By Anne Rosivach
James Kroeker, the chief accountant of the Securities and Exchange Commission (SEC), said last week that the SEC staff will need "at least a few more months" to complete its work on a report to the commission that will show the impact of adopting International Financial Reporting Standards (IFRS) on US companies and capital markets. The SEC will study the staff report before making a decision.
"Given the number of things on our agenda, I can't give you a precise schedule", Kroeker said at the American Institute of Certified Public Accountants (AICPA) National Conference on Current SEC and Public Company Accounting Oversight Board (PCAOB) Developments that was held in Washington.
A decision had been expected by the end of 2011. Only six months ago, on June 2, the SEC chairman, Mary Shapiro, stated that despite changes in the timetable for the issuance of converged accounting standards",I am confident that we continue to be on schedule for a commission determination in 2011 about whether to incorporate IFRS into the financial reporting system for US issuers."
For accounting firms with cross-border clients reporting to the SEC, the delay could mean months, or even years, of staff training to produce reports in both US GAAP and IFRS. Large global companies and their auditors are already using IFRS, as are companies with subsidiaries in Canada, which adopted IFRS this year.
Two of the issues that the SEC must resolve before it reaches a decision are (1) whether there should be a single "date certain" for all companies to adopt IFRS, and (2) how IFRS and US GAAP will be reconciled if the convergence process becomes impractical over time. The US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working on converged standards, single global accounting standards, since 2006, but the process has slowed in recent years.
Date certain or options for US companies
Many within the US accounting community have said that the "big bang" approach to adoption of IFRS, a single date certain that will apply to all companies of all sizes, is the best approach to adoption. Others have argued for a staged approach, allowing more time for smaller companies to make the transition.
In August, the AICPA proposed a third option to the SEC, which recommended that US public companies be allowed to adopt the use of IFRS before the commission makes a final decision.
"Whether or not the SEC decides to incorporate IFRS into the US financial reporting system through an endorsement/convergence approach, we believe US issuers should be given the option to adopt IFRS as issued by the IASB", Paul V. Stahlin, AICPA chairman, and Barry C. Melancon, AICPA president and CEO, said in a letter to the SEC.
"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 it would facilitate the comparison of US companies that elect IFRS with their non-US competitors that use IFRS", Stahlin and Melancon wrote.
Need for alternative to convergence
In their speeches at the AICPA conference, the leaders of both the FASB and the IASB stated that an alternative to convergence is needed because the two boards have been unable to keep to their timetable for publishing joint exposure drafts of global accounting standards.
At the conference, Hans Hoogervorst, chairman of the IASB, stated that a single set of consistent global accounting standards would not be achieved through the current convergence model.
In her speech, Leslie Seidman, chairman of the FASB said",In thinking about convergence, you might relate to the words of the American poet, Ogden Nash, who said, 'Progress might have been alright once, but it has gone on too long.'"
She went on to say",We would very much like to work together with the IASB to complete the priority projects on revenue recognition, leasing, financial instruments, and insurance. However, we do not believe indefinite convergence is a viable option, politically or practically.”
Seidman presented the approach set forth in November by the Financial Accounting Foundation (FAF), the oversight body for the FASB, in a comment letter to the SEC. The FAF letter supported a type of "codorsement" approach, similar to an approach presented in an SEC staff work plan in May, with certain modifications. Among other things, the FAF letter addressed the link between transition issues and the process of a condorsement model, Seidman said.
In a speech at the AICPA annual conference in December 2010, Paul Beswick, deputy chief accountant at the SEC, introduced the concept of condorsement as a potential approach for a global standards setting process. Beswick said he used the word condorsement, a word he coined, to describe how a process that is not convergence or endorsement might work.
The SEC staff work plan followed Beswick's idea. The work plan "explores a possible method for consideration of incorporating IFRS into the financial reporting system for US issuers" that allows for the FASB endorsement of international standards released by the IASB as well as convergence activities. US GAAP would continue as the statutory basis for financial reporting.