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SEC Staff Issues Paper Exploring Possible Method of Incorporating IFRSs for U.S. Issuers

Published on: 27 May 2011

Yesterday, the SEC staff issued a staff paper that elaborates and requests comment on an additional potential method of incorporating IFRSs into the U.S. financial reporting system. Under this approach, IFRSs would be incorporated into U.S. GAAP “over some defined period of time (e.g., five to seven years).” Although acknowledging that the timeline for incorporation is a critical issue, the staff paper indicates that this issue is outside its scope. The staff paper also points out that “the Commission has not yet made a decision as to whether and, if so, how, to incorporate IFRS into the financial reporting system for U.S. issuers.”

The approach outlined in the staff paper combines elements of the convergence and endorsement approaches and was therefore called “condorsement” in a speech presented by a member of the SEC staff at the 2010 AICPA National Conference on Current SEC and PCAOB Developments. In addition to highlighting potential benefits and risks of the approach, the staff paper outlines the potential roles the FASB, SEC, and U.S. constituents would play in its development. Regarding the endorsement component, the FASB would continue to be involved in the IASB’s process for developing IFRSs and would “incorporate newly issued or amended IFRSs pursuant to an established endorsement protocol” and “retain the authority to modify or add to the requirements of the IFRSs” when doing so would be in the public interest and necessary to protect investors. The SEC would continue to monitor standard setting as part of its oversight responsibilities under federal securities laws. Further, a transition plan (a multistep process over several years) would be developed to incorporate existing IFRSs into U.S. GAAP. The staff paper delineates three categories of standards that are subject to the transition plan: (1) projects that are currently part of the FASB and IASB Memorandum of Understanding, (2) IFRSs currently on the IASB’s standard-setting agenda, and (3) all other IFRSs (i.e., those not currently subject to standard setting).

Comments on the staff paper are due by July 31, 2011. For more information about the staff paper, stay tuned for our upcoming Heads Up. In addition, we will be holding a webcast on the staff paper on June 13, 2011 (visit our Dbriefs home page for further details).

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