Continued Convergence – Accounting

The Commission supports and encourages the efforts currently underway by the IASB and the U.S. FASB to converge IFRS and U.S. GAAP. Recognizing that IFRS are principles-based standards, the Commission recommends that foreign regulators give full consideration to the positions of their international counterparts regarding application and enforcement of IFRS, and seriously endeavor to avoid conflicting conclusions, such as the divergent standards applicable to derivatives.

At the same time, the Commission acknowledges and respects the authority of IFRS countries to sort out amongst themselves the agreeable method for interpreting IFRS principles. The SEC should not involve itself unnecessarily in this process. In this regard, the Commission applauds recent public statements by the SEC director of Corporate Finance that the SEC does not intend to become the arbiter of IFRS, and encourages the SEC to apply faithfully IFRIC interpretations of IFRS and to defer to home-country regulators where appropriate in reviewing financial statements filed by foreign private issuers under IFRS.

In addition, the Commission would further encourage the SEC to continue and redouble its efforts to work within the IOSCO toward the convergence of international disclosure standards, particularly with respect to financial disclosure. Modifying home-country disclosure to comply with similar but different SEC standards merely adds costs for foreign private issuers.

Continued Convergence – Auditing

The Commission also recommends that the SEC and PCAOB work with their international counterparts and the IAASB toward global convergence of U.S. and international auditing standards. The Commission strongly believes that it is imperative that international convergence of accounting standards be accompanied by convergence of audit standards.

The Commission believes that U.S. and international regulators and standards-setting bodies should accomplish accounting and auditing convergence within five years.

Elimination of the Reconciliation Requirement

The Commission also recommends that the SEC immediately consider an alternative approach for eliminating the reconciliation requirement. Specifically, the Commission proposes that the SEC establish a process by which it could, on a case-by-case basis, determine that a foreign country's accounting standards are sufficiently equivalent to U.S. GAAP that foreign companies from that jurisdiction would not be required to reconcile their financial statements to U.S. GAAP for SEC financial reporting purposes. The foreign country would be required to provide reciprocity for U.S. companies. As a potential model, the Commission suggests consideration of an approach similar to that set forth above in the subsection 'Substituted Compliance – Foreign Brokers and Exchanges'.

• CA, JP, US work plans. The work plans and timetables of the Canadian, Japanese, and US accounting standard setters toward convergence with IFRSs. CESR did not evaluate the progress toward convergence but, rather, collected information "available from public sources".

• Equivalence definition. A recommended definition of equivalence. CESR concludes that "he criteria for deciding equivalence should be that investors should be able to make a similar decision irrespective of whether they are provided with financial statements based on IFRSs or on third country [non-EU] GAAP". However, CESR notes that the definition is only one part of the framework for assessing equivalence. Equivalence also requires reliable (a) "filters at country levels for ensuring market confidence", (b) audit assurance, and (c) enforcement to ensure that the non-EU GAAPs are applied and complied with properly.
• Use of 'third country' GAAPs. A summary of which third country (non-EU) GAAPs are currently used in the EU regulated markets. CESR found that at least 33 different non-EU national GAAPs are used on EU regulated exchanges. Click for Table Derived from CESR Report (PDF 17k). CESR also identified around 130 non-EU issuers using Member States' GAAPs, such as UK GAAP. CESR did not find any legal requirements in EU Member States to reconcile non-EU GAAPs with IFRSs.

Monitoring developments and the enforcement of accounting standards

IOSCO closely monitors the developments in International Financial Reporting Standards (IFRSs), comments on proposed changes and routinely discusses standard-setting work with representatives of the International Accounting Standards Board (IASB). IOSCO encourages a reduction in the complexity of accounting standards and in the number of exceptions to principles. It also calls for an appropriate balance between the costs and benefits of accounting standards.

IOSCO has always stressed the importance of implementing IFRSs consistently throughout the world. In order to support this objective, the TC has developed the IOSCO IFRS Regulatory interpretation and Enforcement Database. Access to this database is available to securities regulators that have signed a participation agreement and is designed for sharing regulatory interpretation and enforcement decisions related to IFRSs. The IOSCO database is compatible with a similar database maintained by CESR and has been operational since January 2007.

Click for Full Text ((PDF 95k).

The main changes from the 2006 Bound Volume are the inclusion of:

• IFRS 8 Operating Segments
• Four new Interpretations:
  • IFRIC 9 Reassessment of Embedded Derivatives
  • IFRIC 10 Interim Financial Reporting and Impairment
  • IFRIC 11 IFRS 2–Group and Treasury Share Transactions
  • IFRIC 12 Service Concession Arrangements
• Amendments to other IFRSs resulting from these pronouncements
• The Due Process Handbook for the IASB, which was published in April 2006
• A brief history of each pronouncement, which has been added to its title page