State Board Report
GAAP is integral to the State Boards’ complaint-based enforcement system, the yardstick for enforcement, NASBA Director-at-Large Gaylen Hansen reminded the Securities and Exchange Commission’s July 7, 2011 roundtable discussion on the potential impact of U.S. adoption of International Financial Reporting Standards. The more sets of standards there are, the more difficult enforcement becomes, he observed, and the more difficult comparability of financial statements becomes.
“The case must be made that IFRS is not only a good idea, but that it is clearly superior to what we have,” Mr. Hansen told the SEC discussion. “Considering the significant risks, the rewards must realistically offer superior and achievable benefits,” he stated. Mr. Hansen stressed the State Boards and NASBA are not vested in whether or not IFRS goes forward: “Our position is based solely on the national interest.”
Three panels were involved in the SEC’s event. The first represented financial information users, the second small businesses and the third regulators. Starting off the discussion SEC Chairman Mary Schapiro stated: “The major decision for this agency is to be guided by the investors’ needs. Our primary focus is to insure investors have the information they need.”
Gregory Jonas, managing director of Morgan Stanley, supported the SEC staff’s “condorsement” approach to IFRS (see sbr 6/11). He said “it rejects the status quo” and permits U.S. interpretation of IFRS. Similarly, Mark LaMonte, managing director of Moody’s Investors Service, told the SEC panel that getting to a single set of accounting standards is very important to his firm and warned that the U.S. can’t become isolationist, but needs to be part of the IFRS process.
Speaking for a large group of investors, Mary Morris, investment officer for the California Public Employees’ Retirement System, said they would offer their support to the SEC staff paper as convergence must move forward. However, David Larsen, managing director of Duff & Phelps noted: “There has been a healthy tension between the IASB and the FASB that has created better standards in the last five years.” He sees standard setting at a crossroads and it is “unlikely the FASB can exercise the same influence they have in the past.”
“Process, process, process: The IASB needs processes similar to the FASB’s, continuous and transparent,” commented Kevin Spataro, senior vice president of The Allstate Corporation. Neri Bukspan, executive managing director of Standard and Poor’s, stated: “The role of accounting is not to depict economic reality; it is to convey financial information. The role of accounting is to provide enough information for investors to make adjustments they need to make.”
With the adoption of IFRS, “there will be real pain,” Ron Zilkowski, chief financial officer of Cuisine Solutions, told the panel. “At the end, the world benefits at a price for small filers,” he observed. His sentiments were echoed by Charlie Rowland, chief financial officer of Viropharma: “From a corporate viewpoint, there is not a lot of short-term or long-term benefit we would realize.” Shannon Greene, chief financial officer of Tandy Leather Factory, agreed: “There would be no benefit of IFRS for our corporation. It will just be painful for us.”
When the smaller public companies were asked by SEC Chief Accountant James Kroeker if IFRS was something their clients were requesting, he was told it was not. Mr. Zilkowski said his company only had one such request. David Grubb, partner of Plante & Moran stated: “Investors are more focused on a clean opinion. They focus on cash flow.”
“There remain a lot of structural issues at IASB, such as funding and independence, and we have already seen delays in their standard setting,” Bill Yeates, national director of auditing and accounting for Hein & Associates, said. “We hope the SEC will give us at least another year or so before they establish a timeline for IFRS adoption — even another two years. There are a lot of risks in moving too quickly.”
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