SEC Issues Proposed Road Map for Mandatory IFRS U.S. Adoption of IFRS

By Steven Marcy
Publication date: 11/18/2008

The Securities and Exchange Commission Nov. 14 formally issued its proposed road map that could lead to mandatory adoption by U.S. domestic financial report filers of international financial reporting standards beginning as early as 2014 for the largest financial report filers.

The SEC voted Aug. 27 to propose the road map. It issued the road map Nov. 14 as it will appear in the Federal Register. Publication there triggers a 90-day comment period on the formal proposal. Originally, the SEC had contemplated a 60-day comment period after Federal Register publication.

The SEC also said Nov. 14, in its 165-page proposal, that it is "proposing this Roadmap towards the mandatory, rather than elective, use of IFRS for U.S. issuers in order to promote fully a single set of high-quality globally accepted accounting standards to improve the comparability of financial information prepared by U.S. public companies and foreign companies."

Allowing use in the United States of IFRS as issued by the International Accounting Standards Board, a decision that the SEC expects to make in 2011, depends on progress in several areas and the achievement by that date of seven "milestones," the SEC said.

However, the proposal also allows the largest U.S. companies in the largest 20 companies worldwide in each of their industries to apply to use IFRS voluntarily in the United States. To be granted early voluntary adoption of IFRS, the companies must have extensive enough foreign operations so that most of their financial statements already are being filed in IFRS.

"Any decision we may take to expand the use of IFRS to U.S. issuers would necessitate our evaluation of whether global developments support the assertion of IFRS as the single set of high-quality globally accepted accounting standards that is applied consistently across companies, industries and countries," the SEC said. Growing competition in global financial markets to raise capital is a major reason behind the consideration of allowing U.S. companies to use IFRS domestically, the SEC said.

In formally adopting the road map, the SEC said it "recognizes that the use of a single, widely accepted set of high-quality accounting standards would benefit both the global capital markets and U.S. investors by providing a common basis for investors, issuers and others to evaluate investment opportunities and prospects in different jurisdictions."

The G-20 heads of government who met in Washington, D.C., for the Nov. 15 summit on the causes and potential solutions to the world financial crisis called on world accounting standard setters to "work intensively toward the objective of creating a single high-quality global standard".

Seven Milestones

Chester Abell, Ernst & Young national tax partner in charge of tax accrual services, told a news conference call Nov. 17 that he found no substantive changes in the seven milestones as spelled out by the SEC staff Aug. 27 and as published Nov. 14.

The seven milestones are:

  • improvements in accounting standards by the Financial Accounting Standards Board and the IASB so that both are of sufficiently high quality and are comprehensive;
  • progress toward a stable, secure, and independent funding mechanism for the International Accounting Standards Committee Foundation, which oversees the IASB;
  • improvement in the ability to use interactive data for IFRS reporting, such as eXtensible business reporting language;
  • early voluntary use of IFRS to demonstrate that its use will enhance comparability of financial reporting in the United States;
  • sufficient education and training of accountants, auditors, and investors in IFRS;
  • SEC rule making that can be accommodated to fit with domestic use of IFRS; and
  • whether the mandatory use of IFRS is wise and whether and how it should be sequenced.

The SEC for now is proposing that large accelerated filers be required to begin IFRS filing in 2014, accelerated filers in 2015, and smaller public companies in 2016.

Three Prior Years

Beginning in the year in which they would be require to use IFRS, companies would also need to supply the SEC with audited financial statements using IFRS for the three previous years before IFRS became mandatory, even though the financial reports they had filed annually for each of those reports would still have been in accordance with U.S. generally accepted accounting principles, the SEC said. The idea is to allow a transition period to give companies time to convert to IFRS while still allowing them to file annual reports under GAAP, the SEC said.

Growing competition in global financial markets to raise capital is a major reason behind the consideration of allowing U.S. companies to use IFRS domestically, the SEC said.

The SEC road map proposal is on the Web at:
http://www.sec.gov/rules/proposed/2008/33-8982.pdf

© 2008, The Bureau of National Affairs, Inc.

SEC Issues Proposed Road Map for Mandatory IFRS U.S. Adoption of IFRS

By Steven Marcy
Publication date: 11/18/2008

The Securities and Exchange Commission Nov. 14 formally issued its proposed road map that could lead to mandatory adoption by U.S. domestic financial report filers of international financial reporting standards beginning as early as 2014 for the largest financial report filers.

The SEC voted Aug. 27 to propose the road map. It issued the road map Nov. 14 as it will appear in the Federal Register. Publication there triggers a 90-day comment period on the formal proposal. Originally, the SEC had contemplated a 60-day comment period after Federal Register publication.

The SEC also said Nov. 14, in its 165-page proposal, that it is "proposing this Roadmap towards the mandatory, rather than elective, use of IFRS for U.S. issuers in order to promote fully a single set of high-quality globally accepted accounting standards to improve the comparability of financial information prepared by U.S. public companies and foreign companies."

Allowing use in the United States of IFRS as issued by the International Accounting Standards Board, a decision that the SEC expects to make in 2011, depends on progress in several areas and the achievement by that date of seven "milestones," the SEC said.

However, the proposal also allows the largest U.S. companies in the largest 20 companies worldwide in each of their industries to apply to use IFRS voluntarily in the United States. To be granted early voluntary adoption of IFRS, the companies must have extensive enough foreign operations so that most of their financial statements already are being filed in IFRS.

"Any decision we may take to expand the use of IFRS to U.S. issuers would necessitate our evaluation of whether global developments support the assertion of IFRS as the single set of high-quality globally accepted accounting standards that is applied consistently across companies, industries and countries," the SEC said. Growing competition in global financial markets to raise capital is a major reason behind the consideration of allowing U.S. companies to use IFRS domestically, the SEC said.

In formally adopting the road map, the SEC said it "recognizes that the use of a single, widely accepted set of high-quality accounting standards would benefit both the global capital markets and U.S. investors by providing a common basis for investors, issuers and others to evaluate investment opportunities and prospects in different jurisdictions."

The G-20 heads of government who met in Washington, D.C., for the Nov. 15 summit on the causes and potential solutions to the world financial crisis called on world accounting standard setters to "work intensively toward the objective of creating a single high-quality global standard".

Seven Milestones

Chester Abell, Ernst & Young national tax partner in charge of tax accrual services, told a news conference call Nov. 17 that he found no substantive changes in the seven milestones as spelled out by the SEC staff Aug. 27 and as published Nov. 14.

The seven milestones are:

  • improvements in accounting standards by the Financial Accounting Standards Board and the IASB so that both are of sufficiently high quality and are comprehensive;
  • progress toward a stable, secure, and independent funding mechanism for the International Accounting Standards Committee Foundation, which oversees the IASB;
  • improvement in the ability to use interactive data for IFRS reporting, such as eXtensible business reporting language;
  • early voluntary use of IFRS to demonstrate that its use will enhance comparability of financial reporting in the United States;
  • sufficient education and training of accountants, auditors, and investors in IFRS;
  • SEC rule making that can be accommodated to fit with domestic use of IFRS; and
  • whether the mandatory use of IFRS is wise and whether and how it should be sequenced.

The SEC for now is proposing that large accelerated filers be required to begin IFRS filing in 2014, accelerated filers in 2015, and smaller public companies in 2016.

Three Prior Years

Beginning in the year in which they would be require to use IFRS, companies would also need to supply the SEC with audited financial statements using IFRS for the three previous years before IFRS became mandatory, even though the financial reports they had filed annually for each of those reports would still have been in accordance with U.S. generally accepted accounting principles, the SEC said. The idea is to allow a transition period to give companies time to convert to IFRS while still allowing them to file annual reports under GAAP, the SEC said.

Growing competition in global financial markets to raise capital is a major reason behind the consideration of allowing U.S. companies to use IFRS domestically, the SEC said.

The SEC road map proposal is on the Web at:
http://www.sec.gov/rules/proposed/2008/33-8982.pdf

© 2008, The Bureau of National Affairs, Inc.