   capacity, played a key role for a number of years in

            11   developing international disclosure and accounting standards

            12   for use in cross-border financings.

            13             So we are very was very pleased that you could join

            14   us, Meredith.

            15             Bob Deere.  Mr. Deere is vice president for

            16   accounting and reporting at Royal Dutch Shell.  And he is

            17   responsible for the worldwide accounting and reporting of the

            18   Shell Group, which has oil and gas and petrochemical

            19   operations in more than 130 countries.

            20             And, if I understand it correctly, the predecessors

            21   of Shell were the earliest foreign companies to list on the

            22   New York Stock Exchange -- back in 1954, if I have it right

            23   -- which, according to some of old records in Corp. Fin., we

            24   think you were the first European company to list here with

            25   the SEC.  So that's pretty neat.






             1             MR. DEERE:  We may well have been.  I believe I

             2   cleaned out some similar documentation out of my office

             3   recently, so I somewhat can vouch for that.

             4             MR. WHITE:  Okay.  I wasn't born then, of course,

             5   so, I mean, I don't really know.

             6             Shell reports in IFRS, and Mr. Deere was kind

             7   enough to join us from The Hague.  Thank you for traveling. I

             8   think you actually traveled further than the representative

             9   from CalPERS.  I heard Julie's comment earlier, but I think

            10   you traveled further.

            11             Okay.  Denis Duverne.  Mr. Duverne joined AXA in

            12   1995 and is a member of its management board and its chief

            13   financial officer.  In his role, he is in charge of finance,

            14   control, and strategy.  And AXA is a global company offering

            15   financial protection and wealth management and has

            16   approximately 110,000 employees and distributors working in

            17   50 countries.  Your primary listing is in Paris, if I

            18   understand it, but you have American depository receipts

            19   listed on the New York Stock Exchange since 1996.

            20             You use IFRS in your financial statements, and you

            21   are joining us from Paris.  Thank you very much for also

            22   making a very long trip.

            23             Phil Jones.  Mr. Jones didn't travel quite so far.

            24   I assume he came down on the train this morning.  He is the

            25   director of external reporting an accounting policy and






             1   procedures at DuPont and is responsible for DuPont's 10-K and

             2   10-Q filings, as well as interpretation and application of

             3   U.S. GAAP globally for DuPont.  And DuPont uses U.S. GAAP --

             4   as least, today you do, right?  We'll ask you later whether

             5   you intend to continue to do that.

             6             MR. JONES:  Well, many of our subsidiaries are

             7   starting to use IFRS.

             8             MR. WHITE:  Say that again.  I'm not everybody

             9   heard that.

            10             MR. JONES:  I said many of our subsidiaries around

            11   the world are beginning to implement IFRS.

            12             MR. WHITE:  Don Nicolaisen.  Don is perhaps the

            13   best known to us here at the SEC.  He was our former chief

            14   accountant, from 2003 to 2005.

            15             And, as part of his work at the Commission, he, of

            16   course, authored and published the SEC staff roadmap for

            17   elimination of the requirement to reconcile IFRS financial

            18   statements to U.S. GAAP that we have been talking about

            19   today.  I did reveal earlier -- I don't know if you were here

            20   when I revealed it, but my understanding is that Julie played

            21   some role in helping you write that.  So I did mention that.

            22             Before joining the SEC, he was with

            23   PricewaterhouseCoopers for almost 30 years, in various

            24   leadership positions.

            25             And you are currently on four boards, if I






             1   understand it, which is Morgan Stanley, MGIC, Verizon, and

             2   Zurich Financial.  So we are looking to you from a lot of

             3   different roles, but one of them is a board member and an

             4   audit committee member.

             5             And, finally, Will Widdowson.  Mr. Widdowson is

             6   head of the UBS Group accounting policy, co-head of the UBS

             7   Group finance function, and a member of the UBS Group

             8   managing board.

             9             And in those three different capacities, he is a

            10   senior member of the management team responsible for

            11   establishing the accounting and disclosure principles applied

            12   to the financial reports of the UBS Group.

            13             UBS was actually, if I understand it again, one of

            14   the earliest major companies to use IAS -- which was the

            15   predecessor name of IFRS -- in SEC filings.  So you actually

            16   have long experience.

            17             And UBS is a leading global wealth manager,

            18   investment banking and securities firm, and one of the

            19   largest global asset managers.  Headquartered in Switzerland,

            20   it employs 78,000 people around the world, and you have

            21   joined us from Zurich.  Again, thank you for traveling so

            22   far.

            23             And I now see that Commissioner Casey has attracted

            24   even more Commissioners.  So we have Commissioner Nazareth

            25   back, and Chairman Cox has rejoined us.  We almost have






             1   enough here for a Commission meeting.  This is terrific.

             2   Actually, we do.

             3             COMMISSIONER NAZARETH:  We heard there were snacks.

             4             MR. WHITE:  I understand this was actually

             5   officially noticed as a Commission meeting, so the three of

             6   you can sit there, as well.  And you in are permitted to ask

             7   questions, as well.

             8             The third panel today, like the first two, will

             9   take up, generally, questions about the consequences of the

            10   reconciliation requirement and the anticipated effects of

            11   ending the requirement.  The particular focus of this panel

            12   is from the perspective of the issuer, both foreign private

            13   issuers and domestic U.S. issuers.

            14             With that kind of just general layout of the topic,

            15   I would like to break this up into three different subject

            16   matters.

            17             The first one would be:  How does the

            18   reconciliation requirement affect foreign private issuers

            19   today, and what might change if the requirement is ended?  So

            20   kind of what does the end of recollection do for the foreign

            21   private issuers?

            22             The second would be:  How would the end of

            23   reconciliation affect your relationships and communications

            24   with your security holders, particularly U.S. investors, as a

            25   second sort of perspective?






             1             We really hit that question from slightly different

             2   angles on the prior two panels, but it really the question

             3   about:  Are your investors getting the information they need? 

             4   Will they be able to get it with the end of reconciliation? 

             5   How will you get it to them?

             6             And the third question is -- and it was alluded to,

             7   in part, by Chairman Cox this morning, but:  How would the

             8   end of reconciliation for foreign private issuers affect

             9   their peers and competitors among U.S. companies?  And how do

            10   we think things should develop with U.S. companies?

            11             And, at the very end of the panel, we will do what

            12   we have done on the prior two panels.  We will come back and

            13   give each of you a couple of minutes to give us whatever

            14   take-away points you would like to give us, in terms of

            15   recommendations, things we have missed, ideas, and so on.

            16             So, so far, I think we have introduced this panel

            17   like we did the last two, and we are about ready to start it

            18   like we did the last two.  But there is, really, one thing

            19   different about this panel from the first two.  And that is

            20   that we have Don Nicolaisen with us, because, as I said

            21   earlier, he was the author of the roadmap.

            22             So, Don, I guess what we would like to do -- before

            23   we start with the questions and the normal panel thing here,

            24   we would like you to just give us some remarks on, you know,

            25   how we're doing, where we're at, where we're going -- just






             1   some general thoughts.  And then we will get into our three

             2   questions.

             3             MR. NICOLAISEN:  All right.  Will do.  Thank you

             4   very much, and thank you for the opportunity to be here.

             5             While I am the principal author of the document, I

             6   had a whole lot of help from the SEC staff and, in

             7   particular, Julie Erhardt.  And I want to acknowledge that.

             8             One of the things that happens after you write

             9   something, or you think about something, or you have

            10   articulated a view is you tend to come back and say, "Was I

            11   right?  Does this make sense?  Is this the right direction,

            12   or are there things I should have thought about differently?"

            13             In this case, I think we are on the right track. I

            14   do think it is appropriate that is a roadmap.  I think it is

            15   fully appropriate, and I am grateful to the Commission that

            16   this is being pursued and that you are really looking

            17   actively at what does it take to do away with that

            18   reconciliation.

            19             And in thinking about, on the front end, what were

            20   the things that were really important, well, it was it

            21   important to me that we help set the tone; that it mattered

            22   that IFRS, as adopted be consistently implemented, so that

            23   you wouldn't have different countries or different industry

            24   segments using different standards without that being obvious

            25   to the investor community.  And, to some extent, I probably






             1   used, you know, the bully pulpit in saying that.

             2             That's all sort of the behind us at this point. We

             3   are where we are.  And where we are in adoption of

             4   IFRS -- and, in particular, I would have to say that the

             5   European Union had taken a very good decision in requiring

             6   the use of one set of standards around their various

             7   entities.

             8             That was an improvement for our investors here in

             9   the U.S. because the investors here no longer have to look

            10   necessarily at 40 or 50 different accounting models that are,

            11   to some extent, reconciled to U.S. GAAP.  They can now look

            12   primarily to IFRS, and I think that is a major improvement,

            13   and I think that the rolling stone has become a very critical

            14   mass as we go forward.  The use of IFRS and the acceptance of

            15   it around the globe is overwhelming.

            16             If you think about looking ahead a number of years,

            17   what is more likely to be accepted broadly around the globe

            18   -- would it be IFRS or U.S. GAAP -- I think it's clear that

            19   it's going to be IFRS.

            20             And so a secondary question and one that we alluded

            21   to early on in the paper is, really, what happens, post

            22   elimination of the reconciliation, with U.S. companies? Is

            23   there some point in time where IFRS ought to be the law of

            24   the land in the United States, as well as elsewhere?

            25             And we had various people comment on that earlier






             1   today.  I don't want to revisit all of that thinking.  I

             2   think it's an appropriate process that we will go through.

             3   But I'm sort of a pragmatic person, and if I think about

             4   where we will end up in some number of years, it would likely

             5   be that International Accounting Standards would be the norm,

             6   not FASB standards.  The desirability of having one set of

             7   standards around the globe is so overwhelming that I just --

             8   I think that is likely to happen.

             9             I wanted to comment briefly on the timetable of the

            10   roadmap dealing with the reconciliation.  No one really

            11   seemed to note the fine print that is at the bottom of that

            12   map, which is really saying, by 2009 or earlier we should be

            13   able to eliminate the reconciliation.  And I really would

            14   encourage the Commission to think about eliminating it

            15   earlier than 2009.

            16             We heard a number of comments from the investor

            17   community today that there is not a lot of reliance or value

            18   that is added by that reconciliation; that IFRS is being

            19   implemented, it is being well done, it is being executed, it

            20   is a consistent model that exists out there that is as

            21   transparent, in many respects, as U.S. GAAP.  There are

            22   companies that I am aware of that, where are limitations to

            23   International Accounting Standards, also apply U.S. GAAP in

            24   areas where there is more guidance under U.S. standards than

            25   under international standards.






             1             But, as we move forward, I would really encourage

             2   the focus to be on the positives and things that have

             3   happened, and not on the negatives of not every country or

             4   every company has done this exactly right -- because that is

             5   also true of U.S. GAAP in the U.S.

             6             We certainly still have a large number of

             7   restatements, and we certainly continue to have areas where

             8   U.S. GAAP is either not fully understood or is not being

             9   applied as we would expect.

            10             So I think, in the broader picture of things, I

            11   don't want to say that is there is too much reliance placed

            12   on U.S. GAAP, but I would say that there is too much reliance

            13   on, at least, the one number produced by U.S. GAAP -- EPS --

            14   and we ought to be looking for, as we have talked about for

            15   decades, other, better ways to provide information.

            16             Chairman Cox has talked about XBRL and the fact

            17   that we live in a different technology age than what we had

            18   when the FASB was created, and we ought to be looking for

            19   web-based solutions.  I always talk about it as being better,

            20   faster, cheaper information to the investor community that

            21   is, at lease, a supplement to GAAP, as we know it.

            22             U.S. GAAP, while it's used by our U.S. companies,

            23   is often secondary in the communications with investors.

            24   Probably half or more of the U.S. reporting companies refer

            25   to pro forma earnings and pro forma numbers in their






             1   communications with investors.  That would say something

             2   about we don't have the full picture when we just look at

             3   U.S. GAAP by itself.  And, certainly, that is the reason why

             4   the SEC has required incremental disclosures -- the use of

             5   MD&A and other information -- in communications with

             6   investors.

             7             So I don't think we ought to focus -- that's a long

             8   way of saying I would hope the Commission would not focus

             9   excessively on the parts of IFRS that may not be perfect by

            10   saying we don't have the perfect system, either, and that the

            11   real resources ought to be focused ahead -- looking ahead --

            12   on how do we do this better, and what are the models out

            13   there that would better serve investors that what we have

            14   today.

            15             So I still believe what I wrote a couple of years

            16   ago -- that we could do away with the reconciliation.  And I

            17   would encourage the Commission to look at that hard and to

            18   think about doing it earlier, rather than later.  I don't

            19   think we are going to learn lots more than what we will in

            20   looking at the initial filings.  The key is International

            21   Accounting Standards are here to stay, and it's well-based.

            22             So I'll end my comments with that.

            23             MR. WHITE:  I'm probably jumping ahead a little

            24   bit, but we had several comments during the course of the day

            25   -- including, actually, starting with the Chairman's opening






             1   remarks -- about the possibility of allowing U.S. companies

             2   to choose IFRS, or us setting it up that way.

             3             You have also, I guess, heard that we should take

             4   things one step at that time, and that we shouldn't go that

             5   route if it's going to slow up eliminating reconciliation.

             6   Doing step one and step two slows up step one.  Just get step

             7   one done is, I guess, what I heard.

             8             But do you have views on whether we need to both at

             9   the same time, or we should do both, or how that all would

            10   work?

            11             MR. NICOLAISEN:  I think it's appropriate that you

            12   think about doing both.  And, certainly, step one is

            13   eliminate the reconciliation.  That, to me, seems to be a

            14   relatively easy step to take.

            15             The second step -- do you accept International

            16   Accounting Standards in the U.S. for U.S. companies? -- is

            17   probably a deeper question.  And I would be in the camp, I

            18   think, of saying, as opposed to making that a voluntary

            19   election, I would rather see it be a requirement.

            20             And the reason I say that is because, in the

            21   intervening period, you have sort of a creeping system that

            22   is hard for investors to really follow as to who is using

            23   what and when and where and what might it be.  And you end up

            24   with these endless questions of what might it look like if we

            25   had used an alternative accounting model.






             1             So my vision of the future is along the lines of we

             2   ought to adopt a good accounting model, and we ought to do

             3   that broadly for all companies.  And then we ought to be

             4   looking for the real investment, where we spend our time: 

             5   How to we make this better?

             6             MR. WHITE:  I'm sorry.  So your vision is not a

             7   choice for the U.S. between one and two.  It's going to a

             8   single standard.

             9             MR. NICOLAISEN:  I would go to a single standard.

            10   As I said earlier, I left that out of the --

            11             MR. WHITE:  That that was in your mind, but you had

            12   left it out of the roadmap when you --

            13             MR. NICOLAISEN:  I did.  I did.  And I reserve the

            14   right to think beyond that paper.

            15             And, as we look forward, I'm really of the belief

            16   we have to think about -- I'm not saying we are prepared to

            17   do that at this point, that anyone should suggest that we do

            18   it at this point, but it is appropriate to think about the

            19   future and where that might lead.

            20             My real concern is that we are not using our

            21   available resources adequately today.  We are focused on

            22   fixing U.S. GAAP.  We are focusing on criticizing and fixing

            23   IFRS.

            24             That's good, and we ought to do that, but maybe we

            25   could better use the assets together doing that and, really,






             1   bring, not just the U.S. and Europe, but Asia into the

             2   equation in a more comprehensive way, as well.  And that's a

             3   model and a useful exercise that ought to go forward.

             4             But I strongly believe that we ought to also be

             5   applying the same sort of effort in thinking about how do we

             6   -- that's the traditional model.  What is the next step? What

             7   do we do to really make this better?

             8             XBRL is often suggested as a solution.  It's not

             9   going to give you everything that you want, either, but it

            10   certainly is worth looking at, and it certainly is a

            11   tremendous supplemental improvement to what we have today.

            12             So I would look to:  What can we do better for the

            13   investors beyond just GAAP, whether it's IFRS or U.S. GAAP?

            14             MR. WHITE:  Why don't we move to our first topic.

            15   We have three foreign private issuers that have traveled here

            16   from Europe, we heard just a moment ago.

            17             So I'm going to ask each of you -- well, first of

            18   all, each of you has been reporting in IFRS for some time

            19   now.  So I guess I would like to hear about that experience,

            20   but, more importantly, what will life be if you don't have to

            21   report in IFRS (sic).

            22             And I guess I'll start with Mr. Deere, then Mr.

            23   Duverne, and then Mr. Widdowson.

            24             MR. DEERE:  The last few years have been quite a

            25   bit of change for Royal Dutch Shell.  Two years or three






             1   years ago, we had two separate parent companies.  We reported

             2   both under U.S. GAAP and Dutch GAAP.  And we, at the time,

             3   were eying the adoption of IFRS.

             4             In this intervening time to the present now, we

             5   have adopted IFRS.  We have combined our parents. Then we

             6   have also gone so far as to combine our to 20-F and our

             7   annual report, so it's one document that we issue

             8   concurrently.

             9             Of all of those changes, the adoption of IFRS,

            10   while it was quite a bit of significant work, results in very

            11   little day-to-day change on us, as we go forward from where

            12   we were previously.

            13             Compliments to Tom and the rest of the board.

            14   Together a complete framework, an accounting framework in a

            15   short period of time was a quite an undertaking and, yet, I

            16   think that they have done a fairly successful job with it.

            17             The standards seem to be robust and, as a result,

            18   our U.S. GAAP differences that we end up reconciling to are

            19   not particularly significant in the context of our holistic

            20   financial reporting -- our entire package of doing that.

            21             I did check with our IR people to ascertain, before

            22   I came here, to confirm what I thought was the case. And we

            23   seem to get few comments and few inquiries from the

            24   investment community about the differences between IFRS and

            25   U.S. GAAP.






             1             We think that if -- we do support elimination of

             2   the reconciliation requirement, and we do think that the

             3   biggest impact that that will have on us, given the absence

             4   of inquiry from our investor and analyst community, is simply

             5   that we will be much more efficient in our reporting process

             6   at that point.

             7             There is not an insignificant amount of work that

             8   goes into producing these numbers, and we do look forward to

             9   the streamlining of our processes to make our reporting more

            10   efficient in that regard.

            11             We report quite a bit of financial information, I'm

            12   sure as the other registrants and foreign private issuers do. 

            13   Financial statement disclosures for global operations are

            14   very complex.

            15             In addition to that, we do straddle three

            16   securities jurisdictions, where we have shares trading in New

            17   York, in London, and also on Euronext.  As a result of that,

            18   there is quite a bit of disclosure requirements that come

            19   with that package, whether or not we are on IFRS or U.S.

            20   GAAP.

            21             In the totality of that, the reconciliation that we

            22   have does -- while it requires some effort, we do not think

            23   that our disclosures, then, would be materially affected by

            24   doing away with that.  So we do support that and would see

            25   that we would then go on as pretty much business as normal at






             1   that point.

             2             MR. WHITE:  Would there be any change in your

             3   ability to access U.S. markets, or any of those kinds of

             4   things?

             5             MR. DEERE:  No, I would not foresee that there

             6   would be a change.  We don't expect it to.  My point being,

             7   John, that we have a significant amount of communication that

             8   is ongoing, where the reconciliation is one small of part of

             9   that.  All that communication would continue.

            10             And, at this point, IFRS is a fairly stable

            11   framework, as we have heard today, with growing acceptance

            12   across the globe, and we believe it will be sufficient for

            13   our reporting needs.

            14             MR. WHITE:  Mr. Duverne, do you want to give us the

            15   AXA perspective?

            16             MR. DUVERNE:  Thank you, John.  For us, the -- we

            17   have been listed, as you said, since June 1996.  At that

            18   point, we issued a little bit -- I mean, a small quantity of

            19   equity.

            20             We have accessed the capital markets probably a

            21   dozen times since then -- six times with a rights offering --

            22   and only once did we use the U.S. markets for that, which was

            23   in 2000, to buy out our minorities in the U.S.  But other

            24   than that, all of our rights issues were excluded in the U.S.

            25   market for reasons I am going to outline now.






             1             I mean, we currently have a very limited window to

             2   access the U.S. capital markets because we typically file our

             3   20-F sometime in June, due to the time required to prepare

             4   the U.S. capitalization and other required U.S. capital

             5   disclosures.  And our year-end financial statements go stale

             6   at September 30.  We do not prepare a half year U.S.

             7   capitalization.

             8             Consequently, our window for accessing U.S. markets

             9   is between mid or end June and sometime at the beginning of

            10   July because we publish our IFRS statements in the first 10

            11   days of August, which means that we have a blackout period of

            12   one month ahead of that.

            13             So we can access the capital markets between

            14   sometime at the end of June and the 8th or 10th of July. Then

            15   we are in a closed window period because of the half year

            16   IFRS accounts.  August is not a good time to issue equity, as

            17   you know, and then we have September which is available.

            18             So, really, when we do a rights offering, we really

            19   have no option because it is usually at the occasion of an

            20   acquisition, and we are rarely in that opportune window, and

            21   so we have not used our ability to tap the U.S. markets

            22   because we are U.S. filers.

            23             The other issue that we have is that we have a

            24   subsequent event risk each year, which arises due to the gap

            25   between the filing of our Document Reference, which is our






             1   equivalent of a 10-K with the French regulator, which will be

             2   filed in April, and the filing of our 20-F in June because

             3   auditors have a requirement to double-date those.

             4             So the elimination of reconciliation would be

             5   extremely favorable for us because, basically, we would be

             6   able to file our 20-F at the same time or at the time very

             7   close to the filing of our documents with the French

             8   regulator.  We would have compliance on financials with the

             9   Commission and, consequently, we could have nearly

            10   uninterrupted access to the U.S. capital markets.

            11             So, for us, it would be major change in terms of

            12   access to the U.S. capital markets.

            13             MR. WHITE:  I think this was a point that was made

            14   this morning, as well, that, even though we have got

            15   securities offering reform and automatic shelf registration,

            16   et cetera, at least, for companies in your position, because

            17   of the reconciliation requirement, there is a very narrow

            18   window of just several months when you can actually access

            19   the U.S. markets.  And that includes the month of August,

            20   which isn't your favorite month to access.

            21             So, if I understand it, eliminating the

            22   reconciliation requirement does give you a significant

            23   increase in the time period you can access.

            24             MR. DUVERNE:  Since it is, essentially, Christmas

            25   time, I can add a few other points on my wish list, if I may.






             1             Right now, in our annual reports, our MD&A, we do

             2   use non-GAAP measures, which we believe are meaningful for

             3   our investor community.  And we believe they are meaningful

             4   because that's the way we run this business.

             5             In our MD&A for the SEC, we are forced to do only

             6   GAAP measures, which means that, if this is not looked at, we

             7   will continue to have to file two different MD&As.  And we

             8   believe that it will be something worth looking it.

             9             The third point I would like to make is that in

            10   post-convergence -- and already now -- in post-elimination of

            11   reconciliation, both the SEC and home country financial

            12   market regulator look at our IFRS statements.  And there is,

            13   from our standpoint, a need for a closer cooperation between

            14   them.

            15             Right now, we may be in discussion with the SEC on

            16   the review of our IFRS statements, which made lead to a

            17   certain conclusion.  And then, if this is not preceded by a

            18   discussion between the SEC and our home country regulator, we

            19   might have to accept a certain treatment with the SEC, and

            20   then go to our home country regulator and say, "Well, this is

            21   what we discussed with the SEC and negotiated."  And it seems

            22   to us that there should be probably a prior discussion

            23   between the SEC and our home country regulator to discuss

            24   those issues.

            25             More importantly, the SEC has been quite active to






             1   impose restatements to issuers, both domestic and

             2   international.  We know that you aware that those

             3   restatements may have different consequences in different

             4   jurisdictions.  I mean, you have made comments to that

             5   effect, John, and other SEC people have made those comments.

             6             But what happens for us -- at least, in France --

             7   is that our accounts are approved by our shareholders, and if

             8   we are forced to do a restatement, it's an admission of false

             9   accounts, which has penal consequences.

            10             So this needs to be looked also quite seriously.  A

            11   restatement of our U.S. accounts -- and we had that situation

            12   once, is unnoticed -- or was unnoticed, as far as we are

            13   concerned.  Restatements of our IFRS accounts, we would have

            14   penal consequences for that.  So that's an important point

            15   for us.

            16             Lastly, elimination of reconciliation would be a

            17   significant cost saving, probably on the order of about $25

            18   million for us.  So it would be quite a saving.  Thank you.

            19             MR. WHITE:  I just -- I know I'm not supposed to be

            20   commenting, but I will.  Obviously, one of the purposes of

            21   the CESR work plan which was announced last August is to lay

            22   out the protocol for the communications between us and the

            23   your home country regulator.  And we are, obviously, working

            24   on that.  I think it has been in place for eight months now,

            25   or seven months now, and we are actively figuring out how






             1   that works.  But we certainly have a plan for the kind of

             2   communications between the regulators that you referred to.

             3             Mr. Widdowson, what is UBS' perspective on this?

             4             MR. WIDDOWSON:  Well, John, thank you very much.

             5   And thank you for the kind invitation and the super

             6   introduction that you gave.

             7             In preparing for this session, I reflected briefly

             8   on the reasons why UBS originally moved to IFRS.  As you said

             9   in your introduction, that was some many years ago now.

            10             And we selected IFRS, really, for two reasons.

            11   First, because it was a principle-based set of standards and,

            12   secondly, because of the wide geographic constituency

            13   underlying that framework.  And listening to the debates in

            14   the room today, I think that was a rational choice, and I can

            15   hear many echoes of similar considerations around the panel

            16   during the course of the discussions.

            17             We came to the U.S. market in the year 2000.  So,

            18   for us, actually, we are more experienced under IFRS than

            19   under U.S. GAAP.

            20             One very important consideration for UBS is that we

            21   maintain our books and records both in U.S. GAAP and IFRS at

            22   the local level.  That means for each of approximately 2,000

            23   companies around the world, we produce an IFRS and U.S. GAAP

            24   trial balance.  We have 3,000 accountants, approximately, in

            25   the group, and they all need to be trained on U.S. GAAP, as






             1   well as IFRS, and our systems and processes need to be

             2   adapted for U.S. GAAP.

             3             That is a quite a considerable cost base.  And when

             4   one puts on top of that the need to educate our investor

             5   relations and communications staff, et cetera, et cetera,

             6   there is a very considerable cost to UBS of producing these

             7   U.S. GAAP balance sheets and the reconciliation.

             8             Of course, if you were to remove the reconciliation

             9   -- life is life -- it's very difficult for us to recognize a

            10   real tangible saving.  I couldn't put a $25 million figure on

            11   that, like my colleague from AXA, and I am equally sure that

            12   I wouldn't be able to bank a saving for my auditor.

            13             What I do think, though, is that, when one runs

            14   multi-GAAP sets of accounts, as management we have

            15   substantial risk, and that risk goes to the heart of

            16   educating 3,000 accountants on operating systems and

            17   processes at a location level to produce those multi-GAAP set

            18   of numbers.

            19             And, actually, it's that operational risk, that

            20   reputational risk, that implementation risk which is the key

            21   benefit -- that's what we would save, and I believe that is

            22   of real value to the organization.  And I'm sure that the

            23   energy spent managing those implementations can be used

            24   constructively elsewhere.

            25             In terms of our investors, we believe, through the






             1   discussion with analysts who follow our company, that they

             2   use IFRS as a basis for their valuation.  They are not using

             3   U.S. GAAP.  So the typical sum-of-the-parts valuation of our

             4   company would be based on the IFRS model.

             5             And we actually receive fewer than five questions

             6   on our U.S. GAAP figures each year.  And I would put that

             7   forward as a piece of evidence that very few analysts are

             8   actually looking at the reconciliation, even though those

             9   pages of our financial reports are approximately 30 pages.

            10             Finally, in terms of the use investors make of our

            11   U.S. GAAP numbers, it's very interesting to note that our

            12   U.S. shareholder base is probably the fastest growing piece

            13   of our shareholder base.  And so we know those people are not

            14   using U.S. GAAP.  We believe they are using the IFRS

            15   financial statements.  It seems reasonably clear to us that

            16   U.S. investors are making investment decisions based on IFRS

            17   analysis of our company and, of course, the proposition that

            18   we put forward.

            19             Now, I'd just like to make one brief comment on

            20   timing, if I may.  We would advocate strongly, as Don said,

            21   moving as quickly as possible to removing the reconciliation. 

            22   We believe, as management, that accounting is really about

            23   communication -- about clear communication of the results of

            24   our business.  We don't actually see that the reconciliation

            25   has added value to that process, and we would advocate moving






             1   that as quickly as possible -- and, ideally, from 2008. 

             2   Thank you.

             3             MR. WHITE:  Ms. Cross, you have these kind of

             4   people for your clients.  What is the international lawyer's

             5   perspective?

             6             MS. CROSS:  Well, I guess the first thing I would

             7   say is I found it heartening that it isn't all about legal

             8   issues today.  Nobody is talking about liability.  Nobody

             9   seems to be all that concerned that the litigious U.S.

            10   investors will be bothered by the absence of this

            11   reconciliation or the move to IFRS, which I think is a very

            12   positive sign.

            13             I think, just sort of on the pragmatic front, it

            14   would save lots of money and frustration and distaste for the

            15   for the U.S. system because I think that so many foreign

            16   companies find it incomprehensible that we still have this

            17   requirement.

            18             And I think, based on the things we are hearing

            19   today, where even the investor advocates who are here are

            20   ready to give it up -- I don't think I have, in all my years,

            21   both as a regulator and as a practitioner, heard somebody

            22   from that analyst community ready to say, "Yeah, I can do

            23   without that information."  So I think that was fascinating.

            24             The reconciliation requirement does keep companies

            25   from coming here and listing.  And when they list in our






             1   markets, our investors are better protected.  So, in general,

             2   if we can find a way to increase the listings, that's always

             3   a positive thing.

             4             You have tackled 404, which is critical, because

             5   that's another thing keeping more companies from wanting to

             6   come here.  And if you can tackle this, I think many more

             7   companies will come here.

             8             And I think that the fact that the reconciliation

             9   now isn't so scary for people -- it's just irritating --

            10   suggests that it has become less and less relevant over time,

            11   because whatever it produces in the way of results, nobody

            12   seems to care that much about.  And so if we are putting a

            13   ton of money and time into something that comes six months

            14   late, and everyone seems to be agree can be dispensed with,

            15   then that seems like a very important place to try to save

            16   resources.

            17             The other side of that is the whole mission of

            18   today's roundtable and all the work that has gone into the

            19   roadmap of making sure that IFRS is a robust, high-quality

            20   system.  And as we will talk about, I think, later in today's

            21   panel, the critical role that the staff plays in reviewing

            22   the filings is going to be important to the success.

            23             And that is a piece that I think is going to be a

            24   little bit difficult for the foreign issuers to get their

            25   arms around because, when their financial statements are






             1   subject to staff review, there are consequences to that.

             2             MR. WHITE:  Don, do you have a comment here?

             3             MR. NICOLAISEN:  (Shaking head.)

             4             MR. WHITE:  Any questions from the Commission

             5   before I --

             6             MR. HEWITT:  I have a question I would like to ask

             7   Don and Mr. Widdowson.  You know, there has been great,

             8   excellent movement between the U.S. standard setters and the

             9   international standards setters to reach a common goal of

            10   convergence to eliminate the reconciliation.

            11             If the reconciliation was eliminated -- which it

            12   probably should be -- what is the incentive to keep that

            13   convergence going like it is now?

            14             There is excellent movement to converge our

            15   standards.  Once that reconciliation is eliminated, is there

            16   still the same incentive on both sides to continue this

            17   excellent movement?

            18             MR. NICOLAISEN:  I'll take a first cut at that. I

            19   think there is still a very strong incentive, and the

            20   incentive is to look for the best solutions -- you know, what

            21   works best?  What is it that is most beneficial to the

            22   investor and analyst community?

            23             And being able to really work together, it seems

            24   like the economics of that are so overwhelming that I would

            25   hope that all the constituents that are affiliated,






             1   associated with, supportive of both the FASB and the AISB

             2   would continue to work together, work in the direction of

             3   improving the quality of financial earnings results, but

             4   don't get so distracted that we end up with deviations in

             5   footnotes and side agreements as to, you know, what the U.S.

             6   would do and what other parts of the world would do.

             7             So I'm just a believer that the marketplace puts a

             8   premium on solid information consistently across the world.

             9   And our investors in the U.S. should have the opportunity to

            10   think beyond our national boundaries -- and they do -- and

            11   the rest of the world has decided to cast their lot with the

            12   IASB, and I think we need to be supportive of that effort, as

            13   well.

            14             So, to the extent that we can maximize the use of

            15   resources, it just seems the market forces would dictate

            16   that.

            17             MR. WHITE:  We normally call on people in order,

            18   but, since Mr. Jones hasn't commented at all, why don't we

            19   call on you first.

            20             MR. JONES:  Well, I would just like to thank you

            21   for the opportunity to be here today.

            22             And I would like to say, even though, you know, we

            23   are a U.S. issuers and a U.S. registrant, many of the same

            24   things I have heard today are issues for the DuPont Company

            25   -- complexity in U.S. accounting, discussions around a more






             1   principles-based IFRS.

             2             I don't know where the balance is.  I have talked

             3   to some of my fellow panelists today, and some would say,

             4   "Are we going to drive to the same level of detail through

             5   IFRS over time, as it evolves in directions that U.S. GAAP

             6   has evolved in?"

             7             So, you know, if you look to whether a U.S. company

             8   might switch to IFRS, maybe, at first, you might just take a

             9   look and say, "That's the right thing to do, or, at least, to

            10   consider it."  I think we ought to have a choice in that

            11   matter -- if not right away, at some point in the future.

            12             We also, as I mentioned earlier, operated in many

            13   of the countries of the world, with a significant number of

            14   large subsidiaries in Europe that are evolving in their

            15   financial statements on local statutory environments to IFRS.

            16             We have reconciliations that we have to maintain,

            17   with a similar risk of translating those statements developed

            18   in IFRS to U.S. GAAP in terms of our filing and reporting.

            19   There is cost that is behind all of that reconciliation and

            20   maintaining that knowledge.

            21             So I think we would very much support moving to one

            22   global GAAP standard, you know, and it's very important to

            23   continue the convergence process.  Thank you.

            24             MR. WHITE:  Mr. Deere, do you want to go back to

            25   the original question about:  Will the convergence process






             1   stop if we eliminate reconciliation?  Or some version of that

             2   question.

             3             MR. DEERE:  We would hope that that would not be

             4   the case.  And, in fact, I can see several forces that I

             5   would hope would keep that on track -- not the least of

             6   which, John, would be for the regulators to actually support

             7   and require that.  For the various securities commissions in

             8   various jurisdictions that we have to understand that the

             9   value in that, and to actually push and support for

            10   convergence, I think, would be an ongoing force in this

            11   regard.

            12             I also believe that the analyst community and the

            13   the investor community, who we have heard up here today quite

            14   a bit, will be very vocal about not wanting to see the work

            15   that has been done on convergence to suddenly begin to drift

            16   apart, because it would make their life much more difficult.

            17             And, thirdly, I think that, between the two boards,

            18   there is actually -- the practical matter is, as previously

            19   mentioned, the cost sharing and staff sharing.  I think is

            20   that they do a fairly good job of sharing the lead on agenda

            21   items for various subjects that they are undertaking, where

            22   they can, and allow one organization or the other to take the

            23   lead in doing that.  And I think that that will continue to

            24   provide them a very practical incentive for cooperation and

            25   convergence.






             1             MR. WHITE:  Mr. Widdowson?

             2             MR. WIDDOWSON:  Thank you.  First of all, I would

             3   like to say that we believe that considerable progress

             4   towards convergence has been made.  And, for us, I think the

             5   key move was probably at the year 2005.

             6             But as I look forward from today, out of our

             7   largest reconciling matters, actually, we expect three to be

             8   resolved during the course of 2007.

             9             So for us, I echo precisely what Don said.  I think

            10   it's more a quest for improving and seeking the highest

            11   quality accounting standards, rather than convergence for

            12   convergence's sake.  So it's aiming for quality.

            13             MR. WHITE:  Let me move to the next general topic,

            14   and I think I managed to ask this question to everyone today

            15   one way or another and have been getting quite consistent

            16   answers.

            17             But I guess it's just, in its plainest terms:

            18   Without reconciliation, will U.S. investors be getting the

            19   necessary information to make informed investment decisions,

            20   if all they getting is IFRS information?

            21             I guess it's the case of saying to some of you:

            22   Will your shareholders be getting the necessary information?

            23             So we can start wherever we would like to start on

            24   that.

            25             MR. DUVERNE:  Roughly, 15 percent of our investors






             1   are U.S.-based.  Having said that, our ADR program only

             2   represents less than five percent of our trading volume,

             3   which means that a large proportion of our U.S. investors

             4   trade, not on the U.S. markets, but on the European markets.

             5             When I look back over the last 11 years since we

             6   have been listed in the U.S., it's only between 2001 and

             7   2003, during the time of the IT markets, that we had a

             8   handful of questions on our U.S. GAAP reconciliation for,

             9   essentially, two areas.  It was a time when we were not

            10   filing under IFRS, but French GAAP.  In the last three or

            11   four years, we have not had a single question on our U.S.

            12   GAAP reconciliation.  And in the years '96 to 2001, we had a

            13   very little number of questions.

            14             So we had a period of two or three years where we

            15   had perhaps 10 or 20 questions, but, in the last three years,

            16   not a single question of our investor relations team, which

            17   is based in Europe and in the U.S.  No investor, either in

            18   the U.S. or in Europe, asked about the U.S. GAAP

            19   reconciliation.  So that means that I think they could do

            20   away with it fairly easily.

            21             Secondly, investors rely not just on our IFRS

            22   financial statements, but we also provide them with

            23   substantial financial supplements, plus European Embedded

            24   Value Reports, which -- I mean, I don't know, maybe I can

            25   expand a little bit on that.  The CFO Forum of the largest






             1   Europe insurance companies, which I currently chair, has

             2   published the European Embedded Value Principles to harmonize

             3   the way in which insurance companies in Europe publish

             4   embedded value information.  We believe it's important

             5   information, especially during the period where there is no

             6   IFRS standard for insurance until phase two, which we expect

             7   sometime in the next decade.  So the investors rely on IFRS

             8   statements, our financial supplements, and our embedded value

             9   information.

            10             I believe that, if the reconciliation requirement

            11   is removed, the discipline would remain without

            12   reconciliation.  And I want to make that comment here because

            13   I heard questions during the last panel discussion about

            14   whether discipline would remain in the quality of IFRS is

            15   there was no requirement for U.S. GAAP reconciliation.  And I

            16   was puzzled by that comment because 90 percent of the IFRS

            17   filers is to the U.S., and they are still, I mean, compelled

            18   to provide quality IFRS financial statements.

            19             But I believe that discipline would remain because,

            20   in fact, when you look at IFRS and U.S. GAAP, you can point

            21   to many differences, obviously, but 95 percent of the

            22   information is the same.  And because U.S. GAAP literature is

            23   much more abundant than IFRS literature, when you are dealing

            24   with a new issue in IFRS, you first look at the U.S. GAAP

            25   literature, and you try to find whether there is a reason to






             1   do something different than what you do under U.S. GAAP.

             2             And this is the attitude of the barristers, this is

             3   the attitude of the officers, and this will last until the

             4   IFRS is much expanded, which may or may not be the case

             5   because it's a principles-based system and not a rules-based

             6   system.

             7             But I believe that discipline is not provided the

             8   U.S. GAAP reconciliation.  It's provided by the fact that the

             9   underlying principles, the underlying framework are very,

            10   very close, if not completely the same.

            11             I believe that the substantial portion of

            12   differences between U.S. GAAP and IFRS, in terms of numbers,

            13   come from the fact that a company that has listed in the U.S.

            14   at the first time application -- at a certain point in time,

            15   this company has applied the IFRS from a certain starting

            16   point, and some acquisitions may have taken place at a

            17   certain point, so a significant portion of differences are

            18   related to the time at which each standard has been applied.

            19   And I think those reconciliation items have absolutely no

            20   interest for the investors.  So I believe that the end of the

            21   reconciliation will not affect the investors in our

            22   securities business.

            23             MR. WHITE:  Mr. Widdowson?

            24             MR. WIDDOWSON:  Thank you.  As I said earlier, I

            25   think the objective of financial reporting is to provide






             1   clear, transparent views of a company's financial

             2   performance.  And in the that context, the reconciliation

             3   that we provide is of interest.  I have mentioned that there

             4   has been substantial progress in terms of reducing the

             5   differences, the reconciled items, between IFRS and U.S. GAAP

             6   in number.

             7             However, we are still publishing approximately 30

             8   pages of incremental detail relating to the U.S. GAAP

             9   reconciliation.  That is over and above the U.S. GAAP

            10   disclosure requirements, which are embedded in other places

            11   in our financial reports.

            12             MR. WHITE:  And if the reconciliation requirement

            13   was ended, would you still provide some of that information?

            14             MR. WIDDOWSON:  Please, may I come up to that?

            15             MR. WHITE:  Okay.  Sorry.

            16             MR. WIDDOWSON:  It seems to me that, in

            17   circumstances where our investor are not using that 30 pages

            18   of information, that that is simply adding to information

            19   overload.  And that, I think, has been a trend through

            20   financial reports over the past few years. They have grown

            21   and grown and grown, to an extent that it is rather difficult

            22   for people to understand the content. And that information

            23   overload is getting in the way of a clear communication.

            24             I have one complaint about convergence, which is in

            25   terms of the detailed execution.  One can find so often that






             1   ideas which are converged in terms of intent do not converge

             2   with precision at the level of the disclosures.  And it's the

             3   same sort of points, we have found, I think, as Mr. Duverne

             4   mentions, done on prescribed disclosures have increased year

             5   on year on year.

             6             And, now, if one takes away the U.S. GAAP, what

             7   does one do?  There is no question, in an organization like

             8   ours, where we prepare the numbers bottom up -- that's rather

             9   an all or nothing decision.  If we switch off the reporting

            10   systems at the level of our 2,000 subsidiaries, we will not

            11   have the information with which to prepare those U.S. GAAP

            12   reconciliations.  So it's rather a binary decision.  If we

            13   switch it off, we don't have the information.  We couldn't

            14   provide a reconciliation.

            15             Please remember that, for an organization operating

            16   bottom up accounting -- which, I think, is the preferred way

            17   to go, if one really believes that, to report a controlled

            18   transaction properly, we should do that as close to the point

            19   of the transaction as we can -- for companies preparing

            20   financial accounts in that way, one we switch the system off,

            21   we switch it off.

            22             Now, then, there is a real issue in terms of

            23   disclosure because one thing one finds, as management, is

            24   that it is very difficult to take disclosure away.  Investors

            25   like to receive information.  Whether or not they use it,






             1   they like to receive the information, and they object to you

             2   taking it away.

             3             And so I think, in practical terms, there will be a

             4   real challenge, and we will need to redouble our efforts in

             5   terms of clarity of our disclosure and explanation using our

             6   existing IFRS primary accounts.  It will not actually be

             7   easy.  I think the investors will expect clarity to continue,

             8   and they will expect continued improvement.

             9             MR. WHITE:  Don?

            10             MR. NICOLAISEN:  I'm not really adding anything

            11   here, but I did listen to the investors that afternoon, and I

            12   think it might have been Joe Joseph who said nothing will

            13   happen after you turn off the requirement for the

            14   reconciliation, and the world will go on the same as it did

            15   before you provided that information.

            16             I think, if you look back 25 years ago, when the

            17   requirement was put in place, it probably made a lot of

            18   sense.  When we talk today, I don't think there are any

            19   investors types who want a portfolio today of just U.S.

            20   stocks.  They are looking for balance.  And if you go to an

            21   investment advisor, or any individual does, usually, some of

            22   the advice is to balance out your portfolio.

            23             So it's important that there be information

            24   available about what you are investing in and that that

            25   information be reliable and transparent.  But I think the






             1   focus is not on six-month-old historical data exclusively.

             2   It's important.  It's a baseline.  It provides information

             3   and tells something about the management of the company, if

             4   nothing else.

             5             But I think the investor is really focused also on: 

             6   What does this company do?  What does the market look like? 

             7   What are its prospects for the future?  Who manages the

             8   business?  And a lot of things that are really not in the

             9   requirements of either U.S. GAAP or IFRS.

            10             And if we could take resources and deploy them in a

            11   more meaningful way, I think investors would welcome that, as

            12   opposed to believing that requiring that certain information

            13   be provided at what is a very high cost is what the investor

            14   needs and wants and should be relying upon.

            15             So I would listen very carefully so what the

            16   investor community said.

            17             MR. WHITE:  Recognizing that there are many in this

            18   building that believe our most important mission is investor

            19   protection and disclosure -- certainly, those of us in Corp.

            20   Fin., that's what we focus on; I realize there are others in

            21   the building that focus on many other things, but that's what

            22   we particularly focus on down in Corp. Fin. -- Meredith, can

            23   you -- I just want to kind of get everybody on record here

            24   that they think that, with the elimination of reconciliation

            25   that investors are going to be taken care of.






             1             MS. CROSS:  I think so.

             2             MR. WHITE:  Assuming that you are on record.

             3             MS. CROSS:  Right.  I believe that.  I think that

             4   there is a few points that would be important in going that

             5   way.

             6             One would be to provide some sort of -- as was

             7   mentioned and on some of the panels today -- qualitative

             8   disclosure about accounting policies, so that people can

             9   understand what the company's accounting policies are. It

            10   doesn't need to be a discussion of the difference to GAAP,

            11   because GAAP is not relevant measure here, but it's

            12   understanding this particular registrant's accounting under a

            13   system that you have decided, as a regulator, is an

            14   acceptable system.

            15             So I think the critical accounting estimates-type

            16   disclosure would be important -- and timely.  I mean, it

            17   would be nice if you could move up the deadline for the

            18   foreign issuers' filing -- hopefully, some.  If you didn't

            19   need reconciliation, you don't need until June.  So the

            20   filings would be more timely, which is an important trade, I

            21   think.

            22             MR. WHITE:  And you would take us back to the

            23   critical accounting policies release of several years ago?

            24             MS. CROSS:  I would look at that disclosure, right

            25   -- which explains to investors what are the key drivers of






             1   this company's results.  You know, is the way we are

             2   accounting for pensions making a big difference, and if we

             3   did it different, would it get you a different result -- not

             4   compared to GAAP, but within this particular company?  So I

             5   would look to that.

             6             And then I think another point -- which won't be

             7   popular on the panel -- is that the role of the SEC staff in

             8   reviewing this needs to be -- and the regulators in other

             9   countries, as well -- everyone needs to be willing to

            10   understand this information is going to get reviewed and may

            11   be commented on.

            12             And the sensitivities of different cultural

            13   reactions to having to make revisions is going to be a little

            14   bit difficult to deal with.  It hasn't been hard when you are

            15   talking about the reconciliation, but when you are talking

            16   about the primary financial statements, I think that's a

            17   little bit difficult.

            18             But I wouldn't want to discourage a robust staff

            19   review.  That has been a critical part of the system here to

            20   protect U.S. investors for years, and Congress made that

            21   crystal clear in Sarbanes-Oxley, when they said, "We want

            22   this done every three years."

            23             And to say yes, every three years, but for foreign

            24   issuers presenting in IFRS, it's too sensitive to have to

            25   make revisions -- I mean, maybe we go to a totally futures






             1   comments approach, so that you say, "Next year, when you do

             2   this, do it this way."  But that's a difficult trade, I

             3   think.

             4             And so I think investor protection -- the usual

             5   things that we worry about, we should keep worrying about.

             6   But giving up this one piece I think is fine.

             7             MR. WHITE:  Mr. Jones?

             8             MR. JONES:  I think it's critical that what we have

             9   heard today, and what they hear from our investors in the

            10   investment community every day is comparability and

            11   consistency are two important factors when you are comparing

            12   the results of companies, whether they be foreign issuers in

            13   Europe or Asia, or in the U.S.

            14             And so I think finding our way to a consistent

            15   global GAAP is extremely important for all of us in a

            16   competitive environment where many companies -- you know, we

            17   have our competitors in other regions of the world.  And I

            18   think it's very important that we drive for that, so that we

            19   have that consistent application, and our investors

            20   understand the right opportunities, you know, where those

            21   opportunities are for their investment decision, as we become

            22   more global and more effective in management of capital

            23   around the world.

            24             So I really think comparability and consistency is

            25   important, and we must drive for that global GAAP, and that






             1   our regulators -- you have a role in trying to drive us to

             2   help get there so that, if we eliminate this difference, we

             3   still are on the path towards a consistent GAAP globally.

             4             MR. WHITE:  Mr. Deere?

             5             MR. DEERE:  I absolutely concur with what you just

             6   said, and I would take it a step further, though, to say that

             7   we need to be very careful about how we pursue this

             8   consistency.  We need to take a balanced approach.  We need

             9   to make sure that we do not piecemeal go out after

            10   consistency and, if we spot a inconsistency, perhaps, between

            11   between jurisdictions, that we have one regulator or the

            12   other trying to patch-work in disclosures that they think

            13   would solve isolated issues.

            14             I think we need to look at the standards as a whole

            15   to come up with robust accounting that we believe gives us

            16   the measure of consistency desired.

            17             MR. WHITE:  Don?

            18             MR. NICOLAISEN:  I would just want to comment on

            19   Meredith's comment about robust review by the Commission

            20   staff.

            21             I certainly, as one of the panelists, do believe

            22   that is appropriate; that the staff should continue to take

            23   hard looks at financial information from whatever source it

            24   arrives here.

            25             I think, in a global environment, maybe there are






             1   some legitimate questions that are raised as to how you deal

             2   with that -- where the home country regulator fits into that

             3   process -- but I do think it's right that that very solid

             4   protection on behalf of investors is something that should

             5   continue.

             6             MR. WHITE:  We'll move to our next topic.

             7             I understand that we are very proud and very happy

             8   that we have the 1200 foreign private issuers that report

             9   here in the United States, but if I've got my math right,

            10   that represents about 10 percent of the public companies that

            11   report in the U.S.  So we've got that other 90 percent out

            12   there.

            13             So I guess I would like to turn just for -- I know

            14   we have touched on some of this, but just turn for a minute

            15   or so to talk about the other 90 percent of the reporting

            16   companies in the United States and what the impact on them

            17   would be if we eliminate the reconciliation requirement.

            18             Mr. Jones, you're the obvious person to go to on

            19   this question because you're one of those companies.

            20             MR. JONES:  Defend them all?

            21             MR. WHITE:  Yes, you have to defend them all. Well,

            22   we're going to go to Don next because he's on the board of a

            23   couple of them.  But I do want to spend a -- I know we have

            24   touched on this, but I would like to kind of get directly,

            25   you know, what is the impact for the U.S. companies?






             1             MR. JONES:  I think, from raising of capital -- I

             2   know that has been discussed earlier -- I think the U.S.

             3   companies have access to the markets around the world, so I

             4   think the elimination probably has little or no effect on

             5   U.S. companies trying to raise capital in the markets around

             6   the world.

             7             To the extent a barrier is put up and we must

             8   convert to IFRS at some point in time, I think you might see

             9   some of the same comments that you have from my fellow

            10   panelists here.  But to the extent that that doesn't occur,

            11   you know, from what our folks believe, raising capital really

            12   doesn't change.  So I think that's the important thing.

            13             I think, in addition, as I have said before,

            14   driving to a global GAAP is important, but, additionally,

            15   driving to a global audit standard is very important to go

            16   along with that.  I've heard that mentioned earlier today,

            17   but I think, in driving efficiency around the world, driving

            18   our audit costs -- which are significant around the world --

            19   getting to a single audit standard, and also help to enable

            20   to reduce our audit costs, which all of our investors, in one

            21   way or another, are involved in paying for that cost.

            22             MR. NICOLAISEN:  I actually it's a good message to

            23   everybody because if the message broadly is that, where good

            24   faith and effort is put into a system and it's not exactly

            25   ours or it's not exactly the same requirement than another






             1   country might have, but there is a willingness to accept that

             2   there is a strong structure, there is a process, there is a

             3   that group of standard setters, regulators, auditors,

             4   preparers who are involved in producing information that is

             5   important to the investor community, that fact that it's not

             6   precisely on the form that a particular agency or particular

             7   country may prefer, I think is a good message.  I think it

             8   basically says there is a willingness acknowledge and accept.

             9             And that plays both ways.  It's not just here in

            10   the U.S., but I think it is also our companies that are

            11   subject to various regulatory requirements outside the U.S. 

            12   To the extent that there is a common methodology and a common

            13   acceptance of information provided without redoing it in

            14   another format strikes me as, actually, a pretty positive

            15   message.

            16             MR. WHITE:  Ms. Cross, do you want to tell us about

            17   your U.S. issuer clients?

            18             MS. CROSS:  Well, I think that a concern that I

            19   think they would have is a competitive concern about

            20   comparability of the information.  And they all like to

            21   present non-GAAP measures to make themselves understandable

            22   to investors.  Are they going to want to present this

            23   information themselves -- at least, in the same industries?

            24             You know, it has been interesting today -- the

            25   airline industry seems to be the one that gets the most






             1   discussion, but I suspect there are many industries that you

             2   will some subtle differences under the different accounting

             3   standards.  And I would be curious as to whether other

             4   panelists think this, but my sense would be that there will

             5   be some pressure to be able to present information that makes

             6   them look good in the competitive marketplace.

             7             MR. WHITE:  Mr. Widdowson?

             8             MR. WIDDOWSON:  Thank you.  Firstly, I'm going to

             9   transport myself and see that I am in the shoes of the

            10   issuer.  And having made that bold leap, clearly, I will see

            11   that the removal of the reconciliation reduces some of the

            12   barriers to entry to the U.S. capital markets, so that would,

            13   quite possibly, have an impact on me.

            14             I think I would actually be even more concerned

            15   about getting my organization up to speed on IFRS.  And I

            16   would be investing now in building my resources and my

            17   knowledge of that framework -- because everything that I have

            18   heard around the room today indicates that I will need to do

            19   that, whether it's at the level of my subsidiaries, or

            20   possibly, at some point, at the level of my overall group

            21   accounts.

            22             And I would be concerned about the EU reaction and

            23   the progress that the EU are making towards a reciprocal

            24   recognition of U.S. GAAP and the impact that that might have

            25   on my accounting framework.






             1             So, actually, I think there are some facets to this

             2   that I would be deeply concerned about getting up to speed in

             3   IFRS.

             4             MR. WHITE:  Other comments on the fate of U.S.

             5   issuers?.

             6             MR. JONES:  Well, I would just like to say I think

             7   it depends on the U.S. issuer and where they are operating.

             8   As I have before, we operate in many countries around the

             9   world, and I certainly agree that the U.S. companies will

            10   need to be getting more familiar with IFRS -- which many of

            11   us are probably already doing, like the DuPont Company.

            12             So I think it's, you know, again, an issue around

            13   appropriate disclosure.  The comments Meredith made about

            14   comparability do concern us.  I think, as we talk to our

            15   investment community, and our potential competitors talk to

            16   their investment communities -- which presumably might be the

            17   same in some respects around the globe -- about how do we

            18   report in U.S. GAAP, and what are those difference, and how

            19   does that compare to what one of our competitors would be

            20   saying, even though they are reporting in IFRS -- to the

            21   extent we have not eliminated the significant differences

            22   before the elimination, I think that might be an issue.

            23             MR. WHITE:  Mr. Deere?

            24             MR. DEERE:  I found it very interesting in the

            25   previous financial panels that many of the analysts said that






             1   they would start with the respective GAAPs and then make

             2   their adjustments.  Or, in one case, as I recall, they would

             3   all start and just assume the same GAAP adjustments to move

             4   to the comparability data.

             5             What I inferred from that is that the analysts and

             6   the various investor community folks are getting a proper

             7   basis from both standards to reach to a degree of

             8   comparability in their numbers.

             9             We have not gotten any discussion since we have

            10   been on IFRS about how do our numbers adjust to look to our

            11   competitors due to GAAP reasons.  This is -- I mean, not only

            12   have we not gotten comments just on the reconciliation

            13   itself, but we also have not fielded comments on what are

            14   GAAP differences between us and some of our peers in our

            15   industry.

            16             So I take a bit of comfort from that that the dual

            17   standard system seems to be working presently, to the extent

            18   that it exists in the industry.

            19             MR. WHITE:  Well, I must say that this panel has

            20   done extremely well because you've gotten through the basic

            21   questions we have done a few minutes ahead of time here.  So

            22   I guess I will head towards the closing piece, but are there

            23   any other questions we want to get before I ask everyone to

            24   make a comment?

            25             CHAIRMAN COX:  Well, I think this is an appropriate






             1   juncture for me to just put a couple really tough questions

             2   because you have been lobbing softballs.

             3             MR. WHITE:  By all means.

             4             CHAIRMAN COX:  And I want to start with Don because

             5   you pointed out that you have preserved the right to continue

             6   thinking since you made your speech a couple years ago, and

             7   there is evidence that you truly have done that.  You gave us

             8   really some big ideas, including your prediction that, in the

             9   end, U.S. companies are going to be reporting in IFRS and not

            10   GAAP.

            11             And then your recommendation that, since this is

            12   so, IFRS shouldn't be voluntary for U.S. companies; it should

            13   be made mandatory.

            14             And if that's the case, I would like to ask:  What

            15   sort of notice period would you contemplate or phase in, if

            16   that's the way that you are looking at this, and what would

            17   become of the FASB?

            18             MR. WHITE:  That sounded like a softball to me.

            19             MR. NICOLAISEN:  I think the time frame is not one

            20   that I would attempt to set sitting here today.  I think what

            21   we are talking about consistently is a limitation that exists

            22   on resources and ability to really move the needle as far as,

            23   you know, at least, I'd like to see it move.

            24             So if you look at the FASB, and if I think of it

            25   more in the resource area, I think they do have resources,






             1   they have intellect, they have experience that could be a

             2   great help to the rest of the world -- and is.  But if it

             3   were a combined effort, it could be even stronger than it is

             4   as separate organizations operating in somewhat parallel, but

             5   not exactly the same universes.

             6             The reason I think it's desirable -- and I

             7   deliberately want to be provocative -- to think about IFRS as

             8   the surviving reporting mechanism is that it forces thinking

             9   as to, well, how do we play in that arena. When do we start? 

            10   How do we build up to it?

            11             And, right now, if you look around the U.S. -- I

            12   think we heard it from a couple of the audit types in this

            13   afternoon's panel.  They basically said, "We don't have the

            14   resources to be able, in the U.S., to respond to that in

            15   today's environment.  Our educational process has not been

            16   designed around IFRS."

            17             There is a lot of things that -- steps that really

            18   are important and fundamentally should be looked at, but

            19   unless you set a bar at some point -- and I think the

            20   European Union did it; said, "On this date, you will report

            21   using IFRS" -- if you set that date and you set it fairly

            22   concrete, and you're not squishy, saying, "Well, you can use

            23   U.S. GAAP or you can use IFRS," I think you force the

            24   dialogue to move at a much faster pace, and I think you begin

            25   to focus the mind in the direction that says, "This is






             1   doable. That's where the debate is.  It's on how do you

             2   really develop the best system."

             3             CHAIRMAN COX:  Well, I've just got one more really

             4   hard question.  Or, at least, intended to be hard.  It might

             5   be easy for you.  I want to direct it to all of the foreign

             6   private issuers on the panel.

             7             And it is this:  Why should a foreign registrant

             8   which is identical to a U.S. registrant in every respect but

             9   for domicile -- including that is listed in the United

            10   States, it is offering securities to U.S. investors, it is

            11   subject to the same exchange rules, and it is subject to the

            12   same statutory requirements under the '33 Act and the '34

            13   Act -- why should that foreign issuer have an election to use

            14   either GAAP or IFRS, when the U.S. company does not?

            15             MR. WIDDOWSON:  Well, why should not the rules be

            16   changed so that the U.S. company can choose IFRS or U.S. GAAP

            17   to create the equivalency?

            18             CHAIRMAN COX:  Well, I think that turns a hard

            19   question, perhaps, into an easy one.  Does anybody else want

            20   to deal with that?

            21             MR. DUVERNE:  I think we have demonstrated to you

            22   that our investment community doesn't look at our U.S. GAAP

            23   reconciliation.  And we have also demonstrated that, in the

            24   current system, we cannot use effectively the U.S. capital

            25   markets to raise equity because of the timing constraints.






             1             And you have been kind enough to have another

             2   roadmap, which is a roadmap to registration, so if this -- I

             3   mean, if this elimination of reconciliation does not take

             4   place, the benefit for foreign private issuers of remaining

             5   listed on the U.S. stock exchange is minimal.

             6             CHAIRMAN COX:  Well, I understand why it makes

             7   sense for you.  What I'm asking is:  Why you have the choice

             8   and U.S. issuers not have the choice?

             9             MR. DUVERNE:  Well, I would give the choice to the

            10   U.S. issuers, as well, if that's the condition.

            11             MR. DEERE:  I would think that it's an evolving

            12   question that has reflected the moving on of the standard

            13   setting community.

            14             I believe, from my perspective, that this has

            15   resulted from the desire to have what has been expressed many

            16   times today as a single reporting accounting framework that

            17   would replace the multiplicity of GAAPs that exist.  And

            18   there was a challenge put out some years ago to come up with

            19   a framework that was robust enough and, in fact, was suitable

            20   for reporting in this environment in the U.S.  And I believe

            21   that, through the roadmap that they demonstrated progress on,

            22   that has occurred and, in fact, now, you have a separate

            23   framework.

            24             At that point, I think it becomes one of a

            25   efficiency and acceptability.  Now, given where we are at






             1   this time, the converse of that question is that, as we have

             2   many different reporting requirements in other jurisdictions,

             3   if we don't have that option, we are then saddled with a dual

             4   GAAP reconciliation that, in fact, domestic filers are not.

             5   And I believe, at that point, all that the foreign filers are

             6   thinking is a level playing field .

             7             CHAIRMAN COX:  Well, John, my apologies because I

             8   think it is very clear that you were not asking softballs,

             9   but, rather, that, no matter how difficult the question, the

            10   panelists are so knowledgeable and deft at answering them

            11   that they make it look easy.  So thank you very much.

            12             I know we are not quite finished, but since I am

            13   finished with my questions, I think this is just an

            14   opportunity to thank you very much for your expert

            15   contributions.  We really value the experience in so many

            16   ways that you bring to this discussion.  And your advice and

            17   guidance to us in sharing the benefit of your experience is

            18   something that will really go a long way to informing our

            19   decisions on this topic.

            20             So John?

            21             MR. WHITE:  I know you had a lot of fun poking fun

            22   at my early morning telephone skills in reaching these

            23   gentlemen, but I did eventually reach them all in Europe, and

            24   they did join us -- after I figured out how to dial the SEC

            25   telephones -- and I appreciate them all showing up.






             1             I guess we would like now to move to what I guess

             2   we have been calling our closing remarks.  The thing that I

             3   think we found most useful in asking each of you to share

             4   your closing thoughts with us is any recommendations you

             5   might have for us in going forward here.  But, obviously, if

             6   we have missed anything and other comments you would like to

             7   make, those, as well.

             8             Knowing my preference for reverse alphabetical

             9   order because I'm at that end of the alphabet, we'll start

            10   with you, Mr. Widdowson.

            11             MR. WIDDOWSON:  Well, thank you very much.  And,

            12   firstly, I would really like to express my appreciation for

            13   the invitation and the chance to partake in this event.

            14             I think time is short, and there is not a great

            15   deal of time in the roadmap.  As Don earlier said, 2009, or

            16   earlier, is actually pretty much upon us.  And I believe the

            17   foreign private issuers would greatly appreciate an

            18   affirmative signal in terms of the direction of this debate

            19   and would appreciate that signal just as soon as possible.

            20             Now, obviously, I am aware that you have given

            21   speeches and that there is information out there, but there

            22   comes a point where one needs to give some concrete

            23   information and direction to the community.

            24             As I said earlier, we would really advocate

            25   removing the reconciliation requirement from 2008.  We don't






             1   see the significance, the incremental value to continuing the

             2   requirement through to 2009, given that our investors are not

             3   using that information, but, rather, they are using the IFRS

             4   financials as a basis for their investment decisions.  And I

             5   think, as I explained earlier, there is very significance

             6   cost and risk for foreign private issuers preparing accounts

             7   on a multi-GAAP basis.

             8             I think those would be the key messages.  Over and

             9   above all of that, there has, on many occasions, been

            10   expressed the need for a consistent regulatory framework.

            11   And, of course, high-quality rules are nothing without a

            12   consistent regulatory framework.

            13             I do pay great credit to the SEC for providing a

            14   lead in that direction, and I think that leadership,

            15   actually, is rather important, and I commend you to continue

            16   in those efforts as a way of leading that regulatory

            17   consistency through the world.  Thank you.

            18             MR. WHITE:  Don?  You've given us enough messages

            19   already today, but why not one more?

            20             MR. NICOLAISEN:  And I'll try keep this brief, but

            21   I think that the Commission is on the right track in really

            22   asking these questions.  And I have absolute confidence that

            23   the inputs will be thought about, that there will be balanced

            24   decisions, and that there will be the appropriate outcome.

            25             When I think about financial reporting, I try not






             1   to think just about a compliance exercise.  And, you know,

             2   perhaps unfortunately, the reconciliation is one of those

             3   things that has become a compliance exercise.

             4             And, particularly, if you are reporting in the home

             5   country and to the vast majority of your investors on the

             6   basis of a different accounting model -- IFRS -- and that's

             7   your communications, and that's how you manage your business,

             8   and that's how you think about it, and that's how you talk

             9   about it, to then come along and be required to comply with

            10   something that is foreign to what you are doing -- it's not

            11   the way you manage your business, it's not the measures that

            12   are driving your performance -- sends somewhat of a

            13   conflicted message.

            14             And so I'm a strong believer that the financial

            15   reporting efforts should be about communicating with

            16   investors what really happened, what did financial

            17   performance look like, what is management's view.  And, to

            18   that end, I think that how you are responding to the vast

            19   majority of your investors in the home in which you operate

            20   is an awfully important factor, and I think it is a driver

            21   that trumps our reconciliation requirement, and I think we

            22   are at that point where it's really appropriate to think

            23   about what does the Commission do about that.

            24             So I thank you for doing that.

            25             MR. WHITE:  Mr. Jones?






             1             MR. JONES:  In guess, in summary, we would also

             2   continue to support the elimination of reconciliation, as

             3   long as the drive to get to one global GAAP is not impaired

             4   by doing that.  I think that is important.  I think we heard

             5   that from our investor community's point that comparability

             6   and consistency is of the utmost importance to them.

             7             And I think also looking at, as I mentioned before,

             8   the audit standard and getting to a consistent audit standard

             9   globally is an important factor, as well.

            10             I thank you for the opportunity to speak today.

            11             MR. WHITE:  Mr. Duverne?

            12             MR. DUVERNE:  First, thank you for the opportunity

            13   to speak on this panel.

            14             I was very encouraged today by the consensus that I

            15   heard on the roadmap.  I would point out that this year will

            16   also be the first year where the foreign private issuers have

            17   the opportunity of including the SOX 404 identifications,

            18   which I believe is a guarantee of additional quality of the

            19   financial statements, which will -- we have complained enough

            20   about the burden of Sarbanes-Oxley 404, but we also see the

            21   benefit of that.

            22             If the elimination of reconciliation leads to

            23   additional disclosures, I hope that they will be narrative

            24   only, and not numbers.  And I believe that waiting four more

            25   years will not give the SEC more in terms of certainty of the






             1   quality of what is done.  So I would encourage early

             2   elimination of the reconciliation because I believe that is

             3   in the interest of the investor community, as well as the

             4   issuers.  Thank you.

             5             MR. WHITE:  Mr. Deere?

             6             MR. DEERE:  I, too, would like to thank the

             7   Commission for the opportunity to come over here and speak on

             8   this matter.

             9             We do support, as we said, the elimination of the

            10   reconciliation.  I have been most encouraged by the comments

            11   that I have heard today that all seem to be in that direction

            12   and supportive of it.

            13             We would also ask that -- it has been referred to

            14   once or twice, but that that would include all the additional

            15   U.S. GAAP requirements of item 17 and 18 filers that are

            16   required, if we are to consider, then, that the IFRS

            17   disclosures are sufficient.

            18             We do believe that this is an important first step

            19   in simply going forward in achieving more efficiency for

            20   cross-jurisdictional reporters, such as ourself and many of

            21   the other companies on this panel.

            22             We would encourage, not only the standard setters

            23   to continue their convergence methods, but also we would ask

            24   that the regulators continue to look -- as you referred to,

            25   John, we were encouraged to hear the activity ongoing to look






             1   at the cooperation between the various jurisdictions of the

             2   regulators.  We think that that is essential.

             3             We do think that there is still scope right now in

             4   working out how issues are resolved on a timely basis so

             5   that -- and it will apply, as well, to U.S. companies as it

             6   will to foreign private issuers -- any companies that are

             7   dealing in multiple jurisdictions of securities issuance. How

             8   do we approach the regulators?  Who is first?  Are we

             9   disadvantaged, then, perhaps with a more cumbersome process,

            10   because we happen to be in more than one jurisdiction, than

            11   companies that are not?

            12             But we do see the elimination of the GAAP

            13   reconciliation as an important first step in good recognition

            14   along that way.

            15             MR. WHITE:  Ms. Cross, the last word.

            16             MS. CROSS:  When one is the lawyer, that doesn't

            17   seem quite right.

            18             I guess I also support the elimination. It's

            19   amazing to me -- since I worked on it for many years in the

            20   '90s, and we were going standard by standard at IASCO

            21   meetings, this is a lot more pleasant than that.  This is a

            22   great development that it has gotten to this point.

            23             A couple points I would make is I don't think

            24   perfection on convergence is the test.  It seems like there

            25   is a lot of comfort around the fact that these are robust






             1   quality standards, and so the implementation and the

             2   oversight are critical with the auditors and the regulators.

             3             As you go to implementing this change, a couple

             4   points I would make.  I think that issuers -- particularly,

             5   foreign issuers -- need clarity and predictability when they

             6   hear from the agency, and so making it clear what you are

             7   going to do, what is going to be required, what the staff is

             8   going to expect, what the review process could be -- those

             9   sorts of points, I think, are going to be very important,

            10   because you could have some serious disappointment if they

            11   just think everything is done now.  So I think that will be

            12   probably one of the most important points.

            13             Thank you.  And thank you for having me here today.

            14             MR. WHITE:  So I think that brings us to the end.

            15   On behalf of Ethiopas Tafara and Conrad Hewitt and the SEC

            16   staff and the Commission, I would like again to thank all of

            17   the panelists -- the ones that are here right now and the

            18   ones that have appeared on the prior two panels -- and to

            19   thank all of the public audience members for your time and

            20   attention today and for attending.

            21             I also want to thank Julie Erhardt for joining us

            22   as a moderator.

            23             We have listened carefully, and I am confident that

            24   the points you have made today will be taken seriously in the

            25   coming months.






             1             So thank you very much, and that concludes the

             2   roundtable.

             3             (Applause.)

             4             (Whereupon, at 5:30 p.m., the roundtable was

             5   concluded.)

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