All this year the SEC has been diligently dealing with its "Work Plan". This is the mammoth amount of work whose purpose, as the SEC puts it: "is to consider specific areas and factors relevant to a Commission determination of whether, when, and if so, how our current financial reporting system for US issuers should be transitioned to a system incorporating International Financial Reporting Standards, (IFRS)".
The sort of things they are looking at are the independence of the IFRS standard setting process, how the US regulatory process might be affected, the impact on issuers, and investor understanding, and so on. And the work has been painstaking and the due process scrupulously observed. In early October the SEC promises to publish a progress report, with a decision on future actions to follow sometime next year.
Last weekend in Rome, at a meeting of National Standard Setters from around the world, both of the two accounting chiefs at the SEC gave a measured update of that progress. Jim Kroeker, Chief Accountant, Office of the Chief Accountant, and Paul Beswick, Deputy Chief Accountant, Office of the Chief Accountant, provided a Saturday morning session on "Convergence and Global Accounting Standards". Even before they spoke there was speculation about their presence. They didn't, as one standard setter said, have to be there. The fact they are coming to talk to us is very interesting, he said.
And the impression given was that it was all part of a process to show that the SEC is working very hard on the work plan and want to make sure that they have covered all the bases. They obviously, said an observer at the meeting, wanted to be able to have done all their homework so that when they do make a decision it is solidly based.
With the growing number of countries, (120 and rising), using IFRS as their financial reporting language around the world, most at the meeting felt it would be inexplicable if an economy as large as the US did not join in. Both Kroeker and Beswick, while staying appropriately neutral, provided a thoroughly constructive presentation and forum. And neither of them, in the words of one of those present, gave the impression of being depressed at progress or indicated any adverse feeling.
They didn't, said one attendee, give you the impression that they had come across any insurmountable problems. One of the perennial issues has been the question of the governance of the IASB. The SEC work plan includes "a review of the functioning of the IASB's governance structure and developments to secure a stable, broad-based source of funding". This is to assess "whether these factors promote standard-setting that is accountable, independent, and free from undue influence that could affect the ability of US investors to receive full, fair, and reliable disclosure".
And according to those present at the Rome presentation when the governance question was raised the answer was that the SEC was happy with the IASB's governance now but worried about political pressure in the future. But it was made clear that exactly the same feelings were felt about the US standard-setter, the FASB.
The SEC has a very difficult political game to play. It knows that with the G20 group of global finance ministers continually reiterating their call for international standard-setters to redouble their efforts to achieve a single set of high-quality global accounting standards, and with the overwhelming numbers of major world economies taking the IFRS route, it will become harder and harder to stay outside the IFRS fold. But at the same time the heartland of smaller US corporates remain deeply conservative and sceptical. It is the balance of these two ends of the spectrum which the SEC is trying to achieve.
There is a long way to go. But in the Rome sunshine optimism was in the air.
Robert Bruce
September 2010
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