In what likely was her final statement as chair of the US Securities and Exchange Commission (SEC), Mary Jo White called for renewed emphasis on global accounting standards that would best serve investors through collaboration between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
“Global standards facilitate decision-making about cross-border investments, transactions, and acquisition opportunities,” White said in a statement released on Jan. 5. “Standard-setters and the commission also have a strong interest in building and maintaining high-quality standards that can be applied comparably across borders to better inform and protect investors.”
Although convergence efforts have stalled since the FASB and the IASB completed priority projects that better align accounting rules in US GAAP and International Financial Reporting Standards (IFRS), including revenue recognition, leases, and credit losses on financial instruments, White said collaboration between the two boards “must continue.”
“Both boards are committed to adopting high-quality accounting standards that provide decision-useful information for investors, and both boards, as well as investors, will benefit greatly from their sustained engagement,” said White, who is stepping down from her post later this month as President Obama leaves office. “Continued engagement will facilitate the development of standards that recognize and address the differences across jurisdictions without sacrificing financial reporting quality.”
White stated that the SEC has promoted the importance of globally accepted accounting standards for nearly 30 years, including in 2010, when the commission last reaffirmed the importance of pursuing such standards.
“While there has been no formal action by the commission since, I have strongly urged engagement on this issue by the commission, including on whether to further incorporate IFRS into the US financial reporting system – an issue identified for further consideration in 2010,” she said.
While it’s now clear that GAAP and IFRS will continue to coexist, it’s also clear that efforts to reduce the differences between them should keep going, White said.
“The United States cannot afford to be myopic about this issue in light of the benefits of these efforts for all stakeholders,” she said. “Strong support of both the FASB and the IASB by US investors, companies, auditors, and others, including the commission, is essential.”
The interest in globally accepted accounting standards isn’t limited to market investors, White said. US companies that use GAAP make acquisitions and enter into joint ventures by relying on IFRS financial information. They also rely on IFRS financial statements when entering into transactions with foreign companies. US multinational companies with subsidiaries outside the United States are permitted or even required by other countries to use IFRS for statutory financial reporting requirements for those subsidiaries, she said.
“In light of these global realities, fully understanding IFRS, including similarities and differences between US GAAP and IFRS, is of central importance to US investors and companies,” White said.
The next SEC chairman and “a full commission” should agree “on a path forward to most effectively advance this critical objective,” she said. “It is imperative for the protection of US investors and companies and the strength of our markets.”
President-elect Donald Trump has nominated attorney Jay Clayton as the next SEC chair. Trump also has two vacant commissioner seats on the SEC to fill after the Senate failed to confirm Obama’s nominees last year.