On May 26, the Securities and Exchange Commission released a Staff Paper associated with its IFRS Work Plan. The paper outlines a possible method of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers.
Expanding on the notion of "condorsement", introduced into the IFRS dialog by Deputy Chief Accountant Paul Beswick in December, the SEC noted that the proposal is only one of many possible approaches to incorporating IFRS. The newest approach illustrates the depth of work under the SEC's IFRS Work Plan and reveals current thinking from the regulator.
Under the proposed framework, the U.S. Financial Accounting Standards Board would continue forward as the U.S. standard setter for public companies and would incorporate IFRS into U.S. Generally Accepted Accounting Principles over a defined period of time. The SEC suggests that this period would be five to seven years.
FASB would incorporate new and amended IFRSs into U.S. GAAP through an endorsement protocol. The protocol would give FASB the authority to modify IFRS before incorporating the standards into U.S. GAAP. However, the SEC stated that the preferred approach would be for FASB to work with the International Accounting Standards Board to prevent the need for modifications and U.S. specific modifications should be rare.
Where other countries initially aligned their standards through a first time adoption on a specific date, the SEC plan includes a transitional element. During a period of five to seven years, FASB would amend U.S. GAAP to align with IFRS.
According to the SEC, advantages to the condorsement approach include retention of U.S. GAAP and a gradual transition to IFRS. The gradual transition is viewed as less costly than a "big-bang" approach. However, the transitional elements of the plan raise concerns. A long, drawn out process would be disruptive and confusing to constituents. Constant changes to accounting rules over a period of several years could prove to be more costly than a single conversion date.
SEC Commissioner Kathleen L. Casey in a recent speech said, "The Commission is slated to make a decision on these questions this year, and we can no longer kick the can down the road. I believe the choice is clear — the Commission must decide to incorporate IFRS for U.S. issuers." The Commissioner also said that it might make sense to allow smaller companies and issuers without international operations the ability to opt out of IFRS.
What do you think about the SEC's condorsement proposal and the transitional aspects of the plan? Should IFRS be available as option to U.S. issuers? Finally, do you believe the SEC will make a decision on IFRS in 2011?
Your views are important and we thank you for your contribution to this discussion.