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CFA Institute critiques SEC IFRS report

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11 Aug 2012

The Chartered Financial Analysts Institute (CFA Institute) has published a brief summary of issues arising from the staff report of the United States Securities and Exchange Commission (SEC) on the possible incorporation of IFRS into the U.S. financial reporting system. The summary provides a critique of the report, pointing out a number of areas where the CFA Institute believes more analysis and evaluation is required.

The report, entitled Does the SEC have the will to find a way towards IFRS? notes that the final report is "comprehensive and organized" around a number of key themes, such as the costs and obstacles issuers would face in making a change from US GAAP to IFRS and the degree to which existing US GAAP is entrenched in U.S. regulatory regimes.

However, the report opines that "observations on investor preparedness, regulatory impact, issuer impacts, and human capital readiness offer commentary on the current state of affairs which, in our view, will evolve once a decision to adopt IFRS is made".  The report later concludes that in the CFA Institute's view "readers of the Final Report are left with data and observations but without an indication of how they will be weighed and evaluated".  The report laments the lack of analysis of whether IFRS is 'so sufficiently flawed' as not to be interests of investors, what exact modifications to IFRS would be needed to incorporate it into the US reporting regime, and whether issues of lack of comparability in IFRS is a greater obstacle than exists with multiple accounting languages.

The report outlines a number of analytical or evaluative questions that the SEC staff report does not answer, such as:

  • Which of the dimensions of the SEC IFRS Work Plan are most critical to a recommendation?
  • Which, if any, of the challenges are considered to be insurmountable and why?
  • What, if any, actions can or should be taken (and by whom) to address the challenges or obstacles, and over what time period?
  • To what degree should 'regulatory capture' of U.S. GAAP serve as an obstacle or deterrent to adopting accounting standards which are meant to serve investors rather than regulators?

The report concludes with the following observation:

Requiring most immediate attention, the Final Report leaves stakeholders wondering: What are the SEC’s next steps? Will there be a recommendation and what might be its timing? We believe it is imperative for the SEC to define the way forward, as failure to act or provide clear direction is, in substance, a decision not to incorporate IFRS. Rather than continued evaluation and delay, we believe investors would prefer the SEC to provide a path forward with an affirmative or negative decision.

Click for access to the CFA Institute report (link to CFA Institute website).

Additional resources related to the SEC report:

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