SEC staff paper explores the 'condorsement' approach for IFRS adoption in the US

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27 May 2011

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:


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.

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).

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