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AICPA Conference Recap - IFRS

January 3, 2013

Major regulatory challenges and initiatives

Throughout the talks of visions and realities, several major challenges and initiatives seemed to emerge as clear priorities that are sure to help shape the future of financial reporting.

Challenge No. 1: How and when should the SEC incorporate International Financial Reporting Standards (IFRS) into US financial reporting?

Acting SEC Chief Accountant Paul Beswick noted that the consideration of incorporating IFRS into US financial reporting could be the single most important accounting determination for the Commission since the SEC decided to look to the private sector to establish accounting standards in the 1930s. He said the SEC staff is working diligently to ensure the Commission is properly informed of the issues in preparation for the decision.

What to expect: Several regulators and standard-setters provided insights into current and future initiatives that may affect the SEC's decision about IFRS.

  1. Senior Associate SEC Chief Accountant Jenifer Minke-Girard summarized the findings in the SEC Staff's Final Report on the IFRS Work Plan. Overall, she said, the report was designed to provide information to the Commission, and it did not set out to answer the fundamental question of whether transitioning to IFRS is in the best interests of the US securities market or investors. This question will likely require additional analysis.

  2. IASB Chairman Hans Hoogervorst reported that over 100 countries now use IFRS, and the IASB is gearing up for the next phase which will involve new multilateral ways to engage with national standard setters. Recently, the IFRS Foundation proposed a forum of standard-setters, and the IASB hopes the FASB will be a fully engaged partner in this global forum. But Mr. Hoogervorst cautioned that US influence would be commensurate with its commitment to IASB's standards.

    Chairman Hoogervorst expressed frustration over the state of convergence with US accounting standards and the timing of the SEC's decision. He said he is concerned about the risk of increasing divergence after the formal program of convergence with the US has ended. He added that many people around the world expect a clearer indication of the US's intentions with regard to IFRS after a decade of progress to bring about convergence between US and international standards.

  3. FASB Chairman Leslie Seidman acknowledged that the relationship between the FASB and IASB is likely to change, but she said that doesn't mean the FASB thinks convergence is over or that divergence will occur. She believes the FASB should continue to work on the convergence projects and perhaps continue to narrow differences between US GAAP and IFRS using a less formal approach.

    Chairman Seidman described the FASB as the "boots on the ground" in the US, and she explained that it has been difficult to reach converged standards because the needs of US stakeholders are unique in several important respects. Most notably:
    • The US needs clear and unambiguous standards to cope with quarterly reporting requirements and short timeframes in which to close the books.
    • A standard must be capable of rigorous interpretation and application so that similar events and transactions are accounted for similarly across time periods and among companies.
    • US stakeholders often need support in interpreting standards, even after the standards have been issued.

  4. Adding more insights into the SEC's thought process, Deputy SEC Chief Accountant Julie Erhardt described the results of her research into the reasons why other countries converted to IFRS. One reason is that some countries see it as a domestic upgrade, meaning a way to improve the quality of their accounting standards by buying a set of standards instead of developing them. A second reason is that the companies based in the country may need to convert to attract foreign investors. A third reason is associated with foreign access, that is, the extent to which converged standards will ease obstacles to the flow of capital from one capital market to another. The US may be in a different position than most other countries with regard to some or all of these factors.

Challenge No. 2: What are the best ways to provide implementation guidance on accounting standard-setting projects and disclosure requirements?

Mr. Beswick noted that the FASB and IASB have been working hard to converge accounting standards on major joint projects for revenue recognition, leasing, and financial instruments. But he cautioned that coming up with converged standards is just the first step. A single set of high-quality global standards cannot be achieved without consistent implementation guidance. He believes that consistent implementation is important for both joint projects of the FASB and IASB and purely domestic FASB-only projects. Implementation guidance on several domestic projects could raise questions about the overlap between the FASB's standards and the SEC's disclosure requirements.

What to expect: Mr. Beswick offered a few suggestions.

  1. Currently, Mr. Beswick said, the SEC is working with other securities regulators around the world to keep implementation of converged standards consistent. At the same time, he pointed out, some trade organizations and others have been issuing their own non-authoritative implementation guides to individual convergence projects. He said that his office and the FASB have been wondering whether it might be better to take a more holistic approach. The SEC welcomes suggestions in this regard.

  2. Mr. Beswick suggested that 2013 might be a good time to give some thought to how best to avoid overlap in disclosure requirements or frameworks between the footnote disclosures required by the FASB's standards and the non-financial-statement disclosures required by SEC's regulations. As examples, he pointed to the FASB's projects on liquidity and interest rate disclosures, going concern disclosures, and the disclosure framework. Mr. Beswick said his office will host a roundtable in the coming months as the first step in considering an appropriate dividing line. Topics to be discussed include the importance of liability and auditing considerations.

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