Earlier this year, Securities and Exchange Commission (SEC) chairman Mary Schapiro indicated that the regulator would be kicking off research efforts into how best to move the US towards adopting International Financial Reporting Standards (IFRS). This week, Schapiro has confirmed that despite the revised standards development timetable announced by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), the SEC is still hoping to be able to make a decision on whether to move to IFRS by the previously established 2011 deadline.
SEC staff has been charged with executing a work plan, the results of which it hopes will aid the regulator in its evaluation of the impact that the use of IFRS by US companies would have on the US securities market. Included in this work is consideration of IFRS, as it exists today and after the completion of various “convergence projects” currently underway between US and international accounting standards setters, which have recently been reprioritised by the FASB and IASB. By 2011, assuming completion of these convergence projects and the staff’s work plan, the SEC has pledged to decide whether to incorporate IFRS into the US market.
FASB and IASB have announced modifications to their timetable for and prioritisation of standards being developed under those boards’ joint agenda, which essentially means the project timeline has slipped by around six months. One of the reasons behind this is that groups like Financial Executives International have told the standards bodies that the large number of exposure drafts and proposed accounting standards updates expected in the next few months would be too much to absorb and respond to with comments in the previous timeline. Accordingly, the FASB and IASB will stagger the publication of exposure drafts and related consultations.
However, in spite of these timetable changes, the SEC is committed to its own deadline, according to Schapiro. “The boards believe that the modified plan will contribute to increased quality in the standards because it provides additional time for stakeholders to thoroughly consider the proposals and give both boards quality feedback. I view this as time that is well invested,” she explains.
“Quality financial reporting standards established through an independent process are threshold criteria against which the Commission’s future consideration of the role of IFRS in the US reporting system will be based. I foresee no reason that the adjustment to the targeted timeline for certain joint projects should impact the staff’s analyses under the work plan issued in February 2010, particularly when that adjustment is designed to enhance the quality of the standards. Indeed, focused efforts on those standards the boards consider highest priority for the improvement of US GAAP and IFRS will facilitate the staff’s analyses. Accordingly, I am confident that we continue to be on schedule for a Commission determination in 2011 about whether to incorporate IFRS into the financial reporting system for US issuers,” she concludes.
The move to IFRS by the US will have a significant impact on the pricing and valuations functions of internationally active financial institutions. Global harmonisation would allow for a more consolidated approach to this function, however such a change would take time. The US regulator has said that it expects US companies would need approximately a four to five year timeframe to successfully implement a change in their financial reporting systems to incorporate IFRS. Therefore, if the regulator determines in 2011 to incorporate IFRS into the US financial reporting system, the first time that US companies would report under such a system would be no earlier than 2015.
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