The AICPA on Thursday submitted comments on the SEC’s proposed road map for the use of IFRS by U.S. public companies. The Institute recommended additional changes to financial reporting regulations, a push to minimize dual recordkeeping requirements, and a call for optional early adoption to be expanded to include smaller companies.
The AICPA said it supports the goal of a single set of high-quality, comprehensive accounting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world. However, before adoption of IFRS, it said the SEC should implement the recommendations of the SEC’s Advisory Committee on Improvements to Financial Reporting relating to the use of professional judgment. In addition, the AICPA said it continues to encourage the PCAOB to pursue greater harmonization of its auditing standards with International Standards on Auditing issued by the International Auditing and Assurance Standards Board.
The Institute said t he U.S. financial reporting system will take substantive, definitive steps to ready itself for IFRS only when the SEC sets a date certain for requiring companies to adopt IFRS. When it comes to the specific timeline outlined in the proposed road map, the AICPA said that “mandating the use of IFRS in a staged transition beginning in 2014 is unreasonable if the SEC makes a determination to require use of IFRS by U.S. issuers in 2011.”
“We understand that many companies would need up to two years to make necessary information systems upgrades, which suggests that up to five years would be needed for some companies to make the transition,” the letter says.
However, the AICPA suggested that the implementation period could be shortened if, instead of requiring three years of IFRS financial information in the year a company first adopts IFRS, the SEC allowed U.S. issuers to follow IFRS 1, First-time Adoption of International Financial Reporting Standards, and provide only two years of information in the year of adoption. Furthermore, because it believes the period of dual recordkeeping should be minimized, the AICPA said the SEC should allow issuers to follow IFRS 1 regardless of when the SEC makes a determination to require the use of IFRS by U.S. issuers.
Although the AICPA supports permitting limited early use of IFRS, it says the proposed criteria companies would have to meet to qualify for this option are too restrictive.
“We, therefore, recommend that the option to early-adopt IFRS be expanded to other companies, in particular smaller companies. Furthermore, we believe that if the SEC decides to proceed with rules requiring U.S. public companies to file financial statements prepared in accordance with IFRS, all public companies should be permitted to early-adopt IFRS.”
The AICPA also recommended that the SEC use part of the current levy on U.S. public companies for accounting standard-setting activities as a permanent funding source for the International Accounting Standards Board.
From a technological standpoint, the AICPA said companies reporting under IFRS should have access to a more complete list of tags than is currently available under existing IFRS XBRL taxonomies.
“ We would expect that the US GAAP and IFRS XBRL taxonomies would be converged, and that the converged taxonomy would contain the appropriate level of detail to minimize the use of extensions while providing more comparable and transparent reported information to investors. A maintenance plan would also need to be formulated and implemented to ensure that the converged taxonomy would be updated with each new standard, and that if certain extensions become common, new standard elements can be added to eliminate the need to use these extensions.”
The letter says t he AICPA’s Board of Examiners has issued new content and skill specification outlines for the CPA exam that include IFRS on the list of study materials for the Financial Accounting and Reporting section. “We expect that IFRS questions will be on the Uniform CPA Examination on or before 2012,” the letter says.
For a full listing of JofA coverage on IFRS, click here.
