SEC Strikes the Right Tone on IFRS

February 24th, 2010

Investors should be well-pleased with the SEC’s newly-approved list of factors to be considered before any decision is made about whether and how International Financial Reporting Standards (IFRS) might be incorporated into the financial reporting system for U.S. issuers.

Overall Approach

The SEC’s overall approach to IFRS decision-making was approved at an open meeting on February 24, 2010. Led by Chief Accountant Jim Kroeker, the Commission’s staff presented a carefully crafted work plan designed to protect the masses of U.S. investors who might need to learn a second accounting language, if the SEC were to permit the use of IFRS for domestic reporting. Among other things, the SEC’s plan calls for careful consideration of the following factors:

  • Sufficiency of development and consistency of application of IFRS.
  • Adequacy of investor understanding of IFRS.
  • Acceptability of the impact on issuers of all sizes, including the costs and timeframes needed to adapt accounting systems, corporate governance practices, and litigation considerations.
  • Desirability of the impact of a switch to IFRS on the entire U.S. regulatory environment, including other forms of reporting, such as tax reporting.
  • Readiness of all the various players in the financial reporting process, including regulators and enforcement agencies.
  • Sustainability of the accounting standard-setting processes in the U.S. and at a global level.

Investors’ Interests and Trust Are Key

Remarks by SEC Chairman Mary Schapiro and Commissioner Luis Aguilar indicate that investors’ interests and trust will be high on the list of key considerations before IFRS gets a green light for domestic U.S. reporting.

Chairman Schapiro noted that any such go-ahead would represent a significant undertaking. She cautioned that, “We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.” Commissioner Luis Aguilar added that, “If we move forward with IFRS, it will be because we have determined that… U.S. investors can trust the numbers.”

The critical factors in Aguilar’s view include whether IFRS will provide investors with higher quality information than U.S. GAAP, whether IFRS can be as rigorously audited and enforced as U.S. GAAP, and whether the benefits to investors will justify the costs to preparers of financial statements. Stressing that it is too early to say whether U.S. financial reporting will move to IFRS, Aguilar said that the promise of a single set of globally accepted accounting standards is worth pursuing and that the SEC is committed to working toward a responsible, informed decision that is in the best interests of investors.

Well said, Chairman Schapiro and Commissioner Aguilar. The Center for Financial and Accounting Literacy applauds the SEC’s progressive yet practical approach to evaluating possible use of IFRS by U.S. issuers.

Entry Filed under: Accounting

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