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FAF Comments on SEC Staff Paper About Incorporation of IFRSs

Published on: 15 Nov 2011

Today, the Board of Trustees of the Financial Accounting Foundation (FAF) submitted a comment letter to the SEC on the May 2011 SEC staff paper Exploring a Possible Method of Incorporation.1 The Trustees noted that they agreed with the fundamental incorporation concepts of the SEC staff’s proposal because such concepts (1) demonstrate U.S. commitment to developing global accounting standards, (2) preserve U.S. GAAP as the required standards for U.S. financial reporting, (3) retain U.S. oversight over accounting standard setting in U.S. capital markets, (4) allow high-quality comparable standards to be issued on the basis of a common set of financial reporting standards, and (5) permit a gradual transition toward common, global standards that are based on IFRSs. However, the FAF also shared several concerns outlined in responses to the staff paper submitted by U.S. stakeholders. In particular, the Trustees recommended that the SEC address (1) the diminished role of the SEC in protecting investors in the U.S. capital markets because the SEC would no longer be the sole regulator in U.S. markets; (2) concerns about transferring significant authority to an international standard-setting body where there is inconsistency in reporting, auditing, and enforcement of IFRSs; and (3) reduction of the FASB’s role and influence.

Accordingly, the Trustees offered an alternative incorporation approach that would first focus on the short-term, more practical goal of establishing highly comparable (but not necessarily identical) financial reporting standards that would be based on IFRSs. The Trustees also suggested that having a single set of global accounting standards would be the longer-term objective.

The Trustees’ incorporation approach would (1) reaffirm the U.S. commitment to comparable global reporting while allowing the FASB to retain authority over the accounting standard-setting process in the United States to protect investor interests; (2) refine the FASB’s role in the international standard-setting process by encouraging its continued work with the IASB on completing MoU2 projects as well as refine its involvement in other technical projects on the IASB’s agenda3 while developing a process to address significant differences between U.S. GAAP and IFRS; (3) retain the FASB’s authority as the U.S. independent standard setter with the ability to set its own technical agenda for projects of significant importance to the U.S. financial reporting that are not on the IASB’s agenda; (4) promote defining the role of all national standard setters regarding the setting of international standards;
(5) involve participation with the IASB to identify funding sources from the United States; and (6) provide for a periodic joint review by the FAF, SEC, and FASB of the status of U.S. standard setting relative to global standard setting.

[1] For a summary of comment letter themes on the SEC’s staff paper, see Deloitte’s November 8, 2011, Heads Up.

[2] The boards’ Memorandum of Understanding (“MoU”) outlines a roadmap for convergence between IFRSs and U.S. GAAP and identifies various short- and long-term projects.

[3] Under the incorporation approach, the FASB would refrain from separately engaging in standard setting on new technical projects added to the IASB’s agenda.

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