The SEC on Wednesday approved a statement supporting the adoption of global accounting standards for U.S. companies, but Chairman Mary Schapiro cautioned in a speech at the Commission's open meeting that, "Incorporating [International Financial Reporting Standards] IFRS into our financial reporting system would involve a significant undertaking. We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.
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"The Commission also voted to approve a Work Plan developed by SEC staff that would gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market," Schapiro said. The Work Plan will be completed in 2011, the target date set by the 2008 Proposed Roadmap.
Schapiro said, however, that no decision had been made about the timing of a possible conversion to IFRS. "We must still determine what this means for U.S. companies and markets; should we incorporate IFRS into our reporting system and, if so, when and how?
"And, if we decide that such a change best serves these interests, we must also provide for a sufficient transition time for those who prepare financial statements and those who use them."
Barry Melancon, CEO of the American Institute of Certified Accountants (AICPA) issued a statement supporting the commitment to global standards. "The AICPA believes that it is critical for the SEC to set a date certain for use of IFRS in the U.S. and we urge the Commission, as it completes this work plan in 2011, to ensure investor confidence is maintained and key milestones lead successfully to global standards in 2015," Melancon said.
Commissioner Kathleen L. Casey emphasized that "the Work Plan does not raise any new obstacles and does not constitute a 'checklist' of steps or items that must be accomplished prior to the Commission's decision relating to IFRS or prior to the use of IFRS by U.S. issuers."
"Two considerations for the SEC," Casey said, "are the independence of the IASB's standard setting process and the standards themselves. They must be high quality standards, "a comprehensive set of neutral principles that require consistent, comparable, relevant, and reliable information that is useful for investors, lenders and creditors, and others who make capital allocation decisions."
The Commission statement said that the SEC continues to believe that high-quality global accounting standards "must be supported by an infrastructure that ensures that the standards are rigorously interpreted and applied" both within and outside the United States, and described the areas that staff had been charged to assess in the Work Plan.
The Statement quoted the 2008 Proposed Roadmap, where the SEC stated that "IFRS are not as developed as U.S. GAAP in certain areas." The Work Plan calls upon SEC staff to assess the comprehensiveness of IFRS.
The Work Plan also calls for staff to evaluate "whether the accounting standard setter's funding and governance structure support the independent development of accounting standards for the ultimate benefit of investors."
Specific areas of concern addressed in the Work Plan include:
1. Sufficient development and application of IFRS for the U.S. domestic reporting system;
2. The independence of standard setting for the benefit of investors; Composition of the IFRS Foundation and the IASB;
3. Investor understanding and education regarding IFRS;
4. Examination of the U.S. regulatory environment that would be affected by a change in accounting standards;
5. The impact on issuers, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and
6. Human capital readiness.
"The first two areas above consider characteristics of IFRS and its standard setting that would be the most relevant to a future determination by the Commission regarding whether to incorporate IFRS into the financial reporting system for U.S. issuers," the Commission Statement reads. "The remaining four areas . . . relate to transitional considerations that will enable the Staff to better evaluate the scope of, timing of, and approach to changes that would be necessary to effectively incorporate IFRS into the financial reporting system for U.S. issuers, should the Commission determine in the future to do so."
In his prepared statement, Commissioner Luis A. Aguilar raised the issue of costs and benefits to companies and investors under IFRS and in transitioning to IFRS. "Because there will be significant costs, we need to make sure they are justified."
The Center for Audit Quality said that they were pleased that the SEC had expressed its support of IFRS as "the single set of high quality global standards," and urged the SEC to move forward to adoption of the standards for U.S. companies.
"The SEC's action, in conjunction with the staff's forthcoming Work Plan, should provide a path forward to the incorporation of IFRS into the financial reporting system for U.S. issuers. We encourage the Commission to execute its action plan so it is in a position next year to make a positive decision to adopt IFRS."
Upcoming SEC Webcasts:
The Securities and Exchange Commission staff will conduct a public seminar next month to help companies and preparers comply with rules that require financial reports to be filed using eXtensible Business Reporting Language, (XBRL), which can provide investors quicker access to the data they want in a format that's easily used, searched and analyzed. The seminar will be held on March 23 beginning at 1 p.m. ET in the auditorium at the SEC's headquarters (100 F Street N.E. in Washington D.C. ). The event also will be Webcast on the SEC Web site.