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SEC Staff Report Lacks Timetable For Switch To IFRS

by Glen Shapiro,, New York

18 July 2012

The final staff report from the United States Securities and Exchange Commission (SEC), evaluating the implications of incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for US companies, has been criticized for not containing a recommended action plan or timetable.

The SEC directed the staff in its Office of the Chief Accountant in February 2010 to develop and execute a Work Plan related to global accounting standards. However, the SEC now makes it clear that publication of the staff report does not imply that any policy decision has been made as to whether IFRS should be incorporated into the financial reporting system for US issuers, or how any such incorporation, if it was to occur, should be implemented.

Although, the SEC states, the staff report is constructive and an important contribution, “the Work Plan does not set out to answer whether transitioning to IFRS is in the best interests of the US securities markets generally and US investors specifically. Additional analysis will be necessary before any decision by the SEC.” In fact, the SEC staff are still welcoming further feedback from stakeholders on their report.

The SEC staff found, for example, that there appears to be relatively less support within the US financial reporting community for the designation of the IFRS standards as authoritative for use by US issuers for domestic reporting purposes. However, there was found to be substantial support for exploring other methods of incorporating IFRS that demonstrate the US commitment to the objective of a single set of high-quality, globally accepted accounting standards.

In addition, while it is felt that the International Accounting Standards Board (IASB) of the IFRS Foundation has made significant progress in developing a comprehensive set of accounting standards, there continue to be areas that are underdeveloped (for example, accounting for extractive industries and insurance). By comparison, US Generally Accepted Accounting Principles also contain areas for which guidance is in need of continued development, but the perception among US constituents is that the “gap” in IFRS is greater.

The IASB noted the publication of the staff report, but Michel Prada, Chairman of the IFRS Trustees said that “the report reiterates the many challenges that a large economy such as the US faces when transitioning to IFRS – challenges that other jurisdictions have successfully overcome when completing their own transition to IFRS.”

While the IASB recognized the right of the SEC to determine the method and timing for incorporation of IFRS in the United States, it regretted that the staff report is not accompanied by a recommended action plan for the SEC. It stated that: “given the achievements of the convergence programme inspired by repeated calls of the G20 for global accounting standards, a clear action plan would be welcome.”

“For the benefit of both US and international stakeholders,” it continued, “the Trustees look forward to the SEC resolving the continued uncertainty regarding the US’s commitment to global accounting standards."

The American Institute of Certified Public Accountants (AICPA) has added its voice for prompt action. While it has commended the SEC staff for the thoughtful analysis and the preparation of a comprehensive report regarding incorporation of IFRS into the financial reporting system for US public companies, Barry C. Melancon, its president and CEO, urged the SEC “to consider the staff report with expediency because the world’s capital markets know no borders. The participants in those markets need high quality, transparent, and comparable financial information to enable them to make sound investment decisions.”

The AICPA also urged the SEC to allow US public companies the option to adopt IFRS. "An adoption option would provide a level of consistency in the treatment of US companies and foreign private issuers that report under IFRS that does not exist today, and would facilitate the comparison of US companies that elect IFRS with their non-US competitors that use IFRS.”

TAGS: generally accepted accounting principles (GAAP) | business | accounting | capital markets | international financial reporting standards (IFRS) | United States | G20 | financial reporting | standards

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