The Securities and Exchange Commission voted unanimously to issue a statement affirming support for a single set of high-quality globally accepted accounting standards and ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers.
Accounting firms and companies have been eagerly awaiting approval of the proposed roadmap that the SEC issued in 2008 for transitioning from U.S. GAAP to IFRS. In the commission’s vote Wednesday, the SEC reiterated its cautious support for IFRS, contingent upon reaching a number of milestones, including convergence of U.S. GAAP with IFRS and improved governance of the International Accounting Standards Board. The SEC staff has developed a detailed work plan that will be followed by standard-setters such as the Financial Accounting Standards Board in its work with the IASB. The staff will report back regularly to the commissioners on their progress, and a decision will be made in 2011 on whether to move forward on incorporating IFRS into the U.S. financial reporting system.
“I recognize that supporting the development of a single set of high-quality accounting standards is, in many respects, only the beginning of the discussion, not the end,” said SEC Chairman Mary Schapiro. “We must still determine what this means for U.S. companies and markets; should we incorporate IFRS into our reporting system and, if so, when and how?”
SEC Chief Accountant Jim Kroeker noted that some people who had commented on the proposed roadmap had asked for four to five years to make the transition. “The decision to incorporate IFRS into our financial reporting system would be, to say the least, highly significant,” he said.
“Investor protection will continue to be paramount,” he added.
Schapiro noted that when the SEC proposed the roadmap in November 2008, it did not have all the information necessary to make the decision on whether to incorporate IFRS. “But, we remain on a steady path to be in the position to make such a determination in 2011 – the target date that was identified in the proposed roadmap.”
The SEC statement reaffirms the commission’s support for a single globally-accepted standard, describes the issues that need to be further examined and analyzed, and lays out the events that must occur between now and 2011.
“Specifically, the convergence projects currently underway between the FASB and the International Accounting Standards Board must first be successfully completed,” said Schapiro. “And our staff must gather information to aid the commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market.
“In 2011, upon conclusion of the fact-gathering and analysis set forth in the work plan – and assuming completion of the convergence projects – the commission will then be in a position to determine whether to incorporate IFRS into the financial reporting system for U.S. public companies,” she added. “Until that time, we will expect staff to provide periodic written public reports to the commission on the progress of its efforts.”
Commissioner Kathleen Casey said she believed that the staff’s efforts would help minimize the obstacles. However, she emphasized that the independence of standards-setters such as the IASB would be an important milestone to be met. “It is important now as ever that standard-setters be free from undue pressure that could compromise the standard-setting process,” she said.
Commissioner Elisse Walter said she had been concerned about a “dual-GAAP system,” but added that those fears had been allayed. “It is not going be one of the things that keep me awake at night,” she said. However, she emphasized that it is important for FASB to have a “continuing and substantive role moving forward.”
“The work plan will get us to a decision point,” she added. “While the plan is ambitious, I am extremely confident that our energetic staff will get it done.”
Commissioner Luis Aguilar emphasized that enforcement mechanisms to combat accounting fraud would need to remain in place. “The strong framework must be accompanied by vigorous enforcement,” he said. “Investors can trust the numbers that U.S. public companies report because of the strong infrastructure for financial reporting in the United States, including a robust law enforcement culture that deters and punishes false accounting. If we move forward with IFRS, it will be because we have determined that the standards are enforceable and U.S. investors can trust the numbers. ... A key question for me is whether we will be able to protect U.S. investors from unreasonable judgments.”
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