Giving companies enough time to carefully prepare for a move from U.S. GAAP to IFRS is critical, the AICPA told the SEC in a comment letter filed Thursday.
The AICPA assembled members from business and industry with public company backgrounds to discuss questions the SEC posed in a recent request for comment about a potential IFRS mandate. “The overriding message from panel participants was that an adequate transition period will be the most important consideration in mitigating concerns outlined in the request for comment,” the letter states. How successful FASB and the International Accounting Standards Board (IASB) are at harmonizing GAAP and IFRS through their joint convergence projects is also major factor in determining how long and how challenging conversion will be, the Institute said.
In one release, the SEC asked for feedback regarding investor knowledge of the international accounting standards and what it might take–in time and logistics–to improve investor understanding of IFRS. A second release focused on gauging the impact that adopting IFRS would have on issuers’ compliance with contractual arrangements that require the use of U.S. GAAP and their compliance with corporate governance requirements, as well as the “application of certain legal standards tied to amounts determined for financial reporting purposes.” The SEC also has a general request form on its website for comment on the work plan. The AICPA’s comment letter is in response to the second release covering topics in the IFRS work plan affecting issuers.
In the portion of its letter regarding the impact of IFRS conversion on contractual arrangements, the AICPA voices support for a requirement for companies adopting IFRS to file one year of comparative financial statements rather than two. “Our research indicates that companies will need five years preparation time to adopt IFRS if the SEC requires two years of historical comparative financial statements. If only one year of comparative financial statements is required, a four-year transition period would be needed to adopt IFRS.” The SEC has not said what the requirement would be.
“Whether one or two years of comparative statements are required, a majority of round table participants believe the SEC should allow for a minimum of two years preparation time before the earliest opening balance sheet date. Companies will need to start tracking both U.S. GAAP and IFRS results on that date, and we believe most companies will need at least two years to prepare their systems,” the letter states.
The AICPA in its letter repeated its support for a “single set of high-quality, comprehensive accounting standards to be used by public companies” around the world, and said IFRS as issued by the International Accounting Standards Board appears to be “best positioned to become those standards.”
The SEC’s unanimous approval in February of a new policy statement and staff work plan set the scene for a watershed vote next year on if and when the CPA profession will be required to transition to IFRS for U.S. public company financial reports. The statement says the SEC is not ruling out the possibility that issuers may be allowed to choose between the use of IFRS or U.S. GAAP.
Though much remains uncertain, the SEC has made clear that it envisions 2015 as the earliest possible date for the required use of IFRS by U.S. public companies. Commissioners have called for more study of IFRS and a 2011 vote on whether to move ahead with a mandate to use IFRS. The SEC is expected to publish periodic progress reports on its work, starting no later than this month.
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