By Anne Rosivach
It is no longer clear that the US Securities and Exchange Commission (SEC) will recommend the adoption of International Financial Reporting Standards (IFRS) by US public companies. The SEC's "Roadmap to IFRS" is history, and the question of "when" the changeover from US Generally Accepted Accounting Standards (GAAP) might occur has changed to "whether", following the issuance of a final SEC staff report in July. The report made no recommendations to the SEC, nor did it offer a time line. The SEC staff wrote that IFRS were high-quality standards but found some potential concerns – areas where gaps existed between the IFRS and GAAP.
In 2010, the SEC directed its staff to prepare a work plan for IFRS adoption by US companies. The SEC said the work plan would enhance the Commission's understanding, and, along with progress toward convergence of GAAP and international standards, would be the foundation for its decision.
Over the next two years, the staff report was delayed repeatedly. Progress slowed or came to a halt on some of the remaining convergence projects being deliberated by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB).
Since the issuance of the SEC staff report, Hans Hoogervorst, chairman of the IASB, has expressed his frustration with the SEC on more than one occasion, most recently in his opening remarks at the AICPA Conference on Current SEC and PCAOB developments held in Washington, DC, December 4-5, 2012:
We really need a tangible sign of continued US commitment to a single set of global standards. Merely striving for greater comparability between standards will not do.
In my speech to you last year, I recognized that it would not be an easy task for the SEC to make up its mind about adoption of IFRS. I was not so naÃ¯ve to expect wholesale adoption of IFRS for all companies from day one. But there was a reasonable expectation around the world that the SEC would plot a course towards IFRS.
Yet, as you know, the SEC's intention to make a decision, originally planned for 2011, was postponed again in 2012. Self-imposed deadlines frequently slip, as we standard setters know all too well. I also recognize that the enormous pressures of Dodd Frank and the elections were not a perfect background for the SEC to make up its mind.
Hoogervorst said that the global standard-setting environment has changed since the IASB and the FASB began work on their convergence projects, but the international standards-setting community would welcome the ongoing participation by FASB:
When the IASB and the FASB signed the Norwalk Agreement in 2002, IFRS was considered by many to be a bilateral project between Europe and the US. Today, the standard-setting environment looks different. Many emerging economies driving global growth are supporting IFRS. Understandably, they want a seat at the table of accounting standard-setting. We are seeing the emergence of regional accounting standard-setting forums in Asia and Latin America to complement that of Europe.
As the convergence projects are coming to an end, the IASB is looking at new, multilateral ways to engage with such groups. . . . We would like – and expect – the FASB to become a fully engaged partner in this new global forum. We will continue to need the greatly appreciated expertise of our American colleagues.
In a report entitled The Future of IFRS, published in December, Nigel Sleigh-Johnson, head of the Institute of Chartered Accountants in England and Wales (ICAEW) financial reporting faculty, called for an end to convergence efforts.
"It is better that the IASB and FASB boards issue separate standards than deliver unsatisfactory compromise solutions or do nothing at all", Sleigh-Johnson said. The ICAEW is a professional membership organization of more than 138,000 chartered accountants around the world.
In the ten years that the two boards have worked together, they have reached important decisions on a number of projects, reducing the number of remaining priority projects to three (revenue recognition, leasing, and financial instruments). Significant progress has been achieved toward a converged revenue recognition standard, but the two boards have failed to agree on accounting for impairment of losses, an important component of the financial instruments project.
FASB Chairman Leslie Seidman struck a slightly different note in her remarks at the AICPA conference and addressed some of the distinct legal requirements for companies registered in the United States: "The United States is a heavily regulated marketplace for public companies and their auditors. We have quarterly reporting requirements and short time frames in which to close the books. All of that has implications for what types of standards will work here."
Seidman also referred to some of the broader issues addressed by the SEC staff in its report, including the way that IFRS are interpreted, applied, and enforced in various jurisdictions. The report also found some level of diversity in the implementation of IFRS across jurisdictions. Seidman did not rule out the adoption of IFRS by US companies in some form, which could be something like the "condorsement approach" proposed last year by SEC Deputy Chief Accountant Paul Beswick, who envisioned a continuing role for the FASB.
Beswick advised constituents to "stay tuned" for the SEC's decision, stating that it "may be the single most important accounting determination for the SEC since the determination to look to the private sector to establish accounting standards in the 1930s." He added that other rulemakings, including Dodd-Frank and the JOBS Act, have competed for SEC resources.