February 2000: SEC Concept Release on International Accounting Standards
In February 2000, the United States Securities and Exchange Commission issued a Concept Release on International Accounting Standards (File No.S7-04-00). The comment period closed on 23 May 2000. A key issue for the SEC is to determine under what conditions the Commission should "accept financial statements of foreign private issuers that are prepared using the standards promulgated by the International Accounting Standards Committee". One outcome may be issuance of a rule proposal for public comment, which may include modifications of the financial statement requirements for registration and reporting forms utilized by foreign private issuers, such as Forms F-1 and 20-F. Another outcome could be retention of the status quo.
The response of Deloitte Touche Tohmatsu to the SEC Concept Release on International Accounting Standards can be summarised as follows:
We believe the immediate requirement for high quality and transparency can be substantially achieved without hindering the long-term objective of harmonization by providing:
- narrative disclosure of significant areas of difference,
- partial reconciliation by quantifying the impact of specified important areas of differences, and
- an emphasis paragraph in the auditors' report.
The proposed emphasis paragraph is the following:
As described more fully in Note X to the financial statements, International Accounting Standards differ in some respects from accounting principles generally accepted in the United States of America. The impact on net income and equity is disclosed in Note X for specified areas of differences. A complete reconciliation to US GAAP is not presented. These differences may affect comparisons of these financial statements prepared in accordance with International Accounting Standards and financial statements prepared in accordance with accounting principles generally accepted in the United States of America.
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The Deloitte Touche Tohmatsu approach is based on the view that use of IFRS by foreign registrants in the United States will promote its use globally. It also will provide an impetus to reduce differences in accounting standards between US GAAP and IFRS, and lead to greater harmonization of accounting standards throughout the world. A single set of high quality global accounting standards promotes confidence in capital markets, decreases cost of capital, and promotes efficiency of the markets. Until such single set of global accounting standards exists, a judgment will have to be made about the extent to which reconciliation to US GAAP will be required for entities that list in the United States and report their financial results using IFRS. Differences between IFRS and US GAAP can be identified objectively. However, the consequences of those differences are subject to considerable debate. For example, IFRS do not contain as much detailed guidance as US GAAP, which contains so much detailed guidance that the concepts underlying the standards can be circumvented by structuring transactions to achieve desired accounting results.
For details on the specific implementation of our recommendations for balancing the different objectives, please see the Deloitte Touche Tohmatsu Comment Letter to the SEC.
15 February 2002: Support for IASB from former SEC Chairmen
Five former SEC Chairmen (Roderick M. Hills, Harold M. Williams, David Ruder, Richard C. Breeden, and Arthur Levitt, Jr.) testified at the US Congressional committee hearing on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies". You can download each Chairman's statement here:
Opening Statements of Committee Members:
Among the points made by the former SEC Chairmen:
- Chairmen Breeden and Levitt supported giving the SEC the authority to adopt other standards when it finds shortcomings in FASB's standards. Chairman Breeden said: "the SEC should be able to adopt International Accounting Standards or standards drafted by other authorities, as well as its own staff, where it finds that FASB standards are not in the interest of investors. The FASB is too slow, standards are too complex, and it is not sufficiently accountable for action."
- In his oral testimony, Chairman Levitt praised IASB's willingness to tackle expense recognition for stock options.
- Chairman Breeden expressed a preference for IASB's "Ten Commandments" approach to principle-based standards in contrast to FASB's "cookbook" approach.
- Chairman Williams noted: "Rule making itself is very difficult particularly as financial activity and economic transactions become increasingly complicated and sophisticated. For example, the FASB has engaged for a number of years in an effort to create a clear standard for disclosing off-the-books transactions and special purpose entities. They have not been able to come up with a rule acceptable to the business community and the profession. That acceptability should not ultimately be the determining factor."
 You can view a Video Recording of the entire hearing (RealPlayer 5.0 or higher required).
September 2004: SEC Chief Accountant comments on IFRS reconciliation
In his remarks at the IASB meeting with world standard setters on 28 September 2004, US SEC Chief Accountant Donald T. Nicolaisen commented on IASB-FASB convergence activities and the possibility of eliminating the SEC's requirement that foreign registrants using IFRS also submit a reconciliation of earnings and equity to US GAAP. Click to download Mr. Nicolaisen's Remarks (PDF 53k).
April 2005: SEC Amends Form 20-F for First-time IFRS Adopters
In April 2005, 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 IFRS 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. The SEC Press Release (PDF 29k) says that "the Commission is adopting these amendments to promote and encourage the use of IFRS as a high quality set of accounting standards." Click for Final SEC Rule (PDF 212k). 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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Subsequent to adopting the above final SEC rule on first-time adoption of IFRSs, several implementation questions have arisen. To promote consistency in applying the SEC rule and reducing uncertainties foreign private issuers may face during the transition year, the AICPA International Practices Task Force developed a series of frequently asked questions based on discussions with the SEC staff. The SEC staff has indicated that it does not object to the views expressed herein. The Deloitte July 2005 GOS Newsletter (PDF 382k) has an appendix containing the full text of the Q&As.
April 2005: SEC Delays FASB's Stock Option Rule
On 14 April 2005, the US Securities and Exchange Commission deferred the compliance dates for FASB Statement 123 (revised 2004), Share-Based Payment. Under FAS 123R, registrants would have been required to implement the standard as of the beginning of the first interim or annual period that begins after 15 June 2005 (after 15 December 2005 for small businesses). For a calendar year-end company, this would have meant initial adoption of FAS 123R in their third quarter 2005 reports. The Commission's new rule allows companies to implement FAS 123R at the beginning of their next financial year that begins after 15 June 2005 (15 December 2005 for small businesses). An SEC registrant other than a small business with a 30 June 2005 year-end, however, must comply with FAS 123R starting with its interim financial statements for the quarter beginning 1 July 2005. The Commission's new rule does not change the accounting required by FAS 123R – only the dates for compliance with the standard. FAS 123R, like IFRS 2, requires companies to recognise the fair value of stock options given to employees as compensation expense. IFRS 2 went into effect on 1 January 2005. Click for SEC Press Release (PDF 29k).
April 2005: SEC 'Roadmap' to Eliminating IFRS Reconciliation
William Donaldson, Chairman of the US SEC, and Charles McCreevy, EU Internal Market Commissioner, met on 21 April 2005 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 states:
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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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April 2005: 'A Securities Regulator Looks at Convergence'
The US Securities and Exchange Commission has 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 237k).
December 2005: SEC International Director Speaks about the Reconciliation and Convergence
Ethiopis Tafara, Director, Office of International Affairs of the US Securities and Exchange Commission, discussed the SEC's 'roadmap' of milestones toward elimination of the US GAAP reconciliation requirement for IFRS filers in remarks at an IFRS seminar sponsored by the European Federation of Accountants in Brussels on 1 December 2005. An excerpt:
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We do not expect full or even a finite degree of convergence before we are willing to eliminate the reconciliation requirement. What is important is that investors in the United States be able to understand financial statements prepared under IFRS. While convergence between IFRS and US GAAP will certainly help us all in reaching that goal, it is clearly possible for US investors to understand financial statements prepared using a rigorously applied system of IFRS, even if there remain differences between IFRS and US GAAP.
Accordingly, we do not expect an artificially paced standard-setting work targeted at a specific level of convergence before eliminating the reconciliation requirement. That said, before eliminating the requirement, the Commission likely will be keen to see that a robust process for converging IFRS and US GAAP is in place and active. This will help make sure that, going forward, both sets of accounting standards will converge rather than diverge. Of course, the only way to judge the effectiveness of a process is through the results it generates. This means that, before the reconciliation requirement can be eliminated, the Commission will need to review the progress of the IASB/FASB convergence project and will look for convergence of standards that reflect a sense of priority and a measure of efficiency.
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Click to download Mr. Tafara's Speech (PDF 71k)
At the same conference, Charlie McCreevy, the European Commissioner for Internal Market and Services, spoke about the EC Strategy on Financial Reporting: Progress on Convergence and Consistency at the European Federation of Accountants' (FEE) Seminar on International Financial Reporting Standards in Brussels on 1 December 2005. Here is an excerpt:
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It is my firm belief that accounting standards should be international and be used across the globe. We have committed to use IFRS, but other important markets – notably the US – have not yet done so.
Our interest in the acceptance of IFRS in the US is of course not purely altruistic. Today there about 250 EU issuers listed in the US using IFRS. The cost of the current US GAAP reconciliation requirement is enormous. I have heard estimates of between 1 and as much as 10 million dollars for the largest companies. And that is every year. But the story does not end here. There are many companies from other jurisdictions who also have US listings and use IFRS.
That is why I think my agreement earlier this year with the former SEC Chairman, Bill Donaldson, and the SEC roadmap to remove the US GAAP reconciliation requirement is so important. This Roadmap means that IFRS could be accepted in the US no later than 2009, or even sooner.
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Click to download Commissioner McCreevy's Remarks (PDF 74k).
March 2006: SEC Commissioner discusses the 'roadmap'
In her remarks before the Institute for International Bankers Annual Conference in Washington on 13 March 2006, US SEC Commissioner Annette L. Nazareth discussed "the prospect of convergence of US and EU accounting standards". Her comments addressed the adoption of International Financial Reporting Standards as the single accounting standard in the EU and the principles underlying the 'roadmap' by which the Commission is considering accepting IFRS as a primary accounting system without requiring reconciliation to US GAAP. Click to download Commissioner Nazareth's Speech (PDF 53k). An excerpt:
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How the Commission arrived at a reconciliation requirement is rooted in two fundamental policy considerations. One is consistency, that is, the investing public in the United States needs the same type of basic information disclosed for an investment decision regardless of whether the issuer is foreign or domestic. This view suggests that foreign registrants be subject to exactly the same requirements as domestic ones. The other policy consideration is that it is in the public interest to permit US investors the opportunity to invest in a broad array of securities, including foreign securities. This suggests that the Commission avoid overly burdensome requirements on foreign issuers. According to this reasoning, the public interest would be better served by encouraging foreign issuers to register their securities with the Commission.
These same considerations are at the heart of the determination of a reconciliation requirement. Thus the roadmap focuses on whether foreign private issuer financials prepared under IFRS, without reconciliation to US GAAP, will achieve the goal of opening our markets further while remaining consistent with the objective of providing disclosure of comparable quality, transparency, and usefulness.
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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: SEC Commissioner speaks about IFRSs
Kathleen L. Casey, the newest member of the US Securities and Exchange Commission, spoke about International Financial Reporting Standards in her remarks at the Practicing Law Institute's SEC Speaks conference. Click for Commissioner Casey's Remarks (PDF 47k). An excerpt:
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Likewise, as you have just heard from the prior panel, the Commission is committed to the roadmap announced in 2005 that sets out a timeline for the Commission's consideration of the various steps necessary to make a determination on the elimination of the reconciliation requirement for foreign private issuers that use International Financial Reporting Standards ('IFRS'). As we begin Year 2 of IFRS, we are working through application issues with foreign issuers and continue dialogue with international regulators to analyze the faithfulness and consistency of the application and interpretation of IFRS in financial statements.
We also continue to monitor the progress of the IASB and FASB in their convergence projects. I strongly support these efforts and am committed to identifying issues and obstacles early in order to move toward our goal in a timely manner.
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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: PCAOB Chairman, EU Commissioner discuss auditor oversight
Mark Olson, Chairman of the US Public Company Accounting Oversight Board, and Charlie McCreevy, EU Commissioner for Internal Market and Services, met on 6 March 2007 to discuss steps to enhance cooperation between the PCAOB and European auditor oversight bodies and advance collaborative efforts in 2007. Chairman Olson and Commissioner McCreevy agreed to launch "roadmap discussions on cooperation between the PCAOB and EU regulators". They have mandated their staff to commence work and will review progress at their next meeting. The goal is to enable the PCAOB and EU auditor regulators that have independent and rigorous oversight systems to move toward full mutual reliance by 2009. Both sides will take stock and review progress in October 2007. Click for PCAOB Press Release (PDF 59k) and EC Press Release (PDF 86k). An excerpt:
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Currently, there are over 760 non-US firms from 83 countries registered with the PCAOB, including approximately 265 firms located in the European Union, some portion of which will be subject to inspection. Once registered with the PCAOB, non-US firms meeting certain criteria are subject to the inspection requirements of the Sarbanes-Oxley Act. Similarly, under the European Union's new Directive on Statutory Auditors, certain non-European audit firms will be required to be inspected by European regulators unless their home-country system is considered to be equivalent to the public oversight requirements set forth in the Directive
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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 co-existence of IFRS and US GAAP models in the US capital markets. (See our News Story of 3 March 2007 for details.) |
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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 last week 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.
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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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January 2008: SEC official comments on IFRSs in United States
In two recent speeches, John W White, Director of the Division of Corporation Finance of the US Securities and Exchange Commission, discussed issues relating to the use of IFRSs in the United States and some of the SEC's international initiatives. Here are the two speeches, and below are two excerpts relating to IFRSs:
International Financial Reporting Standards:
Where do I begin on this topic? Tremendous strides have been made in this area over the past year.
- In March, we conducted a staff roundtable on IFRS.
- In April, the Commission issued a next steps press release.
- In July, a proposing release was issued relating to elimination of reconciliation to US GAAP by foreign private issuers using IFRS.
- In August, a concept release was issued relating to the possible use of IFRS by US issuers.
- In November, the Commission voted to approve elimination of reconciliation to US generally accepted accounting principles (US GAAP) by certain foreign private issuers using IFRS.
- In December, the Commission held two roundtables relating to use of IFRS by US issuers.
Quite a year! While I can only speak for myself, I am comfortable telling you that the staff at the SEC – particularly in the Division of Corporation Finance – is deeply committed to the goal of achieving a single set of high quality, globally accepted accounting standards and we truly are interested in hearing from all stakeholders as we continue to progress down this road.
How to proceed from the concept release on possible use of IFRSs by US issuers:
One of the more debated topics [at the December roundtables] was how to proceed from the concept release. Participants expressed a wide range of views and a number of overlapping options emerged:
- Have the Commission lay out a so-called 'road map' of steps forward.
- Allow the voluntary use of IFRS for an indeterminate period. Under this option, we would allow some or all US issuers to use either IFRS or US GAAP for an indefinite period of time.
- Set a fixed date in the future for the mandatory use of IFRS. Under this option, we would select a date in the future and require that all issuers switch to using IFRS at that time. This was the approach followed in Europe.
- A 'wait and see' approach on further rulemaking by the SEC, allowing convergence, investor understanding and the infrastructure for IFRS to further develop over the next few years.
- Various combinations of the above.
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February 2008: A 'roadmap' toward IFRSs for US companies
In a speech on 1 February 2008 to the European-American Business Council, US Securities and Exchange Commission Chairman Christopher Cox said that during 2008 the SEC will "map the future for US firms and International Financial Reporting Standards". Click to Download the Speech (PDF 54k). Here is an excerpt:
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Last year, the Commission voted unanimously to permit European and other non-US issuers to prepare their SEC financial statements using International Financial Reporting Standards, without the need to keep a second set of books under US Generally Accepted Accounting Principles. This was only possible because of the great progress that the International Accounting Standards Board has made in developing IFRS as a single, high-quality accounting standard that is implemented consistently in multiple jurisdictions around the world.
This year, the Commission will consider how we will map the future for US firms and International Financial Reporting Standards. But one thing is certain: the expanded use of a single, high-quality accounting standard will eventually empower investors to make better informed investment decisions by giving them information that is more easily comparable.
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March 2008: Proposal to overhaul US regulation of financial markets
On 31 March 2008, US Secretary of the Treasury Henry M Paulson Jr has released a Blueprint for a Modernized Financial Regulatory Structure that proposes a series of 'short-term' and 'intermediate-term' reforms of the structure for reglating financial institutions and markets in the United States. The changes are of a magnitude not seen since the current regulatory system was set up in response to the 1929 stock market crash and subsequent Great Depression.
- The short-term recommendations focus on taking action now to improve regulatory coordination and oversight in the wake of recent events in the credit and mortgage markets.
- The intermediate recommendations focus on eliminating some of the duplication of the US regulatory system and try to modernise the regulatory structure applicable to certain sectors in the financial services industry (banking, insurance, securities, and futures) within the current framework.
The report also includes a conceptual model for an 'optimal' regulatory framework. The optimal structure envisions the Federal Reserve as the 'market stability regulator', a new 'prudential financial regulator' for banks and savings institutions, and a new business conduct and corporate finance regulator. The latter would assume the SEC's current responsibilities over corporate disclosures, corporate governance, and accounting oversight.
Among the short-term recommendations:
- President's Working Group on Financial Markets (PWG). This existing inter-agency coordinating body should be expanded, and its role as policy-maker should be enhanced.
- Mortgage origination. Create a six-member federal Mortgage Origination Commission (MOC) that would establish uniform minimum licensing qualification standards for state mortgage market participants. The MOC would also evaluate, rate, and report on the adequacy of each state's system for licensing and regulation of participants in the mortgage origination process.
- Liquidity provisioning by the Federal Reserve. First, the current temporary liquidity provisioning process during those rare circumstances when market stability is threatened should be enhanced to ensure that: the process is calibrated and transparent; appropriate conditions are attached to lending; and information flows to the Federal Reserve through on-site examination or other means as determined by the Federal Reserve are adequate. Key to this information flow is a focus on liquidity and funding issues.
Among the intermediate-term recommendations:
- Federal thrift institutions. Federally chartered savings and mortgage institutions should become national
banks. The Office of Thrift Supervision would be closed, and its operations assumed by the Office of the Comptroller of the Currency (the federal bank regulator). This transition would take place in two years.
- Federal banking supervision. There should be direct federal supervision of state-chartered banks. A number of proposals are set out in this regard.
- Payment and settlement systems oversight. There should be direct federal oversight of all systems used to transfer funds and financial instruments between financial institutions and between financial institutions and their customers.
- Insurance. A federal system for chartering, licensing, regulating, and supervising insurers should be created. Insurers, reinsurers, agents, and broers would elect to be regulated under the federal system or to continue under the current state-based regulation. A new Office of Insurance Oversight would be established within the Treasury Department to take the lead role in federal insurance regulation.
- Futures and securities. The Commodity Futures Trading Commission (CFTC, which regulates futures and options) and the Securities and Exchange Commission (SEC, which regulates securities, mutual funds, stock markets, and broker/dealers) should be merged to provide unified oversight and regulation of the futures and securities industries.
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April 2008: SEC Member would let markets choose IFRSs or US GAAP
In Remarks before the American Chamber of Commerce in Brazil on 14 April 2008 (PDF 66k), US SEC Commissioner Paul S. Atkins discussed regulatory effectiveness and efficiency, including a number of steps that the SEC has taken to reduce regulatory burdens in US financial markets. He suggests that the choice between US GAAP and IFRSs should be left to market participants, not regulators:
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A second step that the SEC took to address concerns about the capital markets was the elimination, last December and effective immediately, of the reconciliation requirement for foreign companies that file using International Financial Reporting Standards (IFRS), as promulgated by the International Accounting Standards Board. Previously, companies had to restate their financial statements according to US generally accepted accounting principles (US GAAP). This action comes in response to a move by much of the rest of the world to shift to IFRS. Brazilian companies, which are scheduled to adopt IFRS by 2010, will be able to benefit from this change. This change also should benefit US investors who seek to invest in non-US companies. The rationale is that US investors are already investing directly abroad in IFRS-reporting companies and have become accustomed to relying on it. At any rate, reconciliations to US GAAP are published only months after the companies' financial statements are released. Thus, performing reconciliations is costly for companies, and reconciliations appear to be of limited use to those who look at financial statements.
Meanwhile, the SEC is considering whether to permit US companies to file using IFRS. If IFRS is good enough for non-US companies, then why not for American companies as well? Making this change would leave the choice between US GAAP and IFRS to the markets. If investors prefer one set of accounting standards over another, they may well reward with premium pricing those issuers who use the preferred set. You can easily see the utility of IFRS for multi-national US companies that access international capital markets and have non-US-based competitors.
IFRS, of course, is still a work in progress, and there are areas in which IFRS has no applicable standards. The US Financial Accounting Standards Board (FASB) and the IASB have much still to do in converging US GAAP and IFRS, but both are committed to this work. Other issues that remain concern the funding and governance of the IASB, supporting the further development and consistent implementation of IFRS, encouraging education of accountants in IFRS, and working towards continued convergence.
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April 2008: US SEC is developing an updated IFRS roadmap
In remarks before the US Chamber of Commerce in Washington, US SEC Chairman Christopher Cox outlined the benefits of IFRSs for investors in the United States. He also discussed the challenges of ensuring 'consistent and faithful application of IFRSs throughout global capital markets'. Chairman Cox said that later this year, the Commission's staff will formally propose to the Commission an updated 'Roadmap' that lays out a schedule and milestones for further progress toward US acceptance of IFRSs. Click to Download Chairman Cox's Remarks (PDF 59k). Here is an excerpt:
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As even individual investors in the United States become globally active, our nation has a good deal at stake in seeing IFRS fulfill its promise. The United States has witnessed a remarkable growth in our own investors' interest in foreign securities. I came to Washington with President Reagan. When he was first elected, US gross trading activity in foreign securities was $53 billion. Today it's over $11 trillion. That's more than the GDP of Japan and China combined. And this isn't just institutional trading: roughly two-thirds of American investors own securities of non-US companies.
The same is true for foreign trading activity in US securities – that has exploded during this period as well. Today, it's over $33 trillion. That's more than twice the GDP of the European Union. It's for these reasons that our work on converging to a single global accounting standard is so important.
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May 2008: Four reports from the SEC Advisory Committee on Improvements to Financial Reporting
In June 2007, the US SEC formed an advisory committee to study the causes of complexity of the US financial reporting system and to recommend "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". In February 2008, the advisory committee published a Preliminary Report with 12 Proposals including reducing accounting policy options, changes to FASB's governance and due process, and guidance on materiality and error corrections. The advisory committee held its sixth meeting on Friday, 2 May 2008, at which time four subcommittees presented their interim reports:
The standards-setting subcommittee said, in its report, that it is deliberating whether to recommend that the full advisory commtitee consider:
- expressing high-level support for moving to a single set of high quality accounting standards in the US,
- supporting the SEC's efforts to develop an international convergence roadmap, and
- encouraging all participants in the financial reporting community to increase coordination to foster consistency in global interpretations and avoid jurisdictional variants of IFRS.
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Click for Information on the Advisory Committee on the SEC Website.
May 2008: Deloitte letter to SEC on 'foreign issuer enhancements'
Deloitte Touche Tohmatsu (DTT) and its member firms have submitted a Letter of Comment to the US SEC (PDF 29k) on the SEC's proposed rule Foreign Issuer Reporting Enhancements. The SEC Release (PDF 225k) proposes several amendments relating to the current filing and disclosure requirements of foreign private issuers (FPIs), including the acceleration of filing dates.
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The movement toward IFRSs as a basis for financial reporting in jurisdictions outside the United States will affect many of these proposals. Accordingly, we suggest that to achieve a more consistent transition, the Commission give particular attention to transitioning certain of the proposals in the release to correspond with when FPIs are required to use IFRSs.
Although the Commission is not proposing a broader current reporting disclosure regime for FPIs, we believe that current reporting requirements should be given further consideration, preferably in a separate release. Currently, FPIs are not subject to the disclosure requirements of Form 8-K. Instead they are subject to the requirements of Form 6-K, whose disclosure derive from information made public in the issuer's home country. This disclosure regime differs substantively from the 'current' disclosure regime of domestic registrants. We believe that the current reporting requirements for multinational companies that have reporting obligations in many jurisdictions should be consistent. Therefore, we encourage the SEC to work through the International Organization of Securities Commissions to address the broader issue of current reporting requirements by companies listed across borders.
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Past Deloitte letters of comment are Here.
May 2008: SEC Chairman Cox addresses IOSCO on IFRSs
At the 33rd annual meeting of the International Organization of Securities Commissions (IOSCO) US SEC Chairman Christopher Cox spoke on International Financial Reporting Standards: The Promise of Transparency and Comparability for the Benefit of Investors Around the Globe.
In his comments, Chairman Cox discussed the benefits of a single global set of financial reporting standards and identified five critical qualities for success of IFRSs (see box below). Click to Download Chairman Cox's Remarks (PDF 57k).
In order for IFRS to fulfill the promise it holds to be a uniter of the world's capital markets and a powerful tool for investors everywhere, there are a handful of principles that are critical to its success. Every one of us here today needs to see to it that these principles are applied:
- The first key success factor for IFRS is that the standards be crafted in the interest of investors. That has to be their overarching purpose.
- The second is that the standard setting process be transparent. That is essential not only to maintain investor confidence, but to ensure the integrity and quality of the standards.
- The third is that the standard setter must be independent. That means independent from special pleaders, from the political process, from favored industries or industry players, and from national or regional biases.
- Fourth, the standard setter must be accountable. This means ensuring that IFRS actually meet the needs of investors and other stakeholders, and that they are updated in a timely way.
- And fifth and finally, it is vitally important that all of the stakeholders themselves participate in the standard setting process in order to ensure the continued success of IFRS.
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June 2008: SEC official comments on IFRS and US Companies – A Look Ahead
John W. White, Director of the Division of Corporation Finance of the US Securities and Exchange Commission
Financial Executives International spoke about IFRS and US Companies: A Look Ahead at at Financial Executives International's Global Financial Reporting Convergence Conference in New York on 5 June 2008. His remarks focussed on the policy level implications of the possible use of IFRSs by US companies. Click to Download Mr White's Presentation (PDF 102k). Below is an excerpt. Mr White's concluding comment: "I truly believe that the endpoint will be US issuers using IFRS and that it is time to move in this direction. The SEC can provide leadership by planning now for how that result might be brought about, which in turn could provide US issuers with greater clarity in
this area."
I think there are a number of policy issues that need to be the subject of public discussion and input. Among the more interesting questions are:
- Should US companies be permitted to prepare their financial statements using IFRS for purposes of their SEC filings?
- Should US companies be required to prepare their financial statements using IFRS?
- And for both of those questions:
- Should only some subset of US companies be permitted, or required, to use IFRS, or should any movement to IFRS be available or required of all companies?
- And, if it is desirable to have only a subset go first, then how should that subset be defined?
- What kind of timeframe and what kind of transition procedures should be involved for either permissive or universal use of IFRS for US companies?
- And, let us not overlook, what is the SEC's role in answering these questions?
- More generally, I think it is also a fair question to ask: why is the Commission even considering allowing, much less requiring, US companies to use IFRS?
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July 2008: SEC advisory committee proposals on financial reporting
The US SEC's Advisory Committee on Improvements to Financial Reporting will meet on 11 July 2008 to consider a draft of its final report. The five main themes of the committee's draft recommendations, and examples of specific proposals, are presented below. Click to Download the Draft Report (PDF 11.5mb). Caution: this is an 11.5mb file and will take a while to download. You can get more information on the Advisory Committee's Page on the SEC's website.
SEC Advisory Committee on Improvements to Financial Reporting
Examples of draft proposals
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A. Increasing the usefulness of information in SEC reports
- Put executive summaries at the beginning of annual and quarterly financial reports.
- The private sector should develop key performance indicators (KPIs), on an activity and industry basis, that would capture important aspects of a company's activities that may not be fully reflected in its financial statements or may be non-financial measures.
B. Enhancing the accounting standards-setting process
- Recognise the pre-eminence of the perspective of investors as the primary users of financial reports by increasing investor representation on the FASB and FAF.
- FASB should increase the field work for proposed standards, formalise post-adoption reviews, and make periodic assessments of existing standards.
- Create a Financial Reporting Forum (FRF) to coordinate the efforts of FASB with the SEC, the Public Company Accounting Oversight Board, investors, auditors, and other parties. The FRF would meet regularly to evaluate the current pressures on the financial reporting system, set priorities for projects, and discuss how to carry out these projects.
C. Improving the substantive design of new accounting standards
- Redesign accounting standards to clearly articulate their objectives and principles. Use simple language. Avoid detailed rules, all-or-nothing bright-line tests (which sometimes make similar circumstances look different and which are suscrptible to manipulation), and numerous exemptions.
- The SEC should recommend that the FASB be judicious in issuing new standards and interpretations that expand the use of fair value until FASB completes a measurement framework and the infrastructure for measuring fair values is strengthened.
- Because the current mixed attribute system of historic cost and fair value is likely to continue, the draft report supports the FASB's efforts to divide the income statement into two or more sections that would, among other things, help investors distinguish cash receipts from unrealised changes in fair value.
- Move away from industry-specific guidance in authoritative literature.
- Formally promulgated alternative accounting policies should not exist.
D. Delineating authoritative interpretive guidance
- All authoritative accounting standards and interpretive implementation guidance of general significance should come from a single standard-setter – the FASB.
- The SEC should codifying its existing accounting guidance in a format consistent with that used by FASB.
- "If the convergence of US GAAP and IFRSs does not occur within a few years, FASB and the SEC should consider a systematic rethinking of US GAAP."
E. Clarifying guidance on financial restatements and accounting judgments
- The SEC and PCAOB should adopt policy statements to provide more transparency into how these regulators evaluate the reasonableness of judgements.
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August 2008: SEC Holds Fourth Roundtable on IFRSs
Deloitte & Touche LLP (United States) has published a Heads Up newsletter summarising the discussions at the SEC's fourth roundtable on IFRSs, held on 4 August 2008. Topics covered at the roundtable included panelists' experience with using IFRSs and US GAAP during the current financial crisis, the best way to develop stronger standards, and the direction of convergence efforts between the two sets of standards. Click to Download the Heads Up Newsletter (PDF 114k).
Key Messages from the SEC Roundtable Participants:
- IFRSs have held up quite well in the face of recent market turmoil. Some panelists believed that IFRSs outperformed US GAAP in many areas, such as off-balance-sheet transactions involving special-purpose entities, and have resulted in more robust, transparent disclosures.
- Improvement is needed to the fair value reporting requirements under both IFRSs and US GAAP. Some panelists specifically pointed to the requirement under FASB Statement 157 Fair Value Measurements for an entity to consider its own credit standing when determining the fair value of its liabilities, and the resulting effect on the income statement.
- Improving revenue recognition guidance under IFRSs should be a priority for standard setters.
- Consistent application of accounting standards and financial statement presentation are important to investors.
- The transition to IFRSs gives companies the opportunity to reassess their accounting policies and disclosures to ensure that their accounting reflects the true economics of the transactions and that their financial statements are sufficiently transparent.
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August 2008: Update on the US SEC and IFRSs
In an address on 11 August 2008 to the American Bar Association's Committee on Federal Regulation of Securities, John W White, Director of the Division of Corporation Finance of the US Securities and Exchange Commission presented an update on the activities of his Division and the Commission. A portion of his comments focussed on IFRSs. Click to Download Mr White's Remarks (PDF 143k). Here is an excerpt:
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We put out a concept release on this last August, and held two roundtables in December, at which we received a great deal of very thoughtful input. Back in February, Chairman Cox asked that Corp Fin and the Office of the Chief Accountant formally propose to the Commission a 'roadmap' laying out a schedule, with appropriate milestones on which the schedule will be conditioned, for continuing the US's progress in moving to accept IFRS in this country. We have a large team actively working on this project, and even held another roundtable on the topic last Monday, August 4, at which we received yet more helpful information from members of the public. So hopefully we will be prepared to make a recommendation soon. But as always, remember my disclaimer.
In anticipating all of this, I would suggest that you keep the following in mind:
- We are headed toward a single set of high quality, globally accepted accounting standards – there is general agreement that having a single set of high quality, globally accepted accounting standards will benefit the capital markets generally including investors, as financial statements of global issuers become more comparable on a cross-border basis.
- The choices are US GAAP and IFRS.
- Over 100 countries require or accept IFRS.
- So, IFRS is where the future is (not US GAAP).
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August 2008: Final report of the SEC's financial reporting advisory committee
The US SEC's Advisory Committee on Improvements to Financial Reporting (ACIFR) has published its final report of recommendations to increase the usefulness of financial information to investors, while reducing the complexity of the financial reporting system to investors, preparers, and auditors. The report sets out 25 recommendations that the ACIFR believes could be implemented by the Commission, the Financial Accounting Standards Board (FASB), the Public Company Accounting Oversight Board (PCAOB), or their respective staff, as appropriate, without legislation. The Committee's proposals to improve financial reporting are categorised into five main areas:
- Increasing the usefulness of information in SEC reports
- Enhancing the accounting standards-setting process
- Improving the substantive design of new accounting standards
- Delineating authoritative interpretive guidance
- Clarifying guidance on financial restatements and accounting judgments
Click to download:
Examples of some of the proposals relating to the design of accounting standards and the process for setting standards include:
- Fair value reporting. The SEC should recommend that the FASB be judicious in issuing new standards and interpretations that expand the use of fair value in areas where it is not already required until (a) FASB completes a measurement framework to systematically assign measurement attributes to different types of business activities and (b) the SEC, FASB, and others develop and implement a plan to strengthen the infrastructure that supports fair value reporting.
- Financial statement presentation. The SEC should recommend that the FASB consider (a) aggregating financial statements by meaningful categories of business activities, such as the operating, investing, and financing sections and (b) developing a practical means for reconciling the statements of income and cash flows by major classes of measurement attributes.
- Disclosure. Integrate existing SEC and FASB disclosure requirements into a cohesive whole based on consistent objectives and principles.
- Disclosure of risks and judgements. Require disclosure of the principal assumptions, estimates, and sensitivity analyses that may impact a company's business, as well as a qualitative discussion of the key risks and uncertainties that could significantly change these amounts over time.
- Recognition. Recognition guidance in US GAAP should be based on a presumption that bright lines should not exist.
- General vs industry accounting standards. US GAAP should be presumptively based on business activities, rather than industries. Industry-specific standards should be rare.
- Accounting policy choices. US GAAP should be based on a presumption that formally promulgated alternative accounting policies should not exist. US GAAP should be based on a presumption that similar activities should be accounted for in a similar manner.
- Scope of standards. US GAAP should be scoped with sufficient precision to minimize the use of scope exceptions.
- Investor involvement in standards. Add more investor representation to the FASB and the Financial Accounting Foundation.
- Financial Reporting Forum (FRF). Create a Financial Reporting Forum (FRF) that includes key constituents from the preparer, auditor, and investor and other user communities, to meet with representatives from the SEC, the FASB, and the PCAOB to discuss pressures in the financial reporting system overall, both immediate and long-term, and how individual constituents are meeting these challenges. This may require the FASB to re-evaluate the roles and composition of its advisory groups or agenda committees.
- Interpretations. FASB should be the single US standards-setter for all authoritative accounting standards and interpretive implementation guidance for US GAAP. The SEC should issue only registrant-specific guidance.
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August 2008: SEC proposes a 'roadmap' to IFRSs for domestic US registrants
On 27 August 2008, the US Securities and Exchange Commission voted to publish for public comment a proposed 'roadmap' that could lead to the use of International Financial Reporting Standards (IFRSs) by US issuers beginning in 2014. Currently, US issuers must use US GAAP, though foreign registrants (of which there are around 1,100 from 52 jurisdictions) may elect to use IFRSs. The proposal suggests mandatory adoption by US registrants could be phased in from 2014 to 2016 depending on company size:
- Large accelerated filers in 2014
- Accelerated filers in 2015
- Non-accelerated filers in 2016.
The proposal also would permit voluntary early adoption for a limited group of large US registrants (based on industry and size) for periods ending after 15 December 2009 (filings in 2010):
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A US issuer would have the option to begin using IFRSs for fiscal years ending on or after December 15, 2009 if two criteria are met: (1) the issuer is among the 20 largest companies globally by market capitalisation in its industry, and (2) IFRSs, as published by the International Accounting Standards Board, is the most common set of accounting standards used for financial reporting at these 20 largest companies. The SEC estimates that 110 companies in 34 industries currently would be eligible under these criteria. Companies using this option would still need to provide limited US generally accepted accounting principles (GAAP) financial information (similar to the old 20-F reconciliation).
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However, mandatory IFRS adoption starting in 2014 would not be automatic. In 2011, the Commission would evaluate the progress of IFRSs against certain defined milestones and make a decision on whether to go ahead with adoption starting in 2014, later, or not at all. Here is the SEC Press Release (PDF 30k). The SEC has not yet posted the full text of the proposal on its website. There will be a 60-day comment period that begins when the roadmap proposal is published in the Federal Register. Financial Executives International has issued a Press Release (PDF 37k) stating that "FEI supports the SEC's decision today to propose a Roadmap for U.S. issuers for filings of financial statements prepared in accordance with IFRS."
August 2008: More about the SEC 'roadmap' toward IFRSs
In a speech at the open meeting of the SEC at which the SEC agreed to propose a roadmap toward use of IFRSs by domestic SEC registrants, SEC Commissioner Elisse B Walter elabored on several aspects of the yet-to-be-released proposal. One is that an entity that chooses voluntary early adoption will be required to include, in its financial statements, a reconciliation from IFRS figures to US GAAP. That is because of the possibility that the Commission may ultimately decide not to require or allow US issuers to use IFRSs, or may delay the starting date. Click for Commissioner Walter's Remarks (PDF 78k). Here is an excerpt:
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Most important, we have to keep in mind that no one knows for certain what the future will hold. I strongly believe that we have to prepare for the alternative that the Commission will determine not to adopt, or permit the use of, IFRS for US issuers. As the milestones presented in the Roadmap show, there are significant hurdles to overcome over the next three years in order for the Commission to determine to accept IFRS reporting from US issuers. Therefore, I strongly support the reconciliation proposal, otherwise known as Alternative Proposal B for early adoption. Under Alternative Proposal B, reconciliation would continue until further Commission action on the use of IFRS by US issuers. I believe that this reconciliation Proposal is extremely important – in order to increase comparability and help US investors transition to seeing US companies present their financials in IFRS. It is also critical to me because it gives early adopters of IFRS a way back to US GAAP if the Commission determines not to adopt the use of IFRS in 2011
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August 2008: Heads Up discusses the 'roadmap' to IFRSs in the USA
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The 28 August 2008 issue of Heads Up titled On the Road to IFRSs (PDF 190k) discusses the SEC's recent decision to issue a proposed roadmap to IFRS adoption in the United States. The roadmap proposes to: |
- give certain US issuers the option to use IFRSs in their financial statements filed on Form 10-K for financial years ending on or after 15 December 2009, and
- establish seven milestones that, if achieved, could lead to an SEC decision for mandatory use of IFRSs starting for financial years ending on or after 15 December 2014.
November 2008: SEC invites comment on IFRS 'roadmap' for USA
On 14 November 2008, the US Securities and Exchange Commission published for comment its proposed Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by US Issuers. Comments on the 165-page proposal were originally due 19 February 2009, but the SEC has extended the deadline to 20 April 2009. The Roadmap sets forth several milestones that, if achieved, could lead to the required use of IFRS by US issuers in 2014. The milestones include:
- Improvements in accounting standards based on the latest IASB-FASB MOU (the commission cites revenue recognition and financial statement presentation as two projects that, when completed should 'improve financial reporting significantly')
- Accountability and funding of the IASC Foundation
- Improvement in the ability to use interactive data for IFRS reporting
As part of the Roadmap, the Commission is proposing to permit early use of IFRS by a limited number of US issuers where this would enhance the comparability of financial information to investors. Only an issuer whose industry uses IFRS as the basis of financial reporting more than any other set of standards would be eligible to elect to use IFRS, beginning with filings in 2010.
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TABLE OF CONTENTS OF THE SEC'S PROPOSED IFRS ROADMAP |
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- I. OVERVIEW
- II. THE ROLE OF IFRS IN THE US CAPITAL MARKETS
- A. The Promise of Global Accounting Standards
- 1. The Global Nature of Today's Capital Markets
- 2. Potential for IFRS as the Global Accounting Standard
- B. Past Policy Considerations Regarding IFRS
- III. A PROPOSED ROADMAP TO IFRS REPORTING BY US ISSUERS
- A. Milestones to be Achieved Leading to the Use of IFRS by US Issuers
- 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 US Investors
- 6. Anticipated Timing of Future Rulemaking by the Commission
- 7. Implementation of the Mandatory Use of IFRS
- B. Other Areas of Consideration
- 1. The Roles of Financial Information
- 2. Accounting Systems, Controls and Procedures
- 3. Auditing
- 4. Considerations of IFRS and the IASB's Standard Setting Process
- a. State of IFRS
- b. Relationship to the Accounting Standard Setting Process
- IV. PROPOSAL FOR THE LIMITED EARLY USE OF IFRS WHERE THIS WOULD ENHANCE COMPARABILITY FOR US INVESTORS
- A. Eligibility Requirements
- B. Staff Letter of No Objection to the Use of IFRS
- C. Transition
- D. Alternative Proposals for US GAAP Information
- 1. Proposal A - Reconciled Information Pursuant to IFRS 1
- 2. Proposal B - Supplemental US GAAP Information
- 3. Discussion of Proposals A and B
- V. DISCUSSION OF PROPOSED AMENDMENTS
- A. The Use of IFRS Financial Statements in Commission Filings by Eligible Issuers
- 1. Proposed Amendments to Rule 4-01 of Regulation S-X
- 2. Proposed Definition of 'IFRS Issuer'
- B. Application
- 1. Article 13 of Regulation S-X
- 2. Proposed Clarifying Amendments with Respect to References to IFRS as Issued by the IASB
- C. Proposed Amendments to Item 10(e) of Regulation S-K and Regulation G
- D. Related Disclosure and Financial Reporting Issues
- 1. Selected Financial Data
- 2. Market-Risk and the Safe Harbor Provisions
- 3. Disclosure of First-Time Adoption of IFRS in Form 10-K
- 4. Other Considerations Relating to IFRS and US GAAP Guidance
- E. Financial Statements of Other Entities under Regulation S-X
- 1. Application of the Amendments to Rules 3-05, 3-09 and 3-14
- a. Significance Testing
- b. Separate Historical Financial Statements of Another Entity Provided under Rule 3-05, 3-09 or 3-14
- 2. Financial Statements Provided under Rule 3-10
- 3. Financial Statements Provided under Rule 3-16
- F. Pro Forma Financial Statements Provided under Article 11
- G. Industry Specific Matters
- 1. Disclosure Pursuant to Industry Guides
- 2. Disclosure from Oil and Gas Companies under FAS 69
- H. Application of the Proposed Amendments to Other Forms, Rules and Schedules
- 1. Application of Proposed Amendments to Exempt Offerings
- 2. References to FASB Pronouncements in Form 8-K
- 3. Application of IFRS to Tender Offer and Going-Private Rules
- VI. GENERAL REQUEST FOR COMMENTS
- VII. PAPERWORK REDUCTION ACT
- A. Background
- B. Burden and Cost Estimates Related to the Proposed Amendments
- C. Request for Comment
- VIII. COST-BENEFIT ANALYSIS
- A. Proposal for Early Use of IFRS by US Issuers
- 1. Expected Benefits
- 2. Expected Costs
- B. Proposal A: Reconciled Information Pursuant to IFRS 1
- 1. Expected Benefits
- 2. Expected Costs
- C. Proposal B: Supplemental US GAAP Information
- 1. Expected Benefits
- 2. Expected Costs
- IX. REGULATORY FLEXIBILITY ACT CERTIFICATION
- X. CONSIDERATION OF IMPACT ON THE ECONOMY, BURDEN ON COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION AND CAPITAL FORMATION
- XI. PROPOSED AMENDMENTS TO THE CODIFICATION OF FINANCIAL REPORTING POLICIES
- XII. STATUTORY BASIS AND TEXT OF PROPOSED AMENDMENTS
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January 2009: SEC Chairman-designate is cautious about IFRSs
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On 15 January 2009 the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the nomination of Mary L Schapiro as Chairman of the Securities and Exchange Commission. Ms Schapiro indicated some concerns about the near-term adoption of IFRSs in the United States and said she would 'not necessarily feel bound by the existing roadmap that is out there for comment'. Click here for the Webcast of the Hearing. Below is an unofficial transcript of Senator Reed's question about IFRSs and Ms Schapiro's reply.
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Senator Jack Reed (D-RI): Much of what you are going to do will have complications and consequences overseas as well as here in the United States. One of the areas is the IFRS roadmap. We have repeatedly written to Chairman Cox to try to determine and develop a very deliberate roadmap, and I think there's a rush to judgment on this issue. In fact, I met with the CEO of the Honeywell Corporation who has similar concerns over disparate treatment under international rules that can be used to change income, that can be used to treat R&D expenses differently. There's a potential for arbitrage between the two systems that I think we have to avoid. Can you give us a notion of how you wish to proceed with this international accounting movement – with recognition that eventually we'll have that in a global economy and hopefully we will converge to a set of high level standards.
Mary Schapiro: Well, I would proceed with great caution so that we don't have a race to the bottom. I think we all can agree that a single set of accounting standards used around the world would be a very beneficial thing, would allow investors to compare companies around the world. With that said, I have some concerns with the roadmap that has been published by the SEC and is out for comment now. I have some concerns about the IFRS standards generally. They are not as detailed as the US standards. There's a lot left to interpretation. Even if adopted, there will still be a lack of consistency, I believe, around the world in how they are implemented and how they are enforced. The cost to switch from US GAAP to IFRS is going to be extraordinary, and I've seen some estimates that range as high as $30 million for each US company in order to do that. This is a time when I think we have to think carefully about whether imposing those sorts of costs on US industry really make sense. Perhaps my greatest concern is the independence of the International Accounting Standards Board and the ability to have oversight of their process for setting standards and the amount of rigor that exists in that process today. So, I will tell you that I will take a big deep breath and look at this entire area again carefully, and will not necessarily feel bound by the existing roadmap that is out there for comment.
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February 2009: SEC extends comment period on IFRS roadmap
The US Securities and Exchange Commission has added another 60 days to the comment period on the release proposing a roadmap for the potential use, by domestic US registrants, of International Financial Reporting Standards as issued by the International Accounting Standards Board. The original comment deadline of 19 February 2009 has now been changed to 20 April 2009. The extension of the comment period is a result of requests received by the SEC to help improve the potential response rate and quality of responses to the proposal. The proposed roadmap sets forth milestones that, if achieved, could lead to the required use of IFRS by US issuers by 2014 if the Commission believes it to be in the public interest and for the protection of investors, with some large issuers permitted to use IFRSs even earlier. Click for:
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April 2009: Deloitte comments on SEC IFRS 'Roadmap'
Deloitte & Touche LLP (United States) has submitted to the US Securities and Exchange Commission its views on the SEC's proposed Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers. The letter expresses support for allowing foreign registrants to use IFRSs and for the convergence efforts of the IASB and the FASB. But the letter suggests that there are some areas of the Roadmap that require further consideration by the SEC before it is adopted. Click for
An excerpt from the Deloitte letter:
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We support the steps that the SEC has already taken toward the acceptance of IFRSs in the U.S. capital markets, including allowing foreign private issuers to use IFRSs in their SEC filings without a reconciliation to U.S. GAAP. In our view, IFRSs are of high quality and are sufficiently comprehensive to provide transparent financial information. We also support a
standard-setting process that addresses the ongoing needs of financial statement users and makes relevant improvements to standards. To that end, we are supportive of the convergence efforts of the IASB and FASB in developing the highest quality standards.
As with any important policy decision, the Commission will need to consider and weigh various factors in deciding whether to mandate IFRSs for all U.S. issuers. More specifically, the
Commission will need to consider recent developments relating to the financial crisis, including the loss in confidence in the U.S. capital markets, the development of capital market alternatives outside the United States, and the impact on global competitiveness. Also, there have been ongoing questions about U.S. financial reporting, including the complexity of U.S. GAAP and the need to have standards that are less reliant on detailed rules and bright lines. While some may argue that, in light of recent events, this is not the time to make fundamental changes in financial reporting requirements, we believe that these very events reinforce the need to rethink the approach to financial reporting.
We support the objective in the proposed roadmap of transitioning all U.S. issuers to IFRSs but have a number of observations and recommendations regarding how the proposed roadmap can be improved. The most important of these recommendations are (1) the current need for the SEC to be more definitive about its plan to transition all U.S. issuers to IFRSs in the future and (2) the removal of the significant disincentives for early adopters of IFRSs.
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October 2009: US SEC strategic plan 2010-2015
On 8 October 2009, the US Securities and Exchange Commission published for public comment its Draft Strategic Plan for fiscal years 2010 through 2015. The document includes drafts of the SEC's mission, vision, values, strategic goals, major initiatives, and performance metrics for fiscal years 2010 through 2015. The draft outlines over 70 initiatives designed to support the Commission's primary strategic goals. With regard to accounting, goals include supporting a single set of global accounting standards and promoting the ongoing FASB-IASB convergence work. Adoption of IFRSs for use by US domestic SEC registrants is not a specified goal. Click to download US SEC Strategic Plan 2010-2015 (PDF 441k). Comments are requested by 16 November 2009 to strategicplan @ sec.gov.
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Here is the SEC's proposed accounting objective:
Due to the increasingly global nature of the capital markets, the agency will promote high-quality financial reporting worldwide through, among other things, support for a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the International Accounting Standards Board.
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October 2009: SEC remains committed to global standards
US Securities and Exchange Commission Chairman Mary L Schapiro spoke about reforming the global financial system and the regulatory framework that governs it at a conference sponsored by the IOSCO Technical Committee in Basel, Switzerland on 8 October 2009. She noted that during the current global financial crisis, 'investor confidence in the transparency of the markets, sufficiency and even the reliability of the information they were getting was shaken to the core'. She said that financial reports prepared in accordance with high-quality, consistent accounting standards are one of the most effective tools for providing transparency to the markets and instilling confidence in investors. Yet the financial crisis has demonstrated that some standards must be improved. She reiterated the Commission's commitment to a global set of accounting standards. Click for Chairman Schapiro's Remarks (PDF 40k). Here is an excerpt:
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The crisis has highlighted importance of implementing and enforcing high quality and consistent accounting standards around the world. The SEC has of course played a leadership role in fostering this ideal and I remain committed to the goal of a global set of high-quality accounting standards. I also believe that there are issues that will be critical to address as we at the SEC consider the input we have received on last year's proposed roadmap on the role of international standards in the US. It is with the principles and ideas I just outlined in mind that I am committed to focusing our efforts this fall to following up with a work plan that expands upon the concepts proposed in the roadmap.
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November 2009: SEC Chairman comments on IASB-FASB convergence
In our News Story of 6 November 2009 we reported that the IASB and the US Financial Accounting Standards Board (FASB) issued a joint statement reaffirming their commitment to improve IFRSs and US GAAP and to bring about their convergence. The Boards also expressed their agreement to intensify their efforts to complete the major joint projects described in their 2006 Memorandum of Understanding (MoU), as updated in 2008. US SEC Chairman Mary L Schapiro has made the following Statement (PDF 27k) supporting the renewed convergence commitment:
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I am greatly encouraged by the commitment of the IASB and the FASB to provide greater transparency to the standard setting process and their convergence efforts. I believe that these efforts will result in improved financial information provided to investors.
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November 2009: Financial reporting lessons from the financial crisis
US SEC Commissioner Kathleen L Casey spoke about Lessons from the Financial Crisis for Financial Reporting, Standard Setting and Rule Making (PDF 45k) at Financial Executives International's 28th Annual Current Financial Reporting Issues Conference in New York on 17 November 2009. Commissioner Casey identified three key lessons from the crisis:
- First, financial stability depends upon market confidence; and investor confidence, in turn, depends upon the transparency of financial statements.
- Second, financial reporting and accounting standard setting must remain focused on the needs of investors. While there are many other important stakeholders that rely on financial statement reporting, investors' interests must remain paramount.
- Third, financial reporting must remain relevant and informative to investors, and should not impose unnecessary or costly burdens that do not add to investor understanding.
Here is an excerpt relating to IFRSs in the United States:
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As the number of US investors with holdings of securities of non-US companies continues to increase, the Commission and the FASB would be remiss and would fail the needs of investors if we did not continue to support the development of a single set of high quality global accounting standards. The desirability of convergence on certain key accounting standards – particularly those related to financial instruments and other areas relevant to the credit crisis – has been highlighted in a number of forums, including the March 2009 communique of the G-20 finance ministers, the Department of Treasury's June 2009 Regulatory Reform report and the July 2009 Report of the Financial Crisis Advisory Group. The Commission strongly supports the continued convergence efforts of FASB and IASB. The existing convergence targets of these two standard setters pursuant to their 2006 MoU, as updated in September 2008, set the goal of completing several major joint projects by 2011. And less than two weeks ago, the FASB and IASB issued a joint statement reaffirming their commitment to achieving convergence of IFRS and US GAAP, and announcing plans to intensify their efforts to complete the major joint projects described in the MoU.
Going forward, it is crucial that the United States continue to play a leadership role in the support and development of a single set of high quality global accounting standards. It is also my hope and expectation that the Commission will soon articulate the next steps to be taken with respect to the use of IFRS by US issuers – further signaling our commitment to this important goal.
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December 2009: AICPA's SEC/PCAOB conference
The American Institute of CPAs is holding its 37th Annual National Conference on Current SEC and PCAOB Developments in Washington on 7-9 December 2009, simulcast in four other cities. Securities and Exchange Commission Chief Accountant James L Kroeker spoke on 7 December 2009. His remarks covered the following broad topics:
- Accounting standards convergence
- Principles for addressing changes to accounting standards
- Recent developments in accounting standards
- PCAOB oversight
- Municipal securities and the GASB
Regarding the SEC's Proposed Roadmap for the potential use of IFRSs by domestic US registrants (issued for comment November 2008), Mr Kroeker said that the Commission continues to study the issues raised in letters comment. He did not indicate a timetable for completion of that review. Click here for Mr Kroeker's Remarks (PDF 48k). Excerpts relating to the SEC's roadmap are below.
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Just over a year ago, in a proposed 'roadmap', the Commission sought public comment on a proposed approach with
respect to a possible path to greater use of IFRS in the US and suggested a number of milestones that the Commission might consider as important in making that evaluation. That public comment period ended in April of this year, and the staff has spent considerable time over these last few months focusing our attention on the very insightful input we received through that comment process, as well as evaluating potential courses of action....
While there are a number of operational, structural and transitional challenges that must be addressed, I believe the fundamental focus of our evaluation of implementing a set of high quality international standards must be on the impact to investors. I believe that implementing a single set of global accounting standards for US issuers can, and must, be done only in a manner that is beneficial to US capital markets and consistent with the SEC's mission of protecting investors. As we continue to evaluate such a monumentally important initiative, I believe we must carefully consider and fully understand and address issues, such as:
- US Investor understanding of and perspectives on IFRS;
- The development and application of IFRS for use as the single set of globally accepted accounting standards for US issuers;
- The impact on the US regulatory environment;
- Preparer considerations, including, among other matters, changes to
- accounting systems, changes to contractual agreements, corporate governance considerations, and litigation contingencies;
- Human capital readiness; and
- The role of the FASB in achieving the goal of a single global standard.
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February 2010: SEC statement on IFRSs in the United States
The US Securities and Exchange Commission met on 24 February 2010 to discuss issues relating to the use of IFRSs by public companies in the United States. The Commission approved a 71-page Commission Statement (PDF 349k) that provides an overview of the Commission's IFRS activities, summarises some of the public feedback on the proposed IFRS roadmap, and outlines an approach going forward. The Commission reiterated its support for a single set of high quality global accounting standards and said that IFRSs are the set of standards best positioned to be global standards. The Commission Statement directs the SEC staff to carry out a Work Plan prior to an SEC decision on whether to require US issuers to transition to IFRSs. According to the Commission Statement, that decision will be made in 2011. The execution of the Work Plan, combined with the completion of the convergence efforts, would position the Commission to make an informed decision on a mandate. The Commission Statement withdraws the early use option that was in the proposed roadmap. However, it was indicated that early use is still a viable option if the SEC decides to require the use of IFRSs. The Commission Statement does not provide any details of potential transition dates or approaches, but the SEC staff stated that 2015 or 2016 seemed reasonable based on comments received on the proposed roadmap (a transition would require four to five years).
The key areas of concern to be addressed by the SEC staff as part of the work plan include:
- Sufficient development and application of IFRSs globally – comprehensiveness of IFRSs, auditability and enforceability of IFRSs, and comparability across jurisdictions
- Independence of standard-setting – oversight of the IASCF, composition of Trustees and IASB, funding, and the standard-setting process
- Transition issues:
- Investor understanding and education – education of investors
- Impact on regulatory environment – industry regulation, federal and state taxes, and audit regulation
- Impact on issuers – accounting systems, controls and procedures, contractual arrangements, and corporate governance
- Human capital readiness – education and training of various constituency groups
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In her Opening Remarks (PDF 30k) at the Commission meeting, SEC Chairman Mary L Schapiro summarised the SEC's approach as follows:
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Today's Commission statement reaffirms our support for a single globally accepted standard, describes the issues that need to be further examined and analyzed, and lays out the events that must occur between now and 2011. Specifically, the convergence projects currently underway between the FASB and the International Accounting Standards Board, must first be
successfully completed. And our staff must gather information to aid the Commission as it evaluates the impact that the use of IFRS by US companies would have on our securities market. To this end, we have asked the staff to develop and execute a work plan, which the staff will discuss in more depth in a moment.
In 2011, upon conclusion of the fact-gathering and analysis set forth in the work plan – and assuming completion of the convergence projects – the Commission will then be in a position to determine whether to incorporate IFRS into the financial reporting system for U.S. public companies. Until that time, we will expect staff to provide periodic written public reports to the Commission on the progress of its efforts.
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The Commission expressed support for the FASB having a continuing role in global standard-setting activities and asked the SEC staff to further explore this possibility as part of its Work Plan. The SEC staff will be providing regular progress reports in open meetings and indicated the first one will be provided no later than October 2010.
Deloitte (United States) has published a Heads Up newsletter discussing the SEC's Statement. Click to Download the Heads Up Newsletter titled The Road to IFRSs Is Under Construction (PDF 144k).
May 2010: SEC Chair reafirms commitment to global standards
In a presentation to the annual conference of the CFA Institute, US SEC Chairman Mary Schapiro reaffirmed the SEC's commitment to developing a 'single set of high-quality, globally-accepted accounting standards which will benefit U.S. investors and investors around the world'. In her presentation, she debunked several 'myths' about the SEC and IFRSs. Click to Download Chairman Schapiro's Remarks (PDF 41k). Here are some excerpts about the myths:
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Myth #1: The SEC's commitment to global accounting standards is not as strong as it should be.
Let's put this one to rest, right away. And, I can do that by citing the official text of our Commission Statement in Support of Convergence and Global Accounting Standards. In February we clearly stated:
'The Commission continues to believe that a single set of high quality globally accepted accounting standards will benefit U.S. investors and that this goal is consistent with our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. As a step toward this
goal, we continue to encourage the convergence of U.S. GAAP and IFRS and expect that the differences will become fewer and
narrower, over time, as a result of the convergence project.'
That should be clear. So let's move on.
Myth #2: The U.S. may be committed, but it's dragging its feet regarding adoption of IFRS
This too is wrong. To be clear, while I strongly believe in our commitment to high quality accounting standards, I believe just as strongly that this commitment is only the beginning of the discussion, not the end.
The convergence process is critical to the incorporation of IFRS into the U.S. market. The IASB and FASB must remain vigilant that investors needs and protection remain paramount throughout the process.
While the FASB and the IASB have been working diligently to reach common solutions to difficult financial reporting issues, U.S. GAAP and IFRS are currently not converged in a number of key areas. These include the accounting for financial assets (the very types of securities at the center of the financial crisis), revenue recognition, consolidation principles, and
leases.
While redoubling efforts to achieve the goal of convergence in a timely manner is important, a convergence effort that fails to take into account the due processes of the standard setting bodies will not serve investors well in the long run.
It is important that we take the time to solicit, receive and analyze input from companies, investors and other stakeholders who will ultimately have to put into practice and make use of new standards.
In addition, processes put in place by the FASB and the IASB to ensure the integrity of the final standards should be respected in both spirit and letter. Giving short shrift to process and testing, would increase the risk of poor
decisions. We are committed to convergence. But we are committed, above all, to a convergence exercise that yields high-quality improvements to accounting standards.
And the fact is, we are moving forward. We are executing on a comprehensive work plan, dedicating significant resources to it and providing periodic progress reports on it. Our next report will be released in October of this year.
This leads naturally to:
Myth #3: The United States is fixated on process.
Inaccurate. The United States understands the importance of process to a successful conclusion. We will not accept shortcuts that undermine our larger goals or risk compromising the achievement of high quality global standards.
A critical part of the standards-setting process is ensuring that the IASB and the FASB are shielded from undue political or commercial pressure, particularly now, as they work to finalize a number of their current joint
projects.
Like the FASB, the IASB has in place structural safeguards designed to withstand commercial, political, and other influences that might obscure the goal of high-quality, neutral accounting standards. Among these safeguards is a Monitoring Board comprised of public capital market authorities, and of which I am a voting member.
The Monitoring Board creates an oversight relationship between the standard-setting organization and governmental authorities. It allows regulators to ensure that the mandate to protect investors, market
integrity, and capital formation are discharged as convergence moves forward, and enhances that credibility further.
Although it makes the process of agreeing on global standards more complicated, the presence of the Monitoring Board – as well as other procedural safeguards – is critical to achieving the best possible results.
Myth #4: America is protecting its parochial interests.
No. What we are protecting are the interests of the investors in our markets, and we always will – that's what the Securities and Exchange Commission does. When investors – from anywhere across the globe – participate in our markets, they come under the SEC's umbrella of protection.
But even with this protection, we can and must continue working together across borders. The global economy is too intertwined and too interdependent to tolerate parochial interests. Our goal is to ensure a neutral process that results in rules that give capital market participants everywhere access to information on the financial performance and position of companies, so that they are able to make informed economic decisions. Accounting standards must provide transparency for investors, and must not obscure the truth, even if the truth is painful.
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August 2010: SEC calls for views on aspects of possible IFRS transition
The Securities and Exchange Commission (SEC) has released two Requests for Comment on behalf of its staff on a number of topics related to its ongoing consideration of incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for United States issuers.
On 24 February 2010, the SEC issued a Statement in Support of Convergence and Global Accounting Standards, reiterating its belief "that a single set of high-quality globally accepted accounting standards will benefit U.S. investors and that this goal is consistent with our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation". In that Statement, the SEC directed its staff to develop and execute a work plan considering specific areas and factors about the potential transition to a system incorporating IFRS.
Consistent with this directive, the two Requests for Comment issued seek views on the following topics:
Release 1 - Investor and logistics perspectives (No. 33-9133)
- Investors' current knowledge of IFRS and preparedness for incorporation of IFRS
- Investors' education processes on changes in accounting standards and timeliness of such education
- Extent of, logistics for, and estimated time necessary to undertake any necessary changes
Release 2 - Impacts on other arrangements and requirements (No. 33-9134)
- Contractual arrangements (e.g. financial covenants, lease contracts, employee compensation, earn-out provisions)
- Corporate governance: stock exchange listing requirements
- Statutory distribution restrictions and other legal standards tied to financial reporting standards
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Comments close 60 days after publication of the Requests for Comment in the United States Federal Register. Click for:
December 2010: United States SEC to consider hybrid model for IFRS adoption?
Paul A. Beswick (Deputy Chief Accountant, United States Securities Exchange Commission) has revealed a possible approach for adoption of IFRS in the United States. Providing his personal views while speaking at the AICPA National Conference in Washington, D.C., Mr Beswick coined the term 'condorsement' to refer to a possible hybrid model to adopting IFRSs in the United States.
An extract from the published text of the speech is reproduced below:
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"... While I am a supporter of the objective of a single set of high-quality accounting standards in concept, I have not reached a conclusion on whether, and how, the U.S. capital markets should move to IFRS.
So what would be a reasonable approach for the U.S.? In our October update we highlighted that the majority of jurisdictions are following either a convergence or an endorsement approach. In my opinion, if the U.S. were to move to IFRS, somewhere in between could be the right approach. I will call it a "condorsement" approach....
So how would this approach work? Well, to begin, U.S. GAAP would continue to exist. The IASB and the FASB would finish the major projects in their MOU. The FASB would not begin work on any major new projects in the normal course. Rather, a new set of priorities would be established where the FASB would work to converge existing U.S. GAAP to IFRS over a period of time for standards that are not on the IASB's agenda.
At the same time, the FASB would have a process where they would consider new standards issued by the IASB for incorporation into U.S. GAAP and then integrate such standards into the U.S. codification. The ideal would be to incorporate such standards as issued by the IASB without modification. However, criteria would need to be established for FASB's consideration of endorsing or incorporating standards...
In any case let me reiterate that all I have done is I've outlined an idea."
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Mr Beswick also discussed the costs of a "big bang" approach to adopting a new accounting framework (such as IFRS), the impacts on various categories of companies and the need for the IASB and FASB to focus on producing high-quality accounting standards as opposed to meeting deadlines. The full text of the published speech can be found here (link to SEC website).
March 2011: SEC adopts U.S. GAAP Financial Reporting Taxonomy
Further to our story of 19 January 2011, the Financial Accounting Foundation (FAF) has announced the U.S. Securities and Exchange Commission (SEC) has adopted the 2011 U.S. GAAP Financial Reporting Taxonomy.
The taxomony is to be used for creating and submitting eXtensible Business Reporting Language (XBRL) tagged interactive data files in compliance with SEC rules. The FAF is responsible for the ongoing maintenance of the taxonomy applicable to public issuers registered with the SEC.
Click for FAF press release (link to Financial Accounting Foundation website).
May 2011: SEC staff paper explores the 'condorsement' approach for IFRS adoption in the US
A paper released by the Staff of the U.S. Securities and Exchange Commission (SEC) outlines one possible approach for the adoption of IFRS in the United States.
The Staff Paper explores the so-called "condorsement" approach suggested by Paul A. Beswick (Deputy Chief Accountant) at a AICPA National Conference in Washington, D.C. in December 2010 (see our earlier story).
The Staff Paper discusses the approaches to IFRS adoption used by various jurisdictions, noting the differences between 'convergence' and 'endorsement'. The paper concludes the "condorsement" approach is in essence an endorsement approach that would share characteristics of IFRS incorporation approaches with other jurisdictions. However, during a transitional period, aspects of the convergence approach would be used to address existing differences between IFRS and U.S. GAAP, including the retention of a U.S. standard setter (FASB), which would facilitate the transition process by incorporating IFRSs into U.S. GAAP over a defined period of time (e.g. five to seven years).
An extract from the Staff Paper is reproduced below:
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Overview
At the end of [the transitional] period, the objective would be that a U.S. issuer compliant with U.S. GAAP should also be able to represent that it is compliant with IFRS as issued by the IASB. Incorporation of IFRS through the framework would have the objective of achieving the goal of having a single set of high-quality, globally accepted accounting standards, while doing so in a practical manner that could minimize both the cost and effort needed to incorporate IFRS into the financial reporting system for U.S. issuers. It also would align the United States with other jurisdictions by retaining the national standard setter's authority to establish accounting standards in the United States.
Role of the FASB in the United States
In addition to incorporating new IFRS amendments into U.S. GAAP, the FASB also would exercise its authority as the national standard setter when it found, based on its experience in the ongoing interpretation or application of IFRSs incorporated into U.S. GAAP, that supplemental or interpretive guidance was needed for the benefit of U.S. constituents. Under the framework, the FASB should initially address this situation by informing the IASB of the potential gaps in authoritative guidance and providing the IASB a recommended solution to address the practice issues, but ultimately, the FASB could conclude an acceptable solution is not reached or the issue is not being addressed in a timeframe consistent with the needs of the U.S. capital markets.
Accordingly, the FASB could exercise its authority in one or more of the following ways:
- adding disclosure requirements to those specified by IFRS, to address U.S.circumstances in a manner consistent with IFRS;
- prescribing which of two or more alternative accounting treatments permitted by IFRS on a particular issue should be adopted by U.S. issuers, to achieve greater consistency in U.S. practice; or
- setting requirements compatible with IFRS on issues not addressed specifically by IFRS. In particular, the FASB could decide to carry forward certain such requirements that already exist in U.S. GAAP, with any necessary conforming amendments.
If the FASB were to exercise this authority, a U.S. "flavor" of IFRS could result. However, U.S.-specific circumstances for which the FASB would consider modifying IFRS should be similar to the circumstances in which the Commission exercises its authority to amend or add to the standards issued by the FASB and, therefore, modifications should be rare and generally avoidable.
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The SEC is yet to make a decision as to whether and, if so, how, to incorporate IFRS into the financial reporting system for U.S. issuers. The Staff Paper notes it is not intended to suggest that the SEC has determined to incorporate IFRS or that the "condorsement" approach is the preferred or only possible approach. The Staff Paper also notes the SEC Staff is continuing to consider the possible mechanics and implications of an early-adoption option for U.S. issuers to use IFRS and how it would work in the context of the approach explored in the Staff Paper or otherwise.
The SEC is calling for comments on the Staff Paper by 31 July 2011. Click for access to the Staff Paper (link to SEC website).
June 2011: SEC Commissioner backs IFRS adoption, discusses possible 'opt out' for issuers
United States Securities Exchange Commission (SEC)) Commissioner Kathleen L. Casey has supported the adoption of IFRS in the United States in a recent speech.
Giving the keynote address at the Society of Corporate Secretaries and Governance Professionals 65th Annual Conference in Colorado, United States on 29 June 2011, Ms Casey highlighted the benefits of IFRS adoption. Topics covered included the benefits of a single set of high-quality global accounting standards in increasingly global capital markets, the impacts of more United States entities investing in entities that report in accordance with IFRSs, the United States' influence on IFRS development and cost and other concerns raised by constituents.
Ms Casey also discussed the possibility of an 'opt out' for issuers, perhaps on a permanent basis. An extract follows:
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While I believe that the United States must provide for reporting under IFRS by U.S. issuers, I believe that we can and should give some issuers the option to continue to report under U.S. GAAP.
One of the concerns that has been expressed since we first issued the "Road Map" in November 2008, from smaller reporting companies and other companies that have no international operations or aspirations, is that the transition to IFRS will be burdensome and impose costs without providing them with any commensurate benefits. I understand these concerns, and it makes sense, in my view, to allow these issuers to opt out of IFRS, at least initially, if not permanently. Providing optionality would preserve the benefits of IFRS, ensure continued U.S. influence in the development and preservation of IFRS, and avoid unnecessary costs for smaller U.S. issuers.
Some commentators object to providing optionality on the basis that it would lead to a "two-GAAP" world. My response is that we are already in a two-GAAP world. The Commission already permits foreign private issuers to report using IFRS. Furthermore, in light of the global nature of our capital markets, investors, public accountants and other market participants already need to know both U.S. GAAP and IFRS.
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Click for full text of the speech (link to the SEC website).
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