SEC Issues IFRS Progress Report

The Securities and Exchange Commission (SEC) moved another step closer to adopting International Financial Reporting Standards (IFRS) as the Office of the Chief Accountant and Division of Corporation Finance published the first progress report of the work plan to evaluate convergence efforts in the United States. The SEC had instructed the office to consider whether implementation of IFRS to U.S. reporting standards was viable, as well as how and when a transition would be possible.

The report, though short on definitive answers, expounds on the methods the office is using to analyze the effects of the potential adoption of IFRS in the United States and ongoing convergence efforts. When the work plan is complete, the SEC has indicated that it will be in a better position to determine whether to implement IFRS in the U.S. financial reporting system.

“This progress report emphasizes the importance of transparency in the staff’s activities, and can help the public’s understanding of the magnitude of this project and the staff’s progress,” said Jim Kroeker, chief accountant of the SEC, in a press release.

Six major areas are being investigated in the work plan:

Sufficient development and application of IFRS for the U.S. reporting system

• Determining the IFRS’ comprehensiveness; auditability and enforceability; and comparability with other jurisdictions.

The independence of standard setting for the benefit of investors

• In early 2011 the work plan will analyze the monitoring board of the IFRS and assess areas for improvement.

Investor understanding and education regarding the IFRS

• The work plan is reviewing possible implementation of IFRS because “the main benefits to investors of a single set of high quality globally accepted accounting standards would be realized only if investors understand and have confidence in the basis for the reported results.”

Regulatory environment

• The investigation of industry regulators; federal and state tax impacts; audit regulation and standard getting; and public versus private companies, among others.

Impact on issues

• An analysis of the magnitude and logistics of incorporating IFRS in terms of cost, effort and time to issuers and whether the benefits will outweigh the costs.

Human capital readiness

• An evaluation of the training and the auditor capacity if the SEC determines to ultimately incorporate IFRS into the financial reporting system for the U.S.

The SEC said that it expects periodic reports of the work plan in 2011.