SEC Chair reaffirms commitment to global standards

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19 May 2010

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:

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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