State Board Report
The Securities and Exchange Commission received more than 200 comment letters on its November 2008 “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers,” including a letter from NASBA. On February 24, 2010, the SEC released a statement evidencing it has been giving careful consideration to those letters and determined it does not have all the information necessary to make a determination regarding incorporating IFRS into the financial reporting system for US issuers. Consequently, the Commission has directed its staff to develop and execute a “Work Plan” to allow for the necessary fact gathering and analysis.
“For nearly 30 years, the Commission has promoted a single set of high quality globally accepted accounting standards, which would advance the dual goals of improving financial reporting within the U.S. and reducing country‐by country disparities in financial reporting,” said SEC Chairman Mary L. Schapiro. “But supporting this goal is only the beginning of the discussion, not the end.”
Included in this Work Plan will be consideration of IFRS, as it exists today and after the completion the convergence projects currently underway between the IASB and the FASB. By 2011, assuming completion of these projects and the staff’s Work Plan, the Commission will decide whether to incorporate IFRS into the U.S. financial reporting system and, if so, when and how, Chairman Schapiro announced.
The SEC’s statement includes a footnote acknowledging NASBA’s view that the SEC should maintain a relationship with the FASB. The Commission’s statement says: “We believe the FASB will continue to play a critical and substantive role in achieving the goal of global accounting standards. The FASB is the accounting standard setter for the US capital markets, and it should continue to work with the IASB to improve accounting standards. Moreover, that role would remain critical after adoption of global standards.”
The staff’s Work Plan will address issues highlighted in many of the comment letters, including:
‐ Determining whether IFRS is sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S. reporting system.
‐ Ensuring that accounting standards are set by an independent standard‐setter and for the benefit of investors.
‐ Evaluating investor understanding and education regarding IFRS and how it differs from U.S. GAAP.
‐ Understanding whether U.S. laws or regulations, outside of securities laws, would be affected by a change in accounting standards.
‐ Measuring the impact on companies, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations and litigation contingencies.
‐ Determining whether those who prepare and audit financial statements are sufficiently prepared, through education and experience, to make the conversion to IFRS.
In 2011, should the Commission determine to incorporate IFRS into the U.S. financial reporting system, US companies would report under such a system no earlier than 2015. The Work Plan calls for the staff to further evaluate this timeline.
The Work Plan specifically notes NASBA’s comments on IFRS resulting in standards that may be less auditable and enforceable, which would not be in the public interest.. Also cited in the Work Plan was NASBA’s concern regarding the existence of and future potential for jurisdictional variations of IFRS. Many of the other points cited in the Work Plan and the SEC’s statement (Release Nos. 33‐ 9109; 34‐61578) were also raised in NASBA’s comment letter which can be found on NASBA’s Web site www.nasba.org .
In response to the SEC’s “Statement in Support of Convergence and Global Accounting Standards,” the FAF issued a press release which said, in part: “As the FASB aims to complete in 2011 the important projects identified in our MoU (Memorandum of Understanding) with the IASB, we expect 2010 to be a pivotal year of progress. As our shared standard‐setting goals continue with the IASB, the FASB will maintain a priority for the pursuit of improvement in standards, an essential ingredient for the completion of MoU projects and a focus also underscored in the work plan in the segment entitled ‘Sufficient Development and Application of IFRS for the US Domestic Reporting System.’ The FASB will continue to address reporting issues of critical importance to US investors and financial markets while pursuing the international standard setting agenda.”
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