SEC publishes IFRS roadmap after two month delay

The Securities and Exchange Commission (SEC) published its proposed roadmap for the potential transition to International Financial Reporting Standards (IFRS) by U.S. companies on its Web site on November 14, two months after it was originally approved by unanimous vote of the Commission. If certain milestones are achieved, the mandated transition to IFRS would occur in stages, beginning with large accelerated filers for fiscal years ending on or after December 15, 2014.

The 20 largest U.S.-based companies in a given industry according to market capitalization would be allowed to begin transitioning in 2010 for their financial statements beginning after December 15, 2009.

Smaller accelerated filers would begin using IFRS for years ending on or after December 15, 2015, and non-accelerated filers would report under IFRS for years ending on or after December 15, 2016.

For three-year comparative purposes, companies filing in accordance with IFRS for years ending after December 15, 2014, would be required to present their information in accordance with IFRS beginning with the year ending after December 15, 2012.

A 90-day comment period will follow publication in the Federal Register.

The SEC has estimated the total cost of transitioning to IFRS for the 110 companies that could begin the conversion in 2010 to be $3.5 billion, or about $31.8 million on average, according to Reuters.

For companies making the transition at later dates, the SEC roadmap estimates the cost of IFRS transition under two proposals:--

  • Proposal A -- costs would be 0.125% of revenue for the U.S. issuers that would be eligible to use IFRS accounting,
  • Proposal B – costs would be 0.13% of revenue to reflect the additional U.S. GAAP reconciliation disclosure.

The SEC assumes that the company will bear 75 percent of the costs while the outside professional will bear 25 percent of the costs.

Milestones to be achieved on the road to required use of IFRS are:

  1. Improvements in accounting standards
  2. Accountability and funding of the IASC Foundation
  3. Improvement in the ability to use interactive data for IFRS reporting
  4. Education and training
  5. Limited early use of IFRS where this would enhance comparability for U.S. investors
  6. Anticipated timing of future rulemaking by the commission
  7. Implementation of the mandatory use of IFRS.

Critics of the transition to IFRS include Public Company Accounting Oversight Board member Charles Niemeier who has argued that that, "The original idea behind convergence meant that the accounting standard-setters would eliminate the differences between their rules.... But the meaning of 'convergence' has strayed from creating one set of high-quality standards," he said, according to CFO.com.

Another critic, former FASB member Ed Trott, wants the SEC to take a longer time for the transition, CFO.com reports. "My issue is the speed and arbitrariness of the SEC making decisions for . . . political reasons rather than for the benefit of the capital markets."

The American Institute of Certified Public Accountants and the Center for Audit Quality supported the Roadmap when it was approved by unanimous vote at a meeting of the SEC on August 27, 2008.

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