The AICPA has recommended to the SEC that U.S. public companies be allowed the option of adopting use of IFRS as the commission weighs a possible future framework for incorporating IFRS into the U.S. financial reporting system.
The SEC requested the comments when it issued its staff paper, Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, on May 26.
“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 V. Stahlin, AICPA chairman, and Barry C. 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. 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,” Stahlin and Melancon said.
The SEC’s request for comments on incorporating IFRS into the U.S. financial reporting system sets the stage for a possible decision by the commission later this year that may set parameters for convergence of IFRS with U.S. GAAP and a phased timeline for U.S. adoption of IFRS.
The comment letter notes several issues to address in conjunction with the adoption of IFRS:
Endorsement. The Institute supports an endorsement approach that would retain FASB as the “U.S. standard setter to facilitate the incorporation of IFRS into U.S. GAAP.” If the SEC adopts an endorsement approach that allows the SEC and FASB to modify or supplement IFRS, the letter recommends “that the threshold for modifications to IFRS be set high so that, as stated in the Staff Paper, modifications would be a rare occurrence.”
Prospective application. The Institute supports prospective application of the endorsed standards “wherever possible,” but the comments note that this is “incompatible” with IFRS 1, First-time Adoption of International Financial Reporting Standards, which requires retrospective applications with certain specific exceptions and exemptions. This would require “the SEC and its staff to work with the IASB to accommodate the needs of U.S. issuers in making the transition to IFRS.”
Transition. The Institute raised concerns about the transition plan outlined by the SEC, noting that a long, drawn-out process of endorsing standards would be costly and disruptive, and would create confusion for many constituents. For many companies, particularly smaller issuers, constant changes to accounting requirements over a period of several years would create considerable hardship.
Regulatory environment. Any transition to IFRS would be a “comprehensive undertaking” that would require “changes in the auditing and regulatory environment.” The Institutes encourages the PCAOB to seek “greater harmonization of its auditing standards with International Standards on Auditing issued by the International Auditing and Assurance Standards Board.”
Role of FASB. The Institute said FASB “should be focused on working with the IASB in the development of high-quality financial reporting standards and on developing authoritative implementation guidance and interpretations with the IASB.” But the letter expresses concern that educational guidance should not be the board’s “central mission” since it may be viewed as authoritative when it is not intended to be seen as such. “Implementation or interpretive guidance should be developed as part of the standard setting activities with the IASB.”
Private companies. The letter also restated the Institute’s support of the recommendations of the Blue-Ribbon Panel on Standard Setting for Private Companies, which issued a report in January that called for establishing a separate board for developing exceptions and modifications to current U.S. GAAP for private companies. “If a separate board was established, FASB could focus on the endorsement of IFRS into the U.S. financial reporting system for public companies in a more effective and efficient way.”
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