The following information has been derived from the official website of the US Securities and Exchange Commission (SEC)
.SEC Staff Publishes Final Report on Work Plan for Global Accounting Standards
On July 13, 2012 the US Securities and Exchange Commission published its final staff report
on the “Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers”.
The Commission directed the staff in February 2010 to develop and execute the Work Plan, and issued a statement at the time indicating that the information obtained would aid the Commission in deciding whether to incorporate International Financial Reporting Standards (IFRS) into the financial reporting system for US companies. The Commission has long promoted the development of a single set of high-quality globally accepted accounting standards.
The Work Plan addresses six key areas:
- Development and application of IFRS for the US domestic reporting system.
- The independence of standard-setting for the benefit of investors.
- Investor understanding and education regarding IFRS.
- Examination of the US regulatory environment that would be affected by a change in accounting standards.
- The impact on issuers, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
- Human capital readiness.
The following summary has been prepared by IASeminars staff.
What does the SEC Staff Report mean for US companies?
- The idea of replacing US GAAP with IFRS is not generally supported by the majority of participants in the US capital markets.
- There is however substantial support for exploring other methods of potential incorporation of IFRS (such as endorsement or convergence with US GAAP) that demonstrate the US commitment to a single set of high-quality, globally accepted accounting standards.
- IFRS is generally perceived to be high quality, but there continue to be areas that are underdeveloped (e.g., accounting for extractive industries, insurance, and rate-regulated industries).
- The IFRS Interpretations Committee (“IFRS IC” or “IFRIC”) should do more to address issues on a timely basis.
- The IASB should consider greater reliance on national standard setters, who could assist with individual projects, identifying areas of diversity in practice, issuing interpretive guidance, and post-implementation reviews.
- It may be necessary to put in place mechanisms specifically to consider and protect the US capital markets—for example, maintaining an active FASB to endorse IFRSs.
- The Staff believes that the wider financial reporting community (including the SEC) can be a constructive influence on the consistent application and enforcement of IFRS.
- In order to derive many of the key benefits of a single set of accounting standards, it is critical that those standards are applied and enforced around the world on a consistent basis. The results of the Staff’s review confirmed that, while the financial statements reviewed generally appeared to comply with IFRS, global application of IFRS could be improved to narrow diversity.
- The IFRS Foundation is a private not-for-profit organization whose funding is currently provided by businesses, not-for-profits, and governments in fewer than 30 countries. The Staff’s most significant concern about the funding approach is the continued reliance on the large public accounting firms to provide funds to the IASB.
- Regardless of the ultimate determination by the Commission as to whether to incorporate IFRS, the Staff will consider how investor engagement and education related to the development and use of accounting standards could be improved.
The Report is unlikely to lead to the mandatory adoption of IFRS in the US in the near future. However in our opinion, even without any SEC decision on the matter, IFRS is already highly relevant to:
- US companies that are following and implementing new FASB / IASB converged standards.
- US companies that are subsidiaries of (or otherwise connected to) foreign-owned businesses.
- US companies interested in selling equity on an international exchange or to a foreign buyer.
IASeminars is an independent financial training company specializing in international accounting seminars (IFRS & US GAAP & IPSAS) around the world. In the last 10 years, more than 13,000 participants from over 130 different countries have attended some 1200 different events designed, organized and delivered by IASeminars. We are considered a market leader in our field and have an excellent reputation for quality as evidenced by the feedback from our clients.