On July 13, 2012, the Securities and Exchange Commission (SEC) issued a Work Plan for the Consideration of Incorporating International Financial Reporting Standards (IFRS) into the Financial Reporting System for U.S. Issuers (Work Plan).
It is important to note that this Work Plan does not indicate that U.S. based publicly traded companies will be required to comply with IFRS, but rather addresses concerns over a potential conversion. The Commission noted that there will be additional analysis and consideration performed, prior to any final determination.
The staff of the SEC put together the Work Plan, examining different options, ranging from full implementation of IFRS, to convergence, to no action being taken. The staff focused on the following areas to determine their recommendation:
- Development of IFRS – The staff noted that in certain areas, IFRS is less developed as compared to U.S. Generally Accepted Accounting Principles (GAAP). GAAP also needs further development in some areas, but the general perception is that there is less need for development in GAAP as compared to IFRS.
- Interpretive process – The current mechanism in place to review widespread accounting issues that have arisen within the context of current IFRSs could be done on a timelier basis. New steps have been implemented, but it remains to be seen as to how effective they will be.
- International Accounting Standards Board (IASB) Use of National Standard Setters – In order to develop accounting standards that could be incorporated in multiple jurisdictions, the IASB needs to understand the intricacies of a number of distinct domestic reporting and regulatory systems. The IASB should consider greater reliance on national standard setters, as they may have a greater understanding of a technical issue, have the ability to decrease diversity in practice, and assist with post implementation reviews.
- Global Application and Enforcement – the staff noted that, based on a review of several sets of financial statements prepared in accordance with IFRS, the standards could be more consistently applied for greater comparability.
- Governance of the IASB – The IASB does not have a mandate to consider implementation of standards and how it would impact a single capital market. Due to this, the staff noted that it may be necessary to maintain the Financial Accounting Standards Board (FASB) to endorse new IFRS pronouncements.
- Status of Funding – the IFRS Foundation is a not-for-profit corporation, which has no ability to compel funding. The IASB currently relies on large public accounting firms to fund its work.
- Investor Understanding – The staff noted that investor education is not consistent across all investors, and that any changes will require improved investor education.
Additional considerations in their determination included that currently many jurisdictions utilizing IFRS have a mechanism in place to review new IFRS standards prior to implementation, that implementation costs have the potential to be high, that IFRS may potentially be confusing to investors, and that many laws, regulations, and private contracts contain reference to US GAAP.
It is expected that the SEC will use the staff’s Work Plan as guidance in determining whether to require or allow IFRS for U.S. registrants. No deadlines for reaching a decision were disclosed.
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