SEC Urged to Allow Adoption of IFRS in US
The American Institute of Certified Public Accountants has urged the Securities and Exchange Commission to allow U.S. public companies to adopt the International Financial Reporting Standards (IFRS) as the commission weighs a possible future framework for incorporating IFRS into the U.S. financial reporting system.
“Whether or not the SEC decides to incorporate IFRS into the U.S. financial reporting system through an endorsement/convergence approach, we believe U.S. issuers should be given the option to adopt IFRS as issued by the IASB,” Paul Stahlin, AICPA chairman, and Barry Melancon, AICPA president and CEO, said in a four-page letter to the SEC.
“An adoption option would provide a level of consistency in the treatment of U.S. companies and foreign private issuers that report under IFRS that does not exist today, and would facilitate the comparison of U.S. companies that elect IFRS with their non-U.S. competitors that use IFRS,” the letter stated.
“Furthermore, giving U.S. companies an option to adopt IFRS as issued by the IASB would be another important step towards achieving the goal of incorporating IFRS into the U.S. financial reporting system. Anecdotal evidence suggests that the number of companies that would choose such an option would not be such that system-wide readiness would become an issue.”
The SEC’s request for comments on incorporating IFRS into the U.S. financial reporting system paves the way for a possible decision by the commission later this year that may set parameters for convergence of IFRS with U.S. Generally Accepted Accounting Principles and a phased timeline for U.S. adoption of IFRS.
Stahlin and Melancon, jointly said: “The AICPA supports the goal of a single set of high quality, comprehensive financial reporting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world.
“We believe one common financial reporting language would benefit investors, as well as issuers and capital markets, because it would facilitate the comparison of reporting entities domiciled in different countries. We believe the standards issued by the International Accounting Standards Board (IASB) are best positioned to become those global standards,” they added.
“We, therefore, agree with the objective outlined in the Staff Paper that a U.S. issuer compliant with U.S. generally accepted accounting principles (GAAP) should also be able to represent that it is compliant with IFRS as issued by the IASB.”
The AICPA’s executives said they pragmatically accept the concept of an endorsement approach for the incorporation of IFRS into the U.S. financial reporting system and the retention of the Financial Accounting Standards Board (FASB) as the U.S. standard setter to facilitate the incorporation of IFRS into U.S. GAAP.
“We note, however, that there are practical challenges that could limit the effectiveness of the proposed methodology in achieving the SEC’s objective,” they said.
Those challenges and some possible solutions include transition and regulatory environment.
“For many companies, particularly smaller issuers, constant changes to accounting requirements over a period of several years would create considerable hardship,” AICPA’s letter stated.
Accordingly, after completion of the MoU priority projects, AICPA would recommend an endorsement process that would incorporate IFRS not subject to standard setting into U.S. GAAP for public companies at one point in time, with a date certain for adoption.
Furthermore, AICPA believes that FASB should “actively” assist in developing high-quality international financial reporting standards, be proactive in identifying new and emerging financial reporting issues, and to ensure that U.S. interests are suitably addressed in the development of those standards.