The issue of the SEC papers signals that the end of the process is near. As the main US market regulatory body, it is due to provide an indication over the next several months of how, or if, the US system of financial reporting could join with much of the rest of the world in using International Financial Reporting Standards, (IFRS). The papers cover the work the SEC staff has been doing to compare US GAAP and IFRS and analyse the way IFRS work in practice. And both come packed with useful information and insight. But often, if you are trying to assess what may happen next, it is the tone of the documents which carries the message. And both these staff papers are emollient and neutral in tone.
To take the analysis further you find that the word 'may' crops up frequently. It is a word which is useful in such a context because it can be used, particularly when comparing two different systems, to show how fair you are being, to show how you are leaning over backwards, perhaps, to be fair to both.
Take some examples: 'The differences included in this paper may not necessarily be presumed to have a direct or consistent correlation to the quality of IFRS'. Or: 'However, while potentially noted as a difference in the text of the two sets of standards, the absence of specific IFRS guidance may not indicate a complete absence of guidance under IFRS'. Or: 'The abundance of specific guidance in US GAAP may contribute to consistency in application, for example, across entities operating in a particular industry but does not always result in comparability across industries'. Or, as a follow-up to that: 'In the absence of industry- and transaction-specific guidance, preparers of IFRS financial statements follow the general principles of IFRS, which may help to promote broader consistency across industries'.
Gradually the picture builds. There is a continuous stress on being even-handed. And this allows both papers to be neutral without providing a specific direction of travel. The staff observed that "the transparency and clarity of the financial statements in the sample could be enhanced" and "diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries". The staff did acknowledge that diversity can be attributed to a number of factors, including options in standards or the absence of guidance. The paper on IFRS in practice goes out its way to suggest that what the staff found in their analysis did not necessarily mean that there were problems. At one point the paper says that the staff found that they could not work out quite how IFRS had been applied in particular situations because the disclosures did not provide the staff with all the information they would have needed for that task. Almost immediately they make the point that this may have nothing to do with any deficiency in the system given the emphasis of financial statements on providing information to an investor, rather than SEC staff, audience.
This is how the staff paper expressed this: 'The Staff does not intend to suggest that disclosures in these instances were necessarily deficient or that the disclosures should have been prepared with the purpose of communicating to a regulator the manner in which a company complies with a set of accounting standards. The Staff recognizes that financial statements are intended to facilitate investor decision-making, and additional information that would have benefited the Staff in this analysis may be of less incremental value to an investor'.
By and large what the staff finds is that financial statements generally appeared to comply with IFRS requirements, particularly when it comes to the more serious players, companies which are SEC registrants and already submit to SEC supervision. These two papers are fact-finding missions, put together with care and scrupulous attention to being objective. It was not their job to come to specific conclusions which might point the way to future action. Now we wait until the SEC makes their decision.