State Board Report

August 2012

The Final Staff Report on "Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers" from the Office of the Chief Accountant of the U.S. Securities and Exchange Commission was released on July 13, 2012 and it does not contain a recommendation to the SEC on whether to incorporate IFRS in U.S. reporting standards. What the paper does do is summarize what the staff learned in the areas covered by their Work Plan (published in February 2010) regarding the potential impact of any incorporation of IFRS into the financial report system for U.S. issuers.

Among the Staff 's findings highlighted in the paper were:

  • There are areas of standards that continue to be underdeveloped in IFRS, such as the accounting for extractive industries, insurance and rate-regulated industries.
  • The IFRS Interpretations Committee should do more to address issues on a timely basis.
  • To develop accounting standards that could be incorporated in multiple jurisdictions, the IASB should consider greater reliance on national standard setters. "The national standard setters could assist with individual projects for which they have expertise, perform outreach for individual projects to the national standard setter's home country investors, identify areas in which there is a need to narrow diversity in practice or issue interpretive guidance, and assist with post-implementation reviews."
  • As IFRS is being incorporated into the standards of an increasing number of countries and being applied in different ways, more emphasis needs to be placed on regulators working cooperatively if IFRS is incorporated into the financial reporting system for U.S. issuers.
  • "As it relates to considering the needs of U.S. investors and U.S. capital markets, the Staff believes that it may be necessary to put in place mechanisms specifically to consider and to protect the U.S. capital markets – for example, maintain an active FASB to endorse IFRS."
  • The SEC staff 's most significant concern about the funding mechanism for the IFRS foundation "is the continued reliance on the large public accounting firms to provide funds to the IASB."

The Staff observed: "…there is substantial support for exploring other methods of incorporating IFRS that demonstrate the U.S. commitment to the objectives of a single set of highquality, globally accepted accounting standards while addressing some of the aforementioned concerns."

In two sections of the Staff 's paper, NASBA's comment letters to the SEC on the 2008 IFRS Roadmap are quoted. One reference stated: "Commenters on the 2008 Roadmap stated that IFRS allows for increased flexibility as compared to U.S. GAAP, which may result in standards that are less enforceable – a factor which would not be in the public interest" (page 27 of the new Staff report). The second reference, at the very end of the report on page 126, stated: "[some] firms would determine that they were not able to maintain competence in two standards (U.S. GAAP and IFRS) and would elect to serve only clients that used standards for non-issuers, which would result in further concentration of auditing and other accounting services in the remaining firms that have expertise in IFRS." The SEC staff agrees that a more gradual transition period to IFRS would give auditors the opportunity to keep abreast of the changes in U.S. GAAP related to any incorporation of IFRS, while a less gradual change might have firms choosing to exit the audit market – or, alternatively, have them "welcome the business opportunities created by the broader application of IFRS."

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