On Wednesday, the Securities and Exchange Commission voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. Currently, U.S. issuers use U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission.
The increasing integration of the world's capital markets, which has resulted in two-thirds of U.S. investors owning securities issued by foreign companies that report their financial information using IFRS, has made the establishment of a single set of high quality accounting standards a matter of growing importance. A common accounting language around the world could give investors greater comparability and greater confidence in the transparency of financial reporting worldwide.
"An international language of disclosure and transparency is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions," said SEC Chairman Christopher Cox. "The increasing worldwide acceptance of financial reporting using IFRS, and U.S. investors' increasing ownership of securities issued by foreign companies that report financial information using IFRS, have led the Commission to propose this cautious and careful plan. Clearly setting out the SEC's direction well in advance, as well as the conditions that must be met, will help fulfill our mission of protecting investors and facilitating capital formation."
Chairman Cox noted that since March 2007, the Commission and staff have held three roundtables to examine IFRS, including one earlier this month regarding the performance of IFRS and U.S. GAAP during the subprime crisis. Almost one year ago, the Commission issued a concept release on allowing U.S. issuers to prepare financial statements using IFRS.
Today, more than 100 countries around the world, including all of Europe, currently require or permit IFRS reporting. Approximately 85 of those countries require IFRS reporting for all domestic, listed companies.
Public comment on the SEC's proposing release should be received by the Commission no later than 60 days after its publication in the Federal Register.
Statement from AICPA on SEC Roadmap for IFRS:
The Securities and Exchange Commission's roadmap for the adoption of International Financial Reporting Standards (IFRS) marks an important stage in what the American Institute of Certified Public Accountants believes will be the eventual move from U.S. Generally Accepted Accounting Principles to international accounting standards for public companies.
"The AICPA supports one set of high-quality global accounting standards for public companies," said Barry Melancon, AICPA president and CEO. "We believe the capital markets ultimately will insist on IFRS for public companies. Today's action by the SEC continues a robust and thoughtful debate that is critical as the transition occurs."
The Institute believes the following are key steps, among others, for a smooth transition:
- ongoing collaboration between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board to achieve convergence;
- preparation for the shift to IFRS-based reporting using eXtensible Business Reporting Language (XBRL).
"A critical initial step is the development of a project plan that directs all components of the financial reporting system toward achieving the milestones laid out by the SEC," said Arleen Thomas, AICPA senior vice president -- member competency and development. "The AICPA will work closely with the FASB, the IASB and the International Accounting Standards Committee Foundation to help bring these milestones to fruition. We are working with our members, both preparers and auditors, on IFRS to help them prepare for what's ahead."
In May 2008, the AICPA created http://www.ifrs.com to serve as a resource for IFRS-related publications, articles, conferences, educational courses, videos and links to additional sources of information. The site includes materials for auditors, financial managers, boards of directors and audit committees, and investors.
The SEC is proposing that IFRS reporting begin with 2014 filings if the interim milestones are met. That timeline is consistent with a 2008 AICPA survey showing that a majority of members polled believe it will take three to five years to prepare for IFRS: 34 percent said they would need three years, and 31 percent said it would take four or five years.
Statement of Timothy Flynn, Chairman of KPMG International, Regarding SEC Discussion of Proposed Guidelines for U.S. Companies Transitioning to IFRS:
Today's discussion by the SEC is a very welcome step. In a world where markets are becoming borderless, a global accounting standard like IFRS will provide a common language for investors.
We know that the transition to IFRS in the United States will be challenging. It will involve training and education for every stakeholder in the capital markets. KPMG already is using the considerable global IFRS experience of our professionals in the U.S. and KPMG's member firms, to assist U.S. clients, academics and investors as they begin the journey to global accounting standards.
We look forward to additional SEC action on this important issue and to participating actively in the transition to IFRS in the United States.
Statement by James Turley, Chairman and CEO, Ernst & Young LLP, on the Proposed IFRS Roadmap:
Today the U.S. Securities and Exchange Commission took its most significant step toward the adoption of a single set of high quality global accounting and financial reporting standards that everyone can use. The dominant language of financial reporting worldwide is fast becoming IFRS and we applaud the Commission for approving for public comment a proposed "Roadmap." Notwithstanding the strength and size of the U.S. capital market, we cannot afford to be left behind.
In today's connected global economy, it's vital we all speak the same "language." More than 100 countries require, permit or base their standards on IFRS and the number is increasing. Disparate accounting standards benefit no one. A common set of high quality standards provides a foundation for capital market activity that promotes investment and strengthens economies. A change to a common global accounting language will also benefit investors and market efficiency by increasing the transparency and comparability of information.
While there will be many challenges associated with conversion to IFRS, a U.S. shift to the global standard will provide continuous benefit. With respect to this matter, we believe that with today's action by the SEC, the U.S. -- like the rest of the world -- is on the right path.
Financial Executives International statement on SEC Proposed Roadmap for IFRS
FEI supports the SEC's decision today to propose a Roadmap for U.S. issuers for filings of financial statements prepared in accordance with IFRS. We reiterate our belief that a detailed, tactical plan and additional guidance is necessary to facilitate moving a larger number of registrants to IFRS. FEI maintains that, as companies prepare to move forward with such a significant project, a clear understanding of the end requirements are necessary before companies can develop the necessary systems and procedures to address the critical business issues. Therefore, we further support the Commission's decision today to identify a target date of 2014 for mandatory adoption of IFRS. FEI believes the Roadmap represents a critical step forward for all parties involved in determining a course for convergence, and applauds the SEC for its commitment to doing so.
In the coming weeks, FEI's technical committees will review the detailed proposal and plan to submit comment letters to the SEC further outlining our recommendations toward the proposed Roadmap. As an organization of financial executives we recognize the importance of working together with all stakeholders on this critical issue to ensure a process that provides for ongoing high quality and transparent information for the investing public. We recognize that the move to IFRS will be a gradual process for companies of all sizes, as well as auditors, investors, educators and the overall financial community, and we will continue our efforts with respect to infrastructure in order to assist them in preparing for IFRS through committee initiatives, education sessions, conferences and our involvement in the recently formed Corporate Roundtable on International Financial Reporting (CRIFR).