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FASB response to SEC on use of IFRSs in the United States

  • FASB (old) Image

09 Nov 2007

In a Letter to the US Securities and Exchange Commission 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:
  1. 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.
  2. 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'.
  3. 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.
  4. 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.
  5. We strongly agree with the SEC that the reconciliation requirement would be removed only for companies applying IFRS as adopted by the IASB.

Click to view Letter to the US Securities and Exchange Commission (PDF 146k).

 

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