Slightly over a year ago, the SEC released its roadmap for the use of International Financial Reporting Standards (IFRS) by domestic reporting entities in the United States. The proposed roadmap included the voluntary use of IFRS by the largest users by industry beginning in 2010. The minor matter of a “financial crisis” in the U.S., and worldwide, caused the SEC to first push back the comment deadline, then to seemingly abandon the concept altogether as such a change was viewed as a low priority by the new administration led by SEC Chairperson Mary Schapiro. Additionally, the elasticity displayed by the International Accounting Standards Board (IASB) in the face of pressure from the European Union indicated to U.S. users that, perhaps, IFRS was not ready for primacy. As a result, efforts by preparers and auditors to get up to speed on the principles of IFRS seemed, for a time, to be a waste of time and resources in a fragile economy.
Now that the worst of the crisis has apparently passed, post-mortems on the responses of the IASB and the U.S. Financial Accounting Standards Board (FASB), as well as their continuing standard-setting agendas are starting to again bring cries of “can’t everybody just get along?” The need for one set of high quality global accounting standards is clearly evident. The chairman of the FASB, Robert Herz, has often and consistently acknowledged this. Nearly as often, whether out of modesty or practicality for its acceptance, he has also acknowledged that the FASB is not that standard setter. It is, however, fairly well accepted that as voluminous and “rules-based” as U.S. Generally Accepted Accounting Principles (GAAP) are, they are still the most comprehensive rules available, covering many areas that IFRS do not. So, is IFRS the answer?
The chairman of the IASB, Sir David Tweedie, has called for the SEC to move forward with its proposal to allow or require IFRS by domestic registrants. There have been several reports, both within and outside the IASB, that the convergence efforts with the FASB be suspended in order for the IASB to save money and time by concentrating its efforts on improving IFRS for its users, irregardless of any remaining differences with U.S. GAAP. It is understandable that the IASB wants the SEC to commit, which would provide the IASB with the impetus to continue the convergence efforts and open up potential funding opportunities. By the same token, if the SEC does not make such a commitment, then the IASB has little incentive to continue the convergence efforts. It would then better serve its constituency by focusing its efforts on priorities set by their users, and not some of the farther-reaching measures being addressed under convergence.
So, where does the SEC stand? The SEC’s new chief accountant, James Kroeker, and commissioner Elisse Walter recently remarked that the IFRS roadmap was not abandoned and that the SEC was making its way through the many comment letters it had received. Although not committing to what kind of time table would be in the new release, a likely casualty of the delay would be the 2010 initial filing date for voluntary reporting if the SEC decides to keep that part of the roadmap. It is important to remember that the roadmap or whatever it may be called upon its next iteration, once adopted, is not a change in regulation, but only a list of steps that the SEC will consider in the coming years as it addresses the issue of reporting under IFRS for domestic registrants. Failure of specific points of the release, or rousing successes, will not spell doom or acceptance, but the analysis of the steps in their totality will be used to judge the ultimate acceptance of IFRS or the decision to stick with FASB’s U.S. GAAP.
The continuing efforts by the IASB to improve their standards, not only as brought to light by the financial crisis, but also into areas that IFRS do not currently address, as well as the convergence efforts, whether they be called convergence or co-improvement projects with the FASB, are critical to the acceptance of IFRS by preparers, users, auditors, regulators and analysts in the U.S. and around the world. Based on the projects on the FASB’s and IASB’s agendas, and their recent announcement of “redoubling” their efforts, including the scheduling of monthly joint meetings, future U.S. GAAP will have some very striking similarities to IFRS and vice versa. Whether or not IFRS is ultimately adopted as required or optional by the SEC, the U.S. GAAP used by registrants will, in many respects, be IFRS-like.
The continued convergence or improvement projects on both the FASB’s and IASB’s agendas were also an important milestone in the proposed roadmap. As envisioned, the end result of these efforts will bring users of IFRS and U.S. GAAP to a level of equivalency, the differences of which will only matter to the most meticulous of bean-counters. The two boards have targeted June 2011 as the completion date for the projects. If successful, these changes will make a move by the SEC to accept IFRS important only in the seeming ceding of standard-setting to an entity outside their control. It is critically important to all users of financial statements that they keep an eye on these developments, and the money and resources expended will be well spent.
Selected Provisions of the Proposed Roadmap
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