SEC Defers IFRS Decision Until 2011
March 1, 2010
The U.S. has taken another step closer toward converging its accounting standards with those adopted by the majority of the world.
On Wednesday, the Securities and Exchange Commission unanimously approved a statement in support of efforts to converge U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) in order to narrow the differences between the two sets of standards.
The Commission directed its staff to execute a work plan to help put the Commission in a good position to vote next year on whether to adopt IFRS. The work plan addresses many of the concerns from the more than 200 comment letters it received on the roadmap it proposed in November 2008. The letters expressed widespread support of a single set of high-quality, globally accepted accounting standards, but differed in the views about the approach of the roadmap.
"For nearly 30 years, the Commission has promoted a single set of high-quality globally accepted accounting standards," said SEC Chairman Mary Schapiro. "Incorporating IFRS into our financial reporting system would involve a significant undertaking. We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets, and if we decide that such a change best serves these interests, we must also provide for a sufficient transition time for those who prepare financial statements and those who use them."
The U.S. is the big catch for international standardization efforts, and international leaders have been very patient and accommodating in order to get the U.S. on board.
The London-based, International Accounting Standards Board (IASB) and the Norwalk, Conn.-based Financial Accounting Standards Board (FASB) are in the process of addressing many of the key differences between U.S. GAAP and IFRS, such as the different measurement attributes of financial liabilities, the timing and approaches to projects and the difference between fair value and amortized costs.
The two groups have issued several joint statements reaffirming their commitment to converge the two standards, and both groups have been working to eliminate their differences by 2011. When the time is right, hopefully both accounting standards will be nearly identical, making convergence a snap.
"We do not have all the information necessary to make these decisions today," Schapiro said, "but we remain on a steady path to be in the position to make such a determination in 2011."
Upon conclusion of the fact-gathering and analysis set forth in the work plan, and assuming completion of the convergence projects, Schapiro said the Commission will be able to determine whether to incorporate IFRS into the financial reporting system for U.S. public companies.
The Work Plan
Specifically, the SEC's new work plan aims to determine whether IFRS is appropriate, sufficiently developed and consistent in application for use as the sole set of accounting standards for the U.S.
"Trust in the accuracy and quality of financial information has been essential to the historical success of the U.S. capital markets," said Commissioner Luis Aguilar, adding that enforcement mechanisms to combat accounting fraud must stay in place. "Investors can trust the numbers that U.S. public companies report because of the strong infrastructure for financial reporting in the United States, including a robust law enforcement culture that deters and punishes false accounting. If we move forward with IFRS, it will be because we have determined that the standards are enforceable and U.S. investors can trust the numbers."
The work plan will also identify the specific considerations the Commission must evaluate, such as the independence of the IASB standard-setting process from political pressures.
"It is as important now as ever that standard-setters be free from undue pressure that could compromise the standard-setting process," said Commissioner Kathleen Casey.
SEC Chief Accountant Jim Kroeker said the FASB will have a very important role during both the memorandum-of-understanding period, as well as an ongoing and substantive role in the post-incorporation stage.
"It is important that FASB have a continuing, substantive role as we move forward," said Commissioner Elisse Walter. "The FASB has been instrumental in helping to make the vision of global accounting standards start to become a reality. Successful completion of the FASB-IASB convergence project and the independence of standard setting for the benefit of investors will remain critical milestones that, in my view, must be achieved before we move forward."
Kroeker said a number of countries have maintained their own accounting standards bodies after incorporating IFRS.
Convergence leaders have segmented the monumental process into small steps, and efforts to complete each stage have been moving along swiftly. Converting the U.S. to a global system will take an enormous amount of work, and one of the key steps of the work plan evaluates the various transition issues for effective incorporation of IFRS.