News highlights for January 2012

The SEC staff released reports analyzing the current reporting practices of companies using IFRS and comparing U.S. GAAP and IFRS requirements in specific areas.

The first report, An Analysis of IFRS in Practice, is a 65-page joint effort by the SEC’s Division of Corporation Finance and Office of the Chief Accountant that shows the results of an analysis of the most recent annual consolidated financial statements of 183 companies, including both SEC registrants and nonregistrants, that prepare financial statements in accordance with IFRS.

Although the staff was careful to highlight that its observations “are not intended to be determinative as to whether or not IFRS is positioned for incorporation into the financial reporting system for U.S. issuers,” the report concluded that, “[f]irst, across topical areas, the transparency and clarity of the financial statements in the sample could be enhanced.”

It outlined as examples the failure of some companies to provide accounting policy disclosures in certain areas that appeared to be relevant, insufficient detail or clarity in accounting policy disclosures to support an investor’s understanding of the financial statements, and use of terms that were inconsistent with the terminology in the applicable IFRS. Further, the report said, some companies referred to local guidance, making certain disclosures challenging to understand. In some cases, it was unclear whether a company’s accounting complied with IFRS because of the disclosures or lack thereof.

“Second, diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries,” the report said. “... In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS.”

The report said the diversity arising from the standards themselves was sometimes mitigated by guidance from local standard setters or regulatory bodies that narrowed the range of acceptable alternatives already permitted by IFRS or provided additional guidance or interpretations. Additionally, diversity was mitigated by a tendency by some companies to carry over their previous home country practices in their IFRS financial statements. And “[w]hile country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level,” the report said.

The report is available at

The second report, A Comparison of U.S. GAAP and IFRS, is a 52-page summary of similarities and differences between the two sets of reporting standards in 29 FASB Accounting Standards Codification subject areas. The document, which was prepared by the SEC’s Office of the Chief Accountant, doesn’t compare standards in areas on the standard setters’ current list of priority convergence projects. The comparison did not consider SEC rules and regulations or SEC staff guidance, except in limited instances that are noted. The report is informational only and does not include conclusions or recommendations.

The second report is available at

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