April 2005: SEC 'Roadmap' to eliminating IFRS reconciliation
On 21 April 2005, William Donaldson, Chairman of the US SEC, and Charles McCreevy, EU Internal Market Commissioner, met in Washington to discuss a range of topics of mutual interest between the SEC and the European Union, including expanding the use of high-quality global accounting standards and eliminating the reconciliation to US GAAP for IFRS filers. An SEC Press Release (PDF 65k) about the meeting stated:
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Chairman Donaldson reaffirmed his support for the convergence program being undertaken jointly by the International Accounting Standards Board and the US Financial Accounting Standards Board. Chairman Donaldson also discussed with Commissioner McCreevy a 'roadmap' developed by SEC staff that highlights the steps needed to eliminate the US GAAP reconciliation requirement for foreign private issuers that use International Financial Reporting Standards, or IFRSs. The roadmap establishes a goal of eliminating the requirement as early as possible between now and 2009 at the latest.
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Concurrently, the SEC released for public distribution an article titled A Securities Regulator Looks at Convergence, by SEC Chief Accountant Donald T. Nicolaisen. Mr. Nicolaisen introduces his article as follows:
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In the pages that follow I explain why I believe the movement towards use of a single set of globally accepted accounting standards is good for the global capital markets, and for investors and creditors (collectively, investors). I also discuss what I believe this movement means for the US capital markets and, in response to a question I am frequently asked, I attempt to set out a possible roadmap to elimination of the SEC's requirement that foreign private issuers reconcile financial statements prepared under IFRSs to US GAAP. Further, I describe factors that I believe can contribute to successful implementation and to increasingly widespread acceptance and use of IFRSs, or which, if not addressed, could impede progress. Lastly, I express my view that to maximize the benefits from a common set of accounting standards – IFRSs – the many involved parties need to work together on interpretive matters that arise in applying it.
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Click to Download Mr. Nicolaisen's Comments (PDF 228k).
April 2005: SEC amends Form 20-F for IFRS adopters
The US Securities and Exchange Commission has adopted amendments to Form 20-F to provide an accommodation to foreign private issuers that change their basis of accounting to IFRSs prior to or for the 2007 financial year. The amendments also require certain disclosures from all foreign private issuers that adopt IFRSs for the first time during any financial year. The Commission did not, however, change its current requirement for a reconciliation of financial statement items to US generally accepted accounting principles. Click here for SEC Final Rules (PDF 212k). The SEC Press Release (PDF 29k) says that "the Commission is adopting these amendments to promote and encourage the use of IFRSs as a high quality set of accounting standards." The key changes are as follows:
- Issuers that are registered with the SEC generally are required to provide in their SEC filings three years of audited financial statements prepared on a consistent basis of accounting. The amendments will permit eligible issuers to file two years rather than three years of statements of income, changes in shareholders' equity and cash flows prepared in accordance with IFRS in annual reports and registration statements filed during the first year in which they adopt IFRSs, with appropriate related disclosure. To be eligible to rely on this accommodation, a foreign private issuer must adopt IFRSs for the first time prior to or for its first financial year starting on or after 1 January 2007.
- The amendments also require certain disclosures from issuers that adopt IFRSs for the first time in any financial year. These requirements relate to an issuer's reliance on any of the transitional measurement exceptions available to a first-time adopter under IFRS and to the reconciliation to IFRS from the issuer's previous basis of accounting.
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14 October 2006: SEC Commissioner discusses reconciliations
In Remarks Before the Institute of European Affairs (PDF 77k) in Dublin recently, US SEC Commissioner Paul S. Atkins spoke about the adoption of IFRSs in Europe, the reconciliation to US GAAP for SEC registrants using IFRSs, and the possibility of the European Commission requiring a reconciliation to IFRSs for companies that trade in Europe and that prepare US GAAP financial statements. Here is an excerpt from Commissioner Atkins's comments:
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The coherent consistent application of IFRS is an essential prerequisite to the elimination of the reconciliation requirement in the United States. It will take us some time to assess how IFRS is being implemented and enforced, but I am optimistic that we will complete our assessment, well within the 2009 goal for reconciliation, and be able to determine that the reconciliation requirement is unnecessary. Our new Chief Accountant, Conrad Hewitt, is committed to working to achieve this objective as quickly as possible.
I am keenly aware that shareholders ultimately bear the costs of reconciliation – like many of our regulations – and these costs are considerable. For this reason, I am very interested in what appears to be growing European sentiment against requiring reconciliation for U.S. issuers that currently use GAAP in their EU filings. Requiring U.S. companies to reconcile their U.S. GAAP financial statements to IFRS would undermine our efforts towards mutual recognition by senselessly diverting attention and energy from our shared, transatlantic objective of making sure that IFRS succeeds. U.S. GAAP is already an established standard that has proven itself to investors over time. The need for reconciliation disappears when IFRS shows itself to be, like GAAP, a consistently applied, high quality set of accounting standards. It is in everyone's best interest to achieve the elimination of the reconciliation requirement as quickly as possible.
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November 2006: SEC 2006 annual report references to IFRSs
The Performance and Accountability Report (PDF 2,294k) of the US Securities and Exchange Commission for the year ended 30 September 2006 makes a number of references to IFRSs including the following progress report under the heading 'Improving Disclosure for Investors':
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Global accounting standards. Last year, the SEC staff published a 'roadmap' of the milestones necessary to permit foreign private issuers to file financial statements prepared under International Financial Reporting Standards (IFRS), without reconciling them to U.S. generally accepted accounting principles. The roadmap involves, among other things, a detailed analysis of the faithfulness and consistency of the application, interpretation, and enforcement of IFRS in financial statements across companies and jurisdictions, and continued progress in the convergence work now being conducted by the International Accounting Standards Board and the Financial Accounting Standards Board. The SEC staff has been working with other regulators, including through IOSCO and the Committee of European Securities Regulators (CESR), to help reach some of these milestones. For example, the SEC staff and CESR finalized a work plan in 2006 to share information about IFRS implementation.
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January 2007: Update on the SEC and IFRSs
John W White, the Director of the Division of Corporation Finance of the US Securities and Exchange Commission, spoke about "the Commission's role in the ongoing efforts to improve financial reporting through International Financial Reporting Standards (or IFRS) and the promotion of accounting convergence" at a conference last week in London. His remarks also touched on the Commission's proposed rulemaking concerning deregistration by foreign private issuers and its efforts to improve the implementation of the internal control reporting requirements of the Sarbanes-Oxley Act of 2002 including for foreign private issuers. IFRS-related topics about which Mr White commented include:
- Financial reporting in an increasingly global market
- The role of Corporation Finance in the review of IFRS filings
- Financial reporting with IFRS
- Convergence of IFRS and US GAAP
- The importance of cross-border regulatory conversations
Presented below is an excerpt from Mr White's comments concerning convergence of IFRSs and US GAAP. Click to Download Mr White's Speech (PDF 77k).
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Convergence of IFRS and US GAAP
Let me turn for a moment to convergence (and our roadmap). Last year was the first year for many companies to use IFRS. The SEC staff is necessarily also gaining more experience with IFRS, and enhancing our own understanding of the accounting standards. Right now, foreign private issuers must reconcile their financial statements to US GAAP if those statements use IFRS (or another home country GAAP) in the first instance. Many of us would like to see an end to that reconciliation requirement for IFRS filings, and we have a project plan to consider that possibility by 2009. Expanded use of IFRS and the SEC staff's review of those filings (which I have been describing) is an important step in our roadmap for the end of reconciliation. The continuing convergence efforts of the Financial Accounting Standards Board in the US and the IASB are also an important step in that roadmap. It is not an important step, in fact not a step at all, that IFRS be exactly the same as US GAAP. Nor is it part of the SEC staff's roadmap that we become the arbiter of IFRS. As our comments to and correspondence with foreign private issuers that adopted IFRS for the first time last year become available on the SEC website, I encourage you to look directly at those comments and put them to the test. I believe you will see that they reflect this same mindset that I have been sharing with you today.
The SEC staff roadmap laid out a path for a possible end to reconciliation by 2009, and the staff continues to follow that roadmap and to undertake the steps it had contemplated. It's too early now to tell where it will end, but our commitment to doing our part remains as strong as ever. Part of that involves understanding the application of IFRS and understanding the effects of IFRS on investors and the U.S. markets. We are actively engaged in seeking and analyzing the information we need and that is a key project for us in 2007. We are also considering other avenues for gathering information, beyond the reviews I have described, and we may have more to say on that in coming months.
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February 2007: End of reconciliation 'is clearly in sight' – SEC official
In remarks on The Promise of Transparency presented at the 29th Annual Conference on Securities Regulation and Business Law in Dallas, Texas, John W White, director of the Division of Corporation Finance of the US Securities and Exchange Commission spoke about a range of topics of international interest, including:
- Foreign deregistration
- Guidance on implementing Sarbanes-Oxley Section 404 (internal controls)
- E-proxies
- The SEC's new executive compensation disclosure ("the Division's biggest project from last year... historic rulemaking")
- Proxy access
- International Financial Reporting Standards ("I believe the time when the staff will recommend the 'end of reconciliation' is clearly in sight.")
- Interactive Data.
- PIPEs (private investment, public equity offerings)
- Restatements and Item 4.02 of Form 8-K
- Small business capital raising and private offering reform
An excerpt from Mr White's remarks is below. Click for full text of Mr White's Remarks (PDF 77k).
International Financial Reporting Standards
This is a big one. Last Tuesday (on February 13, 2007), the Commission
issued a press release announcing a staff roundtable we have coming up on
International Financial Reporting Standards ('IFRS') as promulgated by the
International Accounting Standards Board (the 'IASB') The roundtable
will explore where things stand today with the so-called 'roadmap' laid out
by then-Chief Accountant Donald Nicolaisen as to how we might eliminate
the requirement that companies filing IFRS financial statements reconcile
those with US GAAP The roundtable will be held on Tuesday, March 6, at
the Commission's headquarters in Washington.
The Division of Corporation Finance has already been extremely busy
reviewing filings from foreign private issuers that use IFRS. I detailed that
review and where we stand with our growing understanding of IFRS in a
speech I gave last month in London, and I do not have the time to go into
that much detail here today. Suffice it to say, the recognition and growing
use of IFRS is an exciting topic today and something we should all keep in
focus. I believe the Commission and the staff will be devoting considerable
attention and energy following the March 6 roundtable to developing and
announcing next steps, and I believe the time when the staff will
recommend the 'end of reconciliation' is clearly in sight.
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March 2007: SEC roundtable on IFRS 'roadmap'
Mr Cox | 
Mr McCreevy |
On 6 March 2007, the US Securities and Exchange Commission conducted a public roundtable on the IFRS 'roadmap' at its offices in Washington. SEC Chairman Christopher Cox and European Commissioner for the Internal Market and Services Charlie McCreevy both made opening addresses. Their remarks were followed by three panel discussions on topics related to the potential effects of a c-existence of IFRS and US GAAP models in the US capital markets. The programme and excerpts from several presentations are below:
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6 March 2007 US SEC Roundtable on IFRSs |
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10:00 am Opening Remarks
- SEC Chairman Christopher Cox
- European Commissioner for the Internal Market and Services Charlie McCreevy
10:45 am The Effect on the Capital Raising Process in the US Capital Markets
- J. Richard Blackett, Citigroup Global Markets, Inc.
- Neri Bukspan, Standard & Poor's
- Nicolas Grabar, Cleary Gottlieb Steen & Hamilton LLP
- David B. Kaplan, PricewaterhouseCoopers LLP
- Roberta Karmel, Brooklyn Law School
- Catherine R. Kinney, NYSE Group Inc.
- Ken Pott, Morgan Stanley
- Samuel J. Ranzilla, KPMG LLP
1:45 pm The Effect on Investors in the US Capital Markets
- Trevor Harris, Morgan Stanley
- Dennis Johnson, CalPERS
- Gregory J. Jonas, Moody's Investors Services
- Joseph P. Joseph, Putnam Investments
- Christian Leuz, Graduate School of Business, University of Chicago
- Joel S. Osnoss, Deloitte & Touche LLP
- Stephen M. Todd, Ernst & Young Global
3:45 pm The Effect on Issuers in the US Capital Markets
- Meredith B. Cross, Wilmer Cutler Pickering Hale and Dorr LLP
- Robert V. Deere, Royal Dutch Shell plc
- Denis Duverne, AXA
- Phillip R. Jones, E.I. du Pont de Nemours and Company
- Donald T. Nicolaisen, Member of various Boards of Directors and Audit Committees
- William F. Widdowson, UBS AG
Materials related to the roundtable including the day's agenda and a list of participants are accessible at www.sec.gov/spotlight/ifrsroadmap.htm. Real time audio and video webcasts will be accessible at www.sec.gov/news/otherwebcasts.shtml.
Click for SEC Press Release (PDF 36k).
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6 March 2007 US SEC Roundtable on IFRSs |
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SEC Chairman Christopher Cox
- An excerpt from his address:
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The rationale for a global standard, rather than the Babel of competing and sometimes contradictory national standards, has been often stated. But it is so important that it bears repeating. Global accounting standards would improve investor confidence in the market, so long as the standards are high-quality, comprehensive and rigorously applied. They'd allow investors to draw better comparisons among investment options. They'd also lower costs for issuers, who would no longer have to incur the cost of preparing financial statements using different sets of accounting standards. And those lower costs would benefit the company's shareholders, who ultimately bear the burden of the entire cost of the financial reporting system.
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- Click for Chairman Cox's Address (PDF 124k)
EC Commissioner McCreevy
- An excerpt from his address:
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I am convinced accepting IFRS without reconciliation in the US capital markets will have very positive effects. It will bring more openness to capital markets, it will benefit US investors, and it will facilitate access for third country issuers to US financial markets. And contribute to a more coherent global regulatory structure. Let me underline this: this is in the US' interest, just as much as in ours and can and will be done in a way that will benefit and safeguard US investors.
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- Click for Commissioner McCreevy's Address (PDF 71k)
Webcast
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March 2007: SEC concern about 'IFRSs as adopted in...'
In an address in London titled SEC Regulation Outside the United States (PDF 73k), US SEC Commissioner Roel C Campos expressed concern about jurisdictions adopting their own versions of IFRSs and about how few foreign SEC registrants actually refer to conformity with IFRSs as promulgated by the IASB. An excerpt:
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I must, however, focus on one curious aspect of the roadmap in practice, which is the lack of foreign private issuers filing audited financial statements with the SEC that either use or are compliant with IFRS in the manner in which it is issued by the IASB. We had expected to see approximately 300 or so companies file their 2005 financial statements prepared using IFRS. Instead, we received only about 40 filings – hardly a critical mass. This fact is perplexing, given that the early goal is – to quote the roadmap itself – 'to see convergence in action.' So, the question is: why did only 40 companies so file?
The answer is that there are likely a number of different reasons, and our Deputy Chief Accountant Julie Erhardt discussed the possibilities in a speech she gave at the AICPA conference last December. I want to focus on just one of the reasons here, which is that, in many cases, financial statements prepared in accordance with home country adaptation of IFRS did not also contain a reference by both the company and its auditor that the financial statements also complied with IFRS in the form issued by the IASB. Indeed, the roadmap contemplated that we would see filings of financial statements prepared using IFRS as promulgated by the IASB. However, various jurisdictions have not accepted IFRS exactly as promulgated by the IASB, and have instead made various changes thereto. Consequently, as Julie noted, we have seen filings containing financial statements based upon national jurisdictional adaptations of IFRS. In and of themselves, these financial statements certainly fit within the SEC's filing requirements, but without the reference to IFRS as promulgated by the IASB, they do not appear to be financial statements that fit under the one set of global accounting standards that we wrote about in the roadmap.
Now, we certainly understand why a jurisdiction may wish to adopt its own version of IFRS. However, one goal of the roadmap was to allow the elimination of the reconciliation requirement, and as a consequence, have two versions of robust standards developed by independent standard setters in the U.S. capital markets, not thirty different versions. The question then occurs: how do we reach the 'critical mass' – to use a term from the roadmap – of filers using IFRS as promulgated by the IASB? What will happen this year – year two of the roadmap? While the answer is not clear at this time, I think that serious discussion by issuers with their auditors may be necessary. I am hopeful that auditors could prepare opinions stating that the audited financial statements were prepared according to IFRS as promulgated by the IASB, and not solely the 'Jurisdiction X IFRS'. In any event, we need to get to the bottom of this issue, and see more companies filing audited financial statements in the manner contemplated by the roadmap. My bottom line, though, is that the roadmap is going well overall and that we will achieve our objectives.
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April 2007: US SEC announces next steps re IFRSs
The United States Securities and Exchange Commission has announced two steps it intends to take relating to the acceptance of International Financial Reporting Standards (IFRSs):
- The Commission plans to issue a Proposing Release this summer requesting comments on proposed changes to the Commission's rules to allow the use of IFRSs in financial reports filed by foreign private issuers registered with the Commission. Foreign private issuers would be given a choice between IFRSs and US GAAP. The proposal would address eliminating the current requirement that IFRS filers include a reconciliation to US GAAP amounts beginning in 2009.
- In addition, the Commission plans a Concept Release relating to issues surrounding the possibility of treating US and foreign issuers similarly in this respect by also providing US issuers the alternative to use IFRSs.
Comments on both would be due in the autumn. Click for SEC Press Release (PDF 34k).
June 2007: SEC proposes to drop reconciliation for IFRS registrants
On 20 June 2007, the US Securities and Exchange Commission agreed to issue a 'proposing release' that would eliminate the requirement to reconcile financial statements to US GAAP if the financial statements are in full compliance with the English language version International Financial Reporting Standards (IFRSs) as published by the International Accounting Standards Board. This proposed approach would give foreign private issuers a choice of using IFRSs without reconciliation, US GAAP, or their local GAAP reconciled to US GAAP in preparing financial statements that are filed with the SEC either in a registration statement or an annual report. The changes would apply starting with their 2008 annual reports, which would be filed in 2009. The release is expected to be posted within the next week or so and will have a 75-day comment period. Michael D Coco, Special Counsel in the SEC's Office of International Corporate Finance, outlined the proposal to the Commission. Click to Download Mr Coco's Remarks (PDF 37k).
Also, the SEC is expected to issue during the next several months a 'concept release' targeted at US domestic issuers. That release will invite comments on whether US issuers should be permitted to use IFRSs in preparing their financial statements. On the basis of the feedback it receives, the Commission will consider whether to issue a proposing release changing the requirements for domestic companies. That release could come in 2008 or 2009.
June 2007: SEC panel on streamlining financial reporting
The US Securities and Exchange Commission is forming an advisory committee to study the US financial reporting system. The SEC Advisory Committee on Improvements to Financial Reporting will study the causes of complexity and recommend to the Commission how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting. The advisory committee will focus on the following areas:
- the current approach to setting financial accounting and reporting standards;
- the current process of regulating compliance by registrants and financial professionals with accounting and reporting standards;
- the current systems for delivering financial information to investors and accessing that information;
- other environmental factors that drive unnecessary complexity and reduce transparency to investors;
- whether there are current accounting and reporting standards that impose costs that outweigh the resulting benefits, and
- whether this cost-benefit analysis is likely to be impacted by the growing use of international accounting standards.
The committee will be chaired by Robert Pozen, the former vice chairman of Fidelity Investments, and will include 13 to 17 members to be named in the next couple weeks, The group is expected to issue a final report in August 2008. The new SEC advisory group will include an observer from the International Accounting Standards Board. Click for:
July 2007: SEC releases its proposal to drop the reconciliation for IFRS filers
On 2 July 2007, the SEC published the text of its proposal to accept from foreign private issuers their financial statements prepared in accordance with International Financial Reporting Standards ('IFRS') as published by the International Accounting Standards Board ('IASB') without reconciliation to generally accepted accounting principles ('GAAP') as used in the United States. The proposal would amend Form 20-F and make conforming changes to Regulation S-X to accept financial statements prepared in accordance with the English language version of IFRS as published by the IASB without reconciliation to US GAAP when contained in the filings of foreign private issuers with the Commission. The proposal notes that "current requirements regarding the reconciliation to U.S. GAAP will not change for a foreign private issuer that uses a basis of accounting other than the English language version of IFRS as published by the IASB".
Click to Download the SEC Proposal (PDF 296k). There is a 75-day comment period. The proposal includes a link for submitting comments electronically.
July 2007: SEC seeks views on use of IFRSs by US listed companies
On 25 July 2007, the US Securities and Exchange Commission voted unanimously to publish a Concept Release for public comment on whether to allow US issuers, including investment companies, to prepare their financial statements using International Financial Reporting Standards (IFRSs) as published in English by the International Accounting Standards Board. Under the SEC's current rules, US issuers are required to follow US GAAP). The Concept Release is an information-seeking document that describes the policy issues and, in the form of questions, seeks public input regarding the possibility of allowing US issuers to report under IFRSs. The comment period will be for 90 days after the Concept Release is published in the Federal Register. The Concept Release has not yet been posted on the SEC's website. In introducing the proposal to the Commission, SEC Chairman Christopher Cox said:
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This morning, we are considering publishing a staff Concept Release that solicits public comment on the future role of IFRSs in US markets and asks whether US issuers should be permitted to use IFRSs for purposes of complying with our rules and regulations. In some respects, this is the mirror image of allowing foreign private issuers to file IFRS financial statements without reconciling their financial statements to US GAAP, in that it would give US issuers the same choice that foreign private issuers would have. Such a concept would also touch potentially every aspect of the US capital markets – from how US accountants are educated and trained, to how US issuers prepare their financial statements, to how US investors understand financial statements, and to how accounting standards are developed and interpreted to apply to US companies.
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September 2007: We support SEC's proposal to eliminate the reconciliation
On 24 September 2007, Deloitte submitted a letter supporting the SEC's Proposed Rule, Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance With IFRSs Without Reconciliation to US GAAP. We do suggest, however, that when a non-US registrant uses local GAAP or a 'jurisdictional version' of IFRSs, it should be permitted to reconcile to IFRSs as an alternative to reconciling to US GAAP. Here is our overall view:
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We agree with the Commission's proposal to eliminate the US GAAP reconciliation for foreign private issuers that use IFRSs and believe that it is an important step toward developing a single set of globally accepted accounting standards. We note, however, that there may be issues in certain jurisdictions with the proposal that use of IFRSs is required if a company wishes not to reconcile to US GAAP. In European countries, for example, endorsement or approval of IFRSs by local authorities is required before such standards can be applied. Consequently, when a foreign private issuer is required to
follow the 'jurisdictional version' of IFRSs in describing how it has prepared its financial statements, it may not be able to make an explicit and unreserved statement of compliance with IFRSs because certain standards have not yet been endorsed or approved by the local authority.
Given these constraints, we believe that the Commission should consider allowing foreign private issuers that use local GAAP (including jurisdictional IFRSs) to reconcile to IFRSs instead of US GAAP, which would give them a choice of one of the following:
- US GAAP
- IFRSs
- Local GAAP (including jurisdictional IFRSs) reconciled to either US GAAP or IFRSs
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September 2007: SEC Commissioner speaks on global accounting convergence
At a recent conference in the United States, Commissioner Kathleen L. Casey of the US Securities and Exchange Commission spoke about the SEC's role in support of international financial reporting convergence – development of a "single set of high-quality global accounting standards that promise to produce significant benefits for investors, issuers, and our markets as a whole". Click to Download Commissioner Casey's Remarks (PDF 74k). Among other things, Commissioner Casey spoke about eliminating the IFRS-US GAAP reconciliation, the need for consistent and faithful application of IFRSs, the need for converged global audit standards and auditor oversight, and the need for a long-term funding mechanism for the IASB. An excerpt:
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If the Commission decides to eliminate the reconciliation requirement, it will be a major change. Some commenters see the elimination of reconciliation as an accommodation that would merely reduce costs for the relatively small number of foreign issuers registered in the United States. But in my view, eliminating reconciliation would be a watershed event. It would represent a much more significant recognition on the part of the Commission of the need and desirability of continuing down the path of convergence efforts towards the ultimate goal of the development of a single set of global accounting standards.
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September 2007: SEC staff comments on implementation and enforcement of IFRSs
In remarks presented at the IASB's conference with world standard setters on 24 September 2007 in London, Julie A Erhardt,
Deputy Chief Accountant of the US Securities and Exchange Commission, addressed Implementation and Enforcement of IFRSs (PDF 50k). Here is an excerpt:
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I offer three observations related to keeping IFRS 'healthy':
- My first 'healthy habit' observation relates to square one of financial reporting, which is whether investors can determine the basis of accounting under which a set of financial statements is prepared by reading the basis of presentation footnote, which is typically footnote 1.... In today's environment I would suggest that the safe bet is not so safe because more and more often a company's financial statements are likely to be prepared in accordance with IFRS as published by the IASB and/or a jurisdictional adaptation of IFRS. Even in these situations an investor may not be sure what the distinction between the two means and how significant it is for a particular company.
- My second 'healthy habit' observation relates to whether and how those who identify rough spots in IFRS in implementing it locally can – for the good of the international order – make those rough spots knowable on a timely basis to not just the IASB but also to the other parties working with IFRS around the world?
- My third 'healthy habit' observation relates to how to make IFRS as a body of standards robust and adequate for investors' purposes, yet at the same time somehow nimble and not overly complex.
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October 2007: US Senate Subcommittee holds hearings on IFRSs
On 24 October 2007, the US Senate Subcommittee on Securities, Insurance, and Investment conducted a hearing on International Accounting Standards: Opportunities, Challenges, and Global Convergence Issues. Among those who testified were:
An excerpt from Sir David's statement:
The movement towards IFRSs is truly global and extends well beyond Europe's borders. More than 100 countries throughout the world – 108 according to the latest Deloitte IASPlus survey – require or permit the use of IFRSs. From our discussions with regulators and standardsetters, we expect this number to rise substantially within a relatively short time. As I said, the EU's adoption served as a catalyst. Australia, Hong Kong, New Zealand, and South Africa all joined Europe as early adopters. The major emerging and transition economies of the world – Brazil, China, India, and Russia – are adopting or considering the adoption of IFRSs, not US GAAP, in an effort to become integrated in the world's capital markets and attract the investment necessary to finance their development. Similarly, Canada, Chile, Israel and Korea, economies
with significant ties with the United States, have all recently announced their planned abandonment of national standards for IFRSs. |
Charles E. Landes, Vice President for Professional Standards and Services of the American Institute of Certified Public Accountants (AICPA) also addressed the subcommittee. His testimony expressed the AICPA's strong support for eliminating the SEC's IFRS-US GAAP reconciliation and for allowing US issuers to use IFRSs. Excerpts:
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I want to state as directly as possible that the AICPA supports the goal of a single set of high-quality, comprehensive accounting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world. The debate or question should no longer be whether we move to convergence of high quality accounting standards, but how soon we can accomplish convergence....
The AICPA supports the elimination of the US GAAP reconciliation for foreign private issuers using International Financial Reporting Standards....
The AICPA supports giving US issuers an option to prepare financial statements in accordance with IFRSs as published by the IASB for purposes of complying with the rules and regulations of the SEC. Giving US issuers such an IFRS option will be yet another important step towards achieving the larger goal of a single set of high quality, comprehensive accounting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world.
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October 2007: 20% of US companies would consider using IFRSs if allowed
Preliminary results of a new survey by Deloitte & Touche LLP (USA) show that approximately 20 percent of CFOs and senior finance professionals (representing approximately 300 US companies) would consider adopting International Financial Reporting Standards, if given a choice by the US Securities and Exchange Commission. Approximately two-thirds of those companies would consider adopting IFRSs within the next three years. Survey results also indicate that companies believe their personnel lack sufficient knowledge of IFRSs to make the conversion and to maintain IFRS financial statements, both among domestic and non-US operations. More than half those companies considering IFRS say they lack skilled resources in their US operations, while approximately one-third felt they lacked skilled resources in their non-US operations.
Click for Survey Announcement (PDF 23k). A more detailed report on the survey is expected to be available in late November 2007, which we will post on IAS Plus.
November 2007: US SEC will vote on dropping the IFRS reconciliation
At its public meeting in Washington on Thursday, 15 November 2007, the US Securities and Exchange Commission will vote on whether to allow foreign companies to submit financial statements to the Commission using International Financial Reporting Standards (IFRS), without reconciling the data to US Generally Accepted Accounting Principles. The Commission had made this Proposal in July 2007. Here is an excerpt from the Commission's Meeting Notice:
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The Commission will consider whether to adopt amendments to Form 20-F, Rules 1-02, 3-10 and 4-01 of Regulation S-X, Forms F-4 and S-4, and Rule 701 under the Securities Act to accept financial statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board without reconciliation to generally accepted accounting principles as used in the United States when contained in the filings of foreign private issuers with the Commission.
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November 2007: FASB response to SEC on use of IFRSs in the United States
In a Letter to the US Securities and Exchange Commission (PDF 146k) signed jointly by the Chairmen of the FASB and its oversight Foundation, the two bodies have recommended that the SEC wait on removing the requirement that foreign companies using IFRSs submit a reconciliation of earnings and equity to US GAAP figures until two things have happened:
- Agreement in the United States on a 'blueprint' for allowing US domestic companies to use IFRSs, and
- Commitment by key international parties to undertake the steps necessary to strengthen and sustain the IASB as the independent body responsible for establishing high-quality international standards.
They also expressed support for:
- Requiring all US public companies to use 'an improved version of International Financial Reporting Standards' rather than allowing a choice of US GAAP and IFRSs.
- Removing the reconciliation requirement only for companies applying IFRS as adopted by the IASB, rather than jurisdictional variations.
An excerpt:
The views contained in our letter can be summarized in the following four main points:
- Investors would be better served if all US public companies used accounting standards promulgated by a single global standard setter as the basis for preparing their financial reports. This would be best accomplished by moving US public companies to an improved version of International Financial Reporting Standards (IFRS). We believe
permitting extended periods of choice between US Generally Accepted Accounting Principles (GAAP) and IFRS results in a two-GAAP system that creates unnecessary complexity for investors and other users of financial information. Permitting choice
would add to the overall complexity of our reporting system.
- We, the SEC, and other affected parties should work together to develop a transition plan or 'blueprint' for moving US public companies to IFRS. As noted in the Concept Release, a move to IFRS by all US public companies would be a complex, multi-year endeavor. The US needs a blueprint that provides an orderly move to IFRS that minimizes the disruptions and costs to capital market participants and to other US entities that use FASB standards.
- The blueprint should identify a target date or dates for completing the transition to IFRS along with interim milestones. The target date should allow adequate time to make the many necessary changes to the various elements of the US financial
reporting infrastructure (auditing standards, GAAP-based regulations, education systems, licensing requirements, etc).
- The blueprint should identify the areas of IFRS that should be improved during the period of transition to IFRS by US public companies. We believe the best way to make those improvements would be through the continued joint development of common standards by the International Accounting Standards Board (IASB) and the FASB. To complete the move to IFRS, the blueprint should outline the process by which we would adopt IASB standards in other areas 'as is'.
- The SEC should seek international cooperation to identify and implement changes we believe are necessary to sustain the IASB and to secure it as the independent global body that establishes high-quality international accounting standards. In particular:
- Mechanisms should be established to provide the IASB with sufficient and stable funding and staffing levels, thereby ensuring its sustainability as an independent setter of high-quality accounting standards.
- Agreements are needed to eliminate the separate review and endorsement processes that various jurisdictions apply to each IFRS after it is issued by the IASB. These after-the-fact jurisdictional processes are inconsistent with the
objective of a single set of high-quality international accounting standards, as evidenced by the local variants of IFRS that have developed in some jurisdictions. Jurisdictions, including the US, need to make their views known as part of the IASB's due process rather than after the standards are issued.
International cooperation in these two areas is needed to foster the sustainability of the IASB as a global standard setter and to ensure that IFRS, as promulgated by the IASB, becomes and continues to be a single set of high-quality international accounting standards. If the recommended changes in these two areas are not made, we believe the benefits from transitioning US public companies from our well-established financial reporting system to IFRS could decrease dramatically.
- The removal of the requirement that foreign private issuers reconcile their reported results to US GAAP is a difficult and sensitive issue that could have important implications for the continued development of a truly international financial reporting system. We suggest the timing of any removal of this requirement should coincide with the following:
- Development of and commitment to the blueprint by key parties in the US; and
- Commitment by key international parties to undertake the steps necessary to strengthen and sustain the IASB as the independent body responsible for establishing high-quality international standards.
We strongly agree with the SEC that the reconciliation requirement would be removed only for companies applying IFRS as adopted by the IASB.
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November 2007: Deloitte supports allowing US issuers to use IFRSs
Deloitte has submitted a letter responding to the SEC's 25 July 2007 Concept Release, Allowing US Issuers to Prepare Financial Statements in Accordance With International Financial Reporting Standards [see news item above dated July 2007]. We strongly support the ultimate goal of having a single set of globally accepted accounting standards that all US issuers could use. To that end, we believe that the SEC should develop a comprehensive plan to eventually transition all US issuers to IFRSs. We believe that in the interim, giving US issuers the option to use IFRSs in preparing their financial statements will facilitate movement toward a single set of standards. We support the SEC's permitting this option as soon as feasible, provided that there is sufficient time for preparers, auditors, and users to be educated and trained on IFRSs. Click for Deloitte Letter to the SEC (PDF 71k).
November 2007: US SEC votes to drop the IFRS reconciliation
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At its public meeting in Washington on Thursday, 15 November 2007, the US Securities and Exchange Commission voted to allow foreign companies to submit financial statements to the Commission using International Financial Reporting Standards (IFRSs) as adopted by the IASB* without having to include a reconciliation of the IFRS data to US Generally Accepted Accounting Principles. The Commission had made this Proposal in July 2007. The rule amendments will take effect 60 days after they are published in the Federal Register and apply to financial statements covering years ended after 15 November 2007. Statements welcoming the SEC's decision were issued by
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Below is an excerpt from the SEC's Public Announcement (PDF 30k) on eliminating the reconciliation:
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Having considered extensive and informative public comment on its June 2007 proposal, the Commission today approved rule amendments under which financial statements from foreign private issuers in the US will be accepted without reconciliation to US Generally Accepted Accounting Principles only if they are prepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The purpose of the requirement to use the IASB-approved version is to encourage the development of IFRS as a uniform global standard, not a divergent set of standards applied differently in every nation. Consistency of application of IFRS will help US investors who own foreign securities to have better comparability.
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*The SEC has provided a temporary exception for foreign private issuers that use the version of IFRSs that includes the European Commission's 'carve-out' for IAS 39. Such issuers will be allowed to use that version in preparing their financial statements for a two-year period as long as a reconciliation to the IASB's version of IFRSs is provided. After the two-year period, those issuers will either have to use the IASB's version of IFRSs or provide a reconciliation to US GAAP.
December 2007: SEC issues final rule on IFRS reconciliation
On 21 December 2007, the SEC issued its final rule on Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to US GAAP. The rule includes amendments to Form 20-F, conforming changes to Regulation S-X, and conforming amendments to other regulations, forms, and rules under US securities laws. The rule notes that the SEC continues to require the reconciliation for a foreign private issuer that files its financial statements with the Commission using a basis of accounting other than IFRS as issued by the IASB, with one exception. The exception relates to foreign private issuers that use the version of IFRSs that includes the European Commission's 'carve-out' for IAS 39. Such issuers will be allowed to use that version in preparing their financial statements for a two-year period as long as a reconciliation to the IASB's version of IFRSs is provided. After the two-year period, those issuers will either have to use the IASB's version of IFRSs or provide a reconciliation to US GAAP. The new rule is effective 4 March 2008.
Click to download the SEC's Final Rule Release (PDF 690k).
December 2007: The SEC holds two IFRS roundtables
On 13 and 17 December 2007, the SEC hosted two roundtable discussions on the potential use of IFRSs in the United States. Those roundtables were in response to:
- the SEC's recent issuance of a Concept Release soliciting input on whether US issuers should be permitted to use IFRSs in preparing their financial statements, and
- the SEC's recent decision to Eliminate the US GAAP Reconciliation Requirement for foreign private issuers using IFRSs.
The roundtable participants comprised various constituents, including financial intermediaries, investors, and issuers. The roundtables addressed the effect of giving US issuers the choice of using IFRSs or US GAAP on the capital markets and on competition. Practical issues concerning the possible use of IFRSs by US issuers and the impact on investor protection also were addressed. Issues were addressed from both the US market's perspective and the global perspective. The 18 December 2007 edition of the Heads Up Newsletter (PDF 114k) from Deloitte & Touche LLP (United States) has details.
January 2008: SEC Chairman Cox sees IFRSs as the single global standard
US SEC Chairman Christopher Cox spoke on International Business – An SEC Perspective (PDF 74k) at the American Institute of Certified Public Accountants' International Issues Conference last week in Washington. Chairman Cox's remarks covered three broad issues arising from the growing integration of the world's capital markets:
- IFRSs as the single, world-wide accounting standard [an excerpt is in the box below]
- the synergies between IFRSs and XBRL in making financial information understandable to investors and creditors globally
- the need for globally coordinated regulation of cross-border activities of broker-dealers and securities markets.
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Our policy work on IFRS is currently focused on evaluating its potential role in the US capital markets. This is the logical culmination of work the Commission has been doing ever since we tackled the problem of the divergence of national accounting standards in 1981, by instituting the US GAAP reconciliation requirement in the first place. At the time, the Commission thought the reconciliation requirement was a temporary solution, while the real solution lay in reducing the divergence itself. We've carried the mantle of convergence ever since.
That's why our recent decision to accept IFRS financial statements in SEC filings was crafted in such a way as to support the efforts of the IASB, and many other nations, to establish IFRS as a single, global set of standards, and not so many national flavors.
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Accounting Roundup is a newsletter published by Deloitte & Touche LLP (USA) summarising selected recent accounting and financial reporting developments in the United States of America (including FASB, GASB, EITF, SEC, AICPA, PCAOB, and IASB), with Internet links where appropriate. Accounting Roundup is published periodically as developments warrant (generally monthly, with the March, June, September, and December issues being a quarterly review).
