Mr Marshall replaces Ian Mackintosh who was recently appointed vice-chairman designate of the IASB (see our earlier story on the IASB appointments). He will take up his role as interim ASB chairman with immediate effect. Mr Marshall takes the helm just as the ASB has brought out one of its most controversial documents, the exposure draft of the new Financial Reporting Standard for Mid-Size Entities (FRSME). Click for the FRC press release (link to FRC website).

 

And that is certainly how it looked when the US regulatory body, the Securities and Exchange Commission, issued the first progress report on its workplan which may, or may not, lead to IFRS becoming the financial reporting norm for the largest US companies, and the US, as a result, joining the rest of the world in the use of one financial reporting language. The SEC had promised to publish the report by the end of October and, keeping the tension high to the end, released it on the last working day of the month.

Indeed on the day before, at the SEC's New York office, the Monitoring Board which oversees the work of the IASB had met. And SEC Chairman Mary Schapiro had joked afterwards that the SEC could hold the report out for longer and put it up on the website on Halloween night. Instead it appeared on the website at the same time that IASB Chairman, Sir David Tweedie, and FASB interim Chair, Leslie Seidman, were speaking at the annual Deloitte IFRS Summit, also held in New York. So for two days activity and discussion was intense. The progress report shows, as such reports should, that progress has been made. But there is nothing in the report to suggest which way the final argument may go. It is a sober consideration of the efforts which have been made to evaluate the IFRS process and all of its possible consequences.

That may disappoint those who wanted a more significant boost to the movement towards global harmony. But they should hearken to the wise words of the SEC's Chief Accountant, Jim Kroeker. I chatted to him after the Monitoring Board meeting and he was dampening down speculation about the nature of the progress report's conclusions. But he made a significant remark. "If we had seen anything fatal we would have said so", he said. "But we didn't". So no one should be downcast at the downbeat nature of the report.

But there are still significant problems ahead. One is the funding of the IASB. Again, in conversation, Mary Schapiro made it plain that one of the most important issues in maintaining and safeguarding the independence of the IASB was to ensure that it was properly funded. The SEC progress report points out that the IASB is currently running a sizeable deficit and that its funding is haphazard. The report makes the point that: "Not all jurisdictions that have incorporated IFRS in some form as part of their financial reporting system contribute to the IFRS Foundation. In fact, based on the Staff's initial research, it appears that less than 25% of these countries contribute; in other words, three out of four countries reported by the IFRS Foundation as permitting or requiring some form of IFRS provide no monetary funding". And the progress report goes on to comment that: "Conversely, the two national jurisdictions with the largest contributions in 2009 were the United States (£1.85 million) and Japan (£1.74 million), neither of which have formally incorporated IFRS into the financial reporting system for their domestic reporting issuers". Then, says the report: "In fact, voluntary contributions from the United States, principally from large US companies, have been the largest country-specific source of funds to the IFRS Foundation. During 2009, 2008, and 2007, payments from US-based contributors accounted for 17%, 22%, and 26 %".

No wonder that Schapiro was making the point that the IASB needed a stable source of funding and at present, she said: "we don't have that". "There needs to be sufficient funding that is stable over the long run", she said, "to ensure the IASB's independence".

Curiously enough it is the EU which has reduced its contribution. Perhaps it should listen to the relevant EU Commissioner for Internal Market and Services. Like Mary Schapiro, Michel Barnier is a member of the Monitoring Board, and at the meeting the day before the progress report's publication he made the point that ensuring the stable funding of the Board was a major objective and that the Board's independence should never be undermined. And then he went on to stress his thanks to Sir David Tweedie for all his work. Maybe the cheque is in the post.

Elsewhere all was sweetness and light. Both Tweedie and Seidman made it plain that there was the resolve to sort out a slimmed down agenda of essential work which should be completed by the middle of 2011. And at the Monitoring Board meeting Tweedie stressed that: "There had been vast improvements because of the convergence programme", and found his words echoed by Mary Schapiro who said that: "The convergence process is also a process which has got both the IASB and FASB to produce higher quality standards".

There is a long way to go before the SEC allows the US to join with much of the rest of the world and use IFRS. But the progress report is a hopeful sign. The SEC promises to report back with a decision sometime next year. Schapiro suggested it would be later rather than sooner in the year. And with the Halloween precedent no one is betting, as she again joked, against a New Year's Eve announcement at the end of next year.

Robert Bruce
November 2010

Related links

• The Bruce Column – Going Global, and Positive (September 2011)
• The Bruce Column – Condorsement Still in the Pending File (June 2011)
• The Bruce Column – The Challenges of the Year Ahead (January 2011)
• The Bruce Column – Great Expectations in October (September 2010)
• The Bruce Column – A Roman Holiday For the SEC (September 2010)
• Our United States country page
• Our SEC page

 

 

Securities and Exchange Commission (SEC) staff published their first periodic progress report on the SEC's previously issued work plan. The work plan is being used by the SEC staff to gather information that will aid the SEC in evaluating whether, when and how IFRS should be incorporated into the U.S. financial reporting system. The SEC indicated that it will make a decision in 2011 after completion of the work plan and the convergence projects of the IASB and FASB.

The Work Plan addresses six key areas:

• Sufficient development and application of IFRS for the U.S. domestic reporting system.
• The independence of standard setting for the benefit of investors.
• Investor understanding and education regarding IFRS.
• Examination of the U.S. regulatory environment that would be affected by a change in accounting standards.
• The impact on issuers both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
• Human capital readiness.

The progress report describes the steps the SEC staff has taken thus far as well as what steps it will take in the future to gather the necessary information. For example, significant outreach activities have been performed in order for the staff to better understand the potential challenges of transitioning to IFRS. The progress report includes the staff's understanding of the different approaches used by various jurisdictions around the world in incorporating IFRS into their financial reporting systems and how those jurisdictions currently utilise their national standard setter. Also, the staff continues to evaluate the funding arrangement of the IFRS Foundation as well as the IASB's standard setting process.

"The progress report demonstrates the SEC's continued commitment to achieving a single set of high-quality, global accounting standards" said Joel Osnoss, Global Managing Director – IFRS Clients and Markets. Osnoss further added that "continued progress on the work plan will help ensure that the SEC is well-positioned to make a decision in 2011 about the use of IFRS in the U.S."

Additional progress reports on the work plan are expected during 2011.

"The SEC's decision about the use of IFRS in the U.S. has become increasingly important as more countries around the world adopt IFRS" said Veronica Poole, Global Managing Director – IFRS Technical. She added that "the recent financial crisis revealed the true interdependent nature of the global capital markets making the need for a single set of global accounting standards absolutely critical."

For more information on the SEC progress report, see Heads Up One Step Closer to IFRSs? - SEC Issues First Progress Report on Consideration of Incorporating IFRSs Into U.S. System (PDF 196kb), published by Deloitte (United States).

Deloitte (United States) has published an updated edition of IFRS: An Update for Boards and Audit Committees (PDF 738k), a guide to help boards and audit committees stay abreast of the latest IFRS developments and understand their potential implications.

This publication includes:

• An outline of some of the key potential accounting differences between IFRS and United States GAAP
• An update on standard-setting developments
• Questions that board and audit committee members should be asking management as they help guide their companies down the path of IFRS implementation

Click here to download IFRS: An Update for Boards and Audit Committees (PDF 738k).

The purpose of the Work Plan is to consider specific areas and factors relevant to a Commission determination in 2011 as to whether, when, and how the current financial reporting system for U.S. issuers should be transitioned to a system incorporating IFRS. The SEC expects to continue to report periodically on the status of the Work Plan in 2011.

Click to view SEC's progress report.

 

This edition focuses on:

• Principles-based accounting: The application of judgement in the application of IFRS principles
• Events after the reporting period
• An update on Canadian and international standard setting activities

Click here to download the October 2010 edition of Countdown (PDF 808k). A French translation is also available (PDF 694k). Click here to visit our Canada country page.

 

The proposed standard is the first step in the IAASB'S work to create robust standards for services that can be used by entities that are either not required or do not elect to be audited to meet their business reporting needs.

Click here for IAASB Press Release (IFAC website), which includes a link to download the proposal. Comments are due by 31 March 2011.

This batch includes editorial corrections and changes to IFRS for SMEs (issued July 2009), IFRS 9 Financial Instruments (issued November 2009), Bound Volume (Red Book) 2010, Bound Volume (Blue Book) 2010, Improvements to IFRSs (issued May 2010) and IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets (issued October 2010).

Click for Editorial Corrections to IFRSs.

 

The Exposure Drafts set out proposals for a three-tier reporting framework, which aims to balance the needs of preparers and users of accounts.

The proposed three-tier approach, which has been developed and consulted on over the past six years, builds on the existing system:

• Tier 1 – Quoted groups will continue to report under international financial reporting standards (IFRS), as adopted by the EU. They would be joined in Tier 1 by other companies that are publicly accountable. This would apply if their debt is traded on public markets, or if they hold deposits or manage other people's money. (Some very small financial institutions would be exempt.)
• Tier 2 – All other UK entities, except those that apply the Financial Reporting Standard for Smaller Entities (FRSSE), would report under a new standard based on the IFRS for SMEs, which is considerably shorter and less complicated than current UK standards. The FRSME, as it would be called, would be modified to comply with UK and EU law and to ease tax reporting.
• Tier 3 – The smallest companies will continue to use the simplified version of UK standards, the FRSSE.

The consultation period will run until 30 April 2011. It is proposed that the new framework would be effective from 1 July 2013.

The document published today includes an explanation of the proposals, a draft Impact Assessment and the two new proposed standards. Click for:

• ASB press release (link to ASB website)
• The Future of Financial Reporting - Part One: Explanation (PDF 528k)
• The Future of Financial Reporting - Part Two: Draft Financial Reporting Standards (PDF 1.174k)
• The Future of Financial Reporting - Appendices (PDF 339k)
• A Key Facts Document compiled by the ASB (PDF 274k)
• Our UK country page