The word first appeared in December 2010. Paul Beswick, Deputy Chief Accountant at the US regulator, the Securities and Exchange Commission (SEC), invented it. In a speech at the AICPA conference outlining a possible approach to IFRS he said this: ‘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. Yes, I admit I just made up a word. And by the way, the patent is pending as we speak’.
Hold that patent. In comments to the IFRS Advisory Council meeting in mid-February James Kroeker, the SEC Chief Accountant, rowed back on the use of "condorsement" to characterise a possible move to IFRS in the US. A halfway house between convergence and endorsement was no longer being described. The word was not in the dictionary, he said. We shouldn’t make up words.
To many in his audience of senior members of the world’s IFRS community, this must have been encouraging. However, Kroeker remained as elusive as the SEC traditionally has been over whether and how to move the world’s largest economy from its traditional US GAAP financial reporting regime to IFRS, the one used by most of the rest of the world, might be made. ‘Hopefully we are on track for a few months time’, he said. And what does ‘few’ mean in this context? ‘More than a couple and less than many’, he said with a smile.
But the key message was that the SEC’s activities under their previously announced work plan are close to being completed, and a recommended approach will soon be issued as part of an SEC staff report. The worry has been that the SEC, with its astonishing rise in workload in the last year, might find that discussions about IFRS would slide back in importance and priority. Not so. But Kroeker explained some of the pressures which have led to delay. The decision to move ahead with the SEC workplan—involving consideration of the issues, a governance review and the status of convergence projects which would lead to an IFRS decision—was taken in February 2010. And then came the Dodd-Frank Act. Suddenly the gargantuan legislation to bring reform to the US financial markets landed in the SEC in-tray. Kroeker spelled out the details just in case we had underestimated the work involved. There were more than a hundred rule-making studies to be undertaken. It was ‘unprecedented in its magnitude’ since the creation of the SEC. It involved ‘tens of thousands of hours’ of work.
It had been no wonder that the timetable to produce a recommended approach had slipped. But Kroeker explained that ‘the decision last year to take a few additional months time should not be read as a negative indicator’. He said that the report was now in draft. And he praised the Monitoring Board of the IFRS Foundation for its publication, the week before, of its governance review. That was ‘the final point’ which they had been waiting for. The SEC report would be published in a few months time. And the SEC staff was working on a framework proposal. That is not to say that there weren’t challenging issues. Transitioning to IFRS from US GAAP would be complex to say the least. And you can see his point. The use of LIFO accounting in inventories or stock is tied deeply into US tax requirements. Changing to IFRS (which eliminated the practice years ago) would mean a loss of ‘somewhere north of $50 billion’, he said. The US corporate community would be likely to take a dim view. ‘That’, he said, ‘would be a $50 billion fight to have’. The challenges of rate-regulated accounting would have people ‘kicking and screaming’.
But, maintaining his optimistic message, Kroeker said that they would not want a handful of particularly challenging issues to hold up the issuance of the SEC report. ‘We may not align on Day One’, he said.
And the use of ‘US GAAP’ would continue. Inevitably it is embedded, as he pointed out, at multiple levels in the US system, federal, local, state, in regulations, in private party contracts, and so on. He drew a parallel with Canada. When they went for IFRS they retained the use of ‘Canadian GAAP’ so they could deal with the practical issues, engrained throughout the system, which arose.
Listening to the way Kroeker expressed his views, a possible scenario for US commitment to move to IFRS would be over a five-to-seven year timetable, on a framework applicable, eventually, to all public companies, with the FASB acting as the endorsement mechanism to ensure that future standards were in the best interests of US investors, and the SEC as the ultimate arbiter.
As for the option of companies using IFRS on a voluntary basis, this is still up in the air, but Kroeker seemed less warm to the idea of such an option, absent "a broader framework" for incorporation of IFRS into the US financial reporting system. In the context of such a framework, he said he could more easily see "getting there more quickly", although he wouldn’t call it "voluntary use", but rather in the traditional lingo of a standard setter, it would be more akin to "early election" rather than voluntary use.
Overall, those in favour of IFRS should be encouraged, but cautious. One of the longest and most drawn-out sagas of financial reporting does seem to be drawing to an end. However, uncertainty continues – at least for a "few more months".