In remarks at the U.S. Chamber of Commerce's Future of Financial Reporting-Convergence or Not? conference yesterday, International Accounting Standards Board Chairman Sir David Tweedie "ma[d]e the case...on the pressing need for the United States to commit itself this year to a clear, defined, and workable timetable for the incorporation and use of IFRSs, as published by the IASB."
The Case for U.S. Adoption of IFRS
Tweedie gave three overarching reasons for the U.S. to make the decision to adopt IFRS this year - that is, reach a decision in 2011 to incorporate IFRS in the U.S., with that incorporation to take place over a specified period of time. His points were: (as detailed further in his remarks):
- With over 100 countries having currently adopted or committed to adopt IFRS, it is in the United States’ economic interest to be part of the global system.
- Delaying the adoption of IFRSs imposes unnecessary costs and risks on US companies.
- The window of opportunity will close if a decision is delayed.
No Appetite to Work Exclusively With FASB Beyond 2011
On the last point above, that "the window of opportunity" would close in 2011, Tweedie met some of the objections to U.S. adoption of IFRS head-on, including arguments about the cost of changing over the reporting system, and arguments for continued work on convergence as opposed to wholesale adoption of IFRS.
Read additional highlights from Tweedie's broad-ranging speech, and some of my observations thereon, here.
First, on the issue of cost, it is important to distinguish between the decision to incorporate and the date of implementation. It is the unambiguous commitment to IFRSs in 2011 that is essential. The SEC has already indicated that the earliest implementation date when IFRSs would be required for the largest US public corporations will not come until 2015 or 2016 at the earliest. Implementation for smaller companies could come later. In my view, such a commitment would be sufficient. It would also provide ample time for planning, education and training. Change is never easy. The goal is for all of us to work together to implement the benefits of global standards while minimising, as best we can, the costs of getting there. Indeed, many US companies have already begun preparations for IFRSs. What they need now is certainty and a date that they can work towards.
Second, the alternative of delay or further intensive convergence work is not a viable option. The IASB and the FASB have worked together for nearly 10 years on the convergence programme. We have made significant progress in improving accounting and eliminating major differences. The countries that have adopted IFRSs, or that have committed themselves to adopting IFRSs, have already accepted convergence with the FASB as a necessary step to facilitate US adoption. However, there is no appetite internationally for the IASB to work in exclusive partnership with the FASB beyond 2011. Consequently, putting off adoption could impose unnecessary costs in the future. The completion of our joint convergence work provides the moment in history when transition to IFRSs will be easiest. At that moment, IFRSs and US GAAP will be most closely aligned with each other. On the other hand, without an SEC decision, the clear risk is that having once converged, standards could then diverge.'