SEC Proposes Date Certain for IFRS Transition

WASHINGTON -- The Securities and Exchange Commission (SEC) voted unanimously Wednesday to allow some large American companies to begin using international accounting standards as early as next year, and to require all American companies to do so by 2016, according to the New York Times.

The SEC will seek comment for 60 days on the"road map" to move from U.S. to international accounting. SEC Chairman Christopher Cox predicted U.S. regulators likely would vote again "late this year" on whether to endorse the plan, according to the Wall Street Journal.

The adoption of international accounting standards by the United States would move the world toward one set of standards, which the SEC said would make it easier for investors to compare companies operating in differing regions, and make it easier for companies to raise capital in whatever market seems most attractive, the Times reported.

Under the proposal, a small group of large companies, which the S.E.C. estimated to include about 110 firms, would be allowed to use the international rules in financial statements issued after Dec. 15, meaning that it could include the 2008 annual report for companies that report on a calendar-year basis, the Times reported.

To be allowed to do that, the company would have to be among the 20 largest companies in its industry around the world, and a large number of its competitors would have to already be using the international standards, according to the Times.
The commission said it would consider requiring large American companies to move to the international standards for their 2014 financial statements, with smaller ones required to make the move in 2015 and the smallest - but largest number - allowed to delay until 2016. Under the plan, a final decision on those companies would be made in 2011, according to the Times.

That decision would be made by an S.E.C. whose chairman, and most of its members, would have been appointed by a new president. But by allowing some American companies to stop using American rules before that, the current commission would make it very difficult for a new chairman to try and reverse course, according to the paper.

While there is widespread agreement that one set of standards would have advantages for investors, there are concerns about the transition and about how uniform the accounts will be. American companies and auditors will have to learn new accounting rules that as yet are not taught by many American colleges, the Times reported.

The SEC's action reflects the growing push toward international accounting rules, which are in place in more than 100 countries and are mandatory for public companies in the European Union, the Journal reported. The SEC proposal would require narrowing such gaps between the U.S. and international strandards before requiring all U.S. companies to convert from U.S. to international accounting, and ensuring that U.S. accountants are familiar enough with international accounting rules.

If the road map is eventually adopted, the result will be a wholesale change in American accounting rules. While the international board and the Financial Accounting Standards Board (FASB) are working to bring convergence of the rules, there remain differences, as well as entire areas on which the international rules are silent, according to the Times.

The AICPA in a statement Wednesday supported the SEC's decision and stressed that ongoing collaboration between FASB and the International Accounting Standards Board (IASB) is required to achieve convergence. The Institute also believes companies need to prepare for the shift to IFRS-based reporting using eXtensible Business Reporting Language (XBRL), a language for the electronic communication of business and financial data.

The S.E.C. previously decided that, beginning this year, companies private foreign issuers who use IFRS, will no longer have to reconcile their books to U.S. GAAP, the Times reported. As a result, American investors will now have to deal with two sets of accounting rules. Another issue is the financing of the IASB, which now comes from contributions from companies and accounting firms. FASB used to be financed in the same way, but the Sarbanes-Oxley Act, passed in 2002 changed that, instead giving it the right to levy charges on public companies, according to the Times. That was viewed as necessary to assure its independence.

Conrad Hewitt, the chief accountant of the S.E.C., said he was confident that within five years the international board would have secured a stable financing mechanism, the Times reported.

-- NYSSCPA.org News Staff

Posted on 8/27/08