State Board Report

December 2011

The Securities and Exchange Commission staff will take “a few additional months” to finish its study on International Financial Reporting Standards, SEC Chief Accountant James Kroeker told an AICPA conference on December 5. However, the staff did release two papers in mid-November, “A Comparison of U.S. GAAP and IFRS” and “An Analysis of IFRS in Practice,” both available on www.

Using U.S. GAAP as its reference point for the standard comparison study, the SEC staff focused on accounting requirements and compared those requirements to equivalent or corresponding IFRS requirements, as applicable. They omitted from their review any U.S. GAAP requirement and the IFRS equivalents that are subject to ongoing joint standard-setting efforts. The report states, “To date, the Boards have reached substantially (if not fully) converged positions on certain of the ongoing projects (revenue recognition and leases), thereby increasing the probability that IFRS and U.S. GAAP will be converged in these areas in the near-term. However, based on the deliberations and tentative conclusions reached thus far, it is unclear whether the Boards will be able to reach convergence on key aspects of all projects (e.g., on the various elements of the financial instruments project). Further, the Boards’ reprioritization of certain joint projects (e.g., financial instruments with characteristics of equity) makes it unclear whether these projects would be completed in the foreseeable future and, if so, whether substantive progress towards convergence would be made before any Commission consideration of whether to incorporate IFRS into the financial reporting system for U.S. issuers.”

For the paper on practice, the SEC staff analyzed the most recent annual consolidated financial statements of 183 companies which prepare financial statements in accordance with IFRS, about 80 percent of them being domiciled in the European Union. The staff focused on how the recognition and measurement requirements of IFRS were applied in practice. Then they compared their observations for all companies to identify trends on an overall basis as well as by country and industry.

Chief Accountant Kroeker told the AICPA conference, “The boards [Financial Accounting Standards Board and International Accounting Standards Board] are not aligned as it relates to their approaches to consider hedge accounting in the context of their financial instruments project.” He observed, that there are “numerous conceptual, operational and practical questions raised about the proposal to date that I believe should be considered by both boards jointly.”

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