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Is IFRS Coming to America?

February 7, 2012

Late last year SEC Chief Accountant, James Kroeker, told us that a decision on IFRS is still a few months away. His comments indicated the he couldn’t give a precise schedule given the number of things on the SEC’s agenda. Kroeker made the remarks at the AICPA National Conference on Current SEC and PCAOB Developments in Washington when he said that the SEC will make a decision on IFRS “carefully and thoughtfully, being guided by an ideal that  produces the maximum benefit for the investing public and the capital markets”.

Kroeker indicated that significant progress had made on several FASB and IASB Memorandum of Understanding convergence projects including other comprehensive income and financial reporting fair value guidance. He also stated that he was optimistic about the prospect of achieving converged revenue recognition and leasing standards.

Conversely, Kroeker said that a converged solution on the financial instruments project did not appear encouraging and that the timeframe for and impairment model is uncertain. The Chief Accountant emphasized that the FASB and IASB need to work hard to “maximize the prospects of converged, high-quality solutions”.

In early January SEC Chairman, Mary Schapiro, echoed Kroeker’s remarks when she said that a decision on IFRS will be decided “in the next few months”. She added that there are some challenges that have to be addressed before the SEC will be comfortable making the ultimate decision about whether to “incorporate IFRS into the US reporting regime”. The major hurdles she spoke of include the independence of the International Accounting Standards Board and “the quality and enforceability of standards”.

International Pressures

In late January IASB Hans Hoogervorst stepped up public pressure on the SEC when he said that the US would ultimately accept IFRS. “Quite simply, they need us and we need them”, he added
Hoogervorst acknowledged that IFRS poses many practical challenges for the SEC. The US uses a mature, sophisticated and time-tested set of accounting standards, so he admits that this “is not an easy decision to make”. As with and major shift, like moving from US GAAP to IFRS, transition issues need to be carefully addressed.

The challenges in moving to IFRS are real, but Hoogervorst says the SEC and IFRS are optimistic that IFRS can become a legitimately global accounting standard. “The US is committed to supporting global accounting standards,” Hoogervorst said. “It is SEC policy, it is US government policy and it is the policy of the G20, in which the US is a key player.”

Is “Condorsement” the only viable option?

Meanwhile Fitch Rating predicts that the SEC will use the “condorsement” approach to IFRS adoption in the US Fitch warned that the condorsement approach would lead to a prolonged, cautious and incremental adoption of IFRS.

The condorsement approach to IFRS was proposed by the SEC in 2010 as a possible IFRS adoption method. Condorsement consists of IFRS standards either being endorsed by the FASB and adopted into US GAAP or converged where the FASB is not comfortable with endorsement without additional convergence.
Fitch argues that condorsement is the “only viable option” for the US to introduce IFRS.

Despite promising to decide by the end of 2011 if it would permit IFRS to be used across the US, the Securities and Exchange Commission is still yet to make a decision on IFRS use. Fitch warns that investors and other IFRS stakeholders may have to wait a while for the SEC’s decision, especially since a final decision may be predicated on completion of major Memorandum of Understanding projects, particularly financial instruments, impairment, revenue recognition and leases.

The Condorsement approach “not only preserves some measure of control of the accounting standards that will be incorporated into US GAAP, but it should also preserve FASB’s active participation in global standard setting”, Fitch stated. Fitch expects the US to move forward with its plan to incorporate IFRS into US GAAP, but expects a “prolonged, cautious and incremental” approach to IFRS.

The Impact of IFRS on America is Real

It doesn’t matter what the timing or the approach to acceptance of IFRS in America is, companies are being affected by IFRS now. Like it or not, the significant changes to US GAAP over the last few years have been heavily influenced by international standards. Its time that companies being to be more proactive about anticipating what impact IFRS “condorsement” (or other less likely adoption approaches) will have on systems, long-term projects, corporate governance, decision-making criteria and the like.

What will you do if the SEC “condorses” IFRS?

One Comment leave one →
  1. CFO Thoms permalink
    February 18, 2012 12:19 pm

    Dear Author,

    Thanks for a detailed account for where we stands on the IFRS introduction in the US. You suggest that we should prepare for the IFRS impacts on “systems, long-term projects, corporate governance, decision-making criteria and the like”. Could you tell us what sort of impacts we may need to watch? I am curious about the impact of IFRS on the long-term projects and corporate governance, but cannot be precisely sure what you meant by these, please?

    CFO Thomas

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