No IFRS Requirement Until 2015 or Later Under New SEC Timeline


The SEC unanimously approved on Wednesday a new timeline that envisions 2015 as the earliest possible date for the required use of IFRS by U.S. public companies. The SEC action calls for more study of IFRS and a 2011 vote on whether to move ahead with a mandate to use IFRS.


While it affirms the commission’s desire to keep moving toward IFRS adoption, the new timeline offers issuers some breathing room from the 2014 deadline originally spelled out in the proposed road map the SEC unveiled in 2008.


That road map also would have allowed certain U.S. companies to use IFRS before 2014. But in the statement approved Wednesday the SEC said it is not pursuing an early adoption option and, accordingly, withdrew the proposed rules that would have permitted it. The SEC could reconsider this position at a later date.


The statement also says the SEC is not excluding the possibility that issuers may be permitted to choose between the use of IFRS or U.S. GAAP.


The statement says the SEC staff will continue work on a detailed plan for IFRS adoption and will provide periodic written public reports on the plan’s progress starting no later than October 2010. 


The work plan recognizes IFRS is best positioned to serve as the single set of high-quality global accounting standards Commissioner Kathleen Casey said. “It would serve to help ease the transition to IFRS and minimize the impact of any obstacles along the way. It also considers whether the transition should be optional vs. mandatory and whether the transition should take place by all public companies on the same date or staggered,” she said.


“The work plan does not raise any new obstacles or establish a checklist prior to the use of IFRS,” Casey said. “It sets forth key steps and processes staff will take to provide necessary information to the commission and to evaluate key transitional issues in transitioning to IFRS in order to drive the process.”


The statement directs the SEC staff to develop the plan with the following issues in mind:


  • Determining whether IFRS is sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S. reporting system.
  • Ensuring that accounting standards are set by an independent standard setter and for the benefit of investors.
  • Investor understanding and education regarding IFRS and how it differs from U.S. GAAP.
  • Understanding whether U.S. laws or regulations, outside of the securities laws and regulatory reporting, would be affected by a change in accounting standards.
  • Understanding the impact on companies both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations and litigation contingencies.
  • Determining whether the people who prepare and audit financial statements are sufficiently prepared, through education and experience, to convert to IFRS.


The SEC staff will conduct research, and also seek comments from and hold discussions with investors, preparers, auditors, attorneys and academics, among others. It is not clear whether public comment on the plan would be sought.


While SEC Chairman Mary Schapiro stressed that the SEC is “on track to make a recommendation in 2011,” commissioners said that requiring U.S. public companies to report in IFRS is a highly significant decision that they would not make unless they are certain it is the best move for investors and the companies involved. (Click here to watch the video of Schapiro's remarks on the SEC's IFRS proposal.)


A key issue is progress of the convergence project undertaken by FASB and the International Accounting Standards Board (IASB) under which the two standard-setting boards have agreed to merge their separate sets of standards into a single, high-quality set. Under the agreement, the boards are taking the best approach from either U.S. GAAP or IFRS or jointly developing entirely new standards where the current standards of neither body are deemed to be of sufficient quality (see "Countdown to Convergence").


In response to a question from Schapiro on the future role of FASB under the staff’s work plan, SEC Chief Accountant James Kroeker said he could foresee FASB continuing to have a substantive role moving forward, even post-transition.



Investors, issuers and representatives of the CPA profession contacted by the JofA Wednesday generally responded positively to the SEC’s plan, though some were clearly disappointed that the SEC did not set a certain date for IFRS adoption.  

“The decision puts healthy pressure on all parties involved to achieve the best product for investors,” said Standard & Poor’s Chief Accountant Neri Bukspan, CPA. “The SEC made an appropriate decision in continued support of a global set of consistent high-quality accounting standards, which we support at Standard & Poor’s.”


However, Bukspan echoed concerns expressed by Commissioner Luis Aguilar who, while expressing support for the SEC statement, demanded strong regulation and rigorous law enforcement and questioned whether fraud can be prevented under IFRS and whether the costs involved in making the switch will be justified.


“To be effective, IFRS will require some global consistency, global structure, appropriate funding and oversight as well as consistent enforcement,” said Bukspan.


Many stakeholders who commented on the earlier proposal cited concern over the cost of moving to the new standard. They also said the 2008 road map would not give them enough time to transition to the new standards if the SEC does not reach a decision until 2011.


The road map, which was introduced under former Chairman Christopher Cox, outlined a plan that would have required the largest U.S. companies to file IFRS reports for fiscal years beginning on or after Dec. 15, 2014, provided certain milestones (including—but not limited to—improvements in accounting standards) had been met by 2011.


For the new plan unveiled Wednesday, early feedback from issuers was mixed. “We support the renewed commitment by the SEC to move forward with their consideration of whether IFRS is suitable for use by U.S. domestic companies and how that transition should take place,” said IBM’s Aaron Anderson, CPA. “Having applied IFRS for many of our subsidiaries’ statutory filings, we are confident the evidence gathered will support a decision in 2011 to allow or require IFRS for U.S.-domiciled companies in addition to the foreign filers who have that option today.”


“After all this time, the SEC decision is somewhat disappointing,” said Eli Lilly Chief Accounting Officer Arnold C. Hanish. “This doesn’t help us and it’s not inconsequential because there’s cost associated with waiting. We have systems projects in progress that if we knew the SEC’s end game, we could incorporate modifications once rather than having to make multiple changes. We have competitors that are currently reporting  under IFRS and  a few  affiliates that have  been required to adopt  IFRS for  local statutory  reporting. It’s time for the SEC to drive a stake in the ground so we, FASB and IASB have a date certain to drive  toward.”


Accounting and auditing groups, while applauding the SEC’s action, focused on the need for the SEC to set a certain date for the use of IFRS.


“The AICPA supports the thoughtful and concrete steps the SEC is taking as outlined in its plan today to prepare for this transition,” said AICPA President and CEO Barry Melancon. “The AICPA believes that it is critical for the SEC to set a date certain for use of IFRS in the U.S., and we urge the commission, as it completes this work plan in 2011, to ensure investor confidence is maintained and key milestones lead successfully to global standards in 2015.”


The International Federation of Accountants (IFAC), while expressing support for the SEC decision, pushed for earlier adoption. “We are disappointed that [the SEC] is not seeking an adoption date closer to the ambitions of the G-20—by June 2011—and urge the SEC to allow for early adoption of IFRS for severely affected multinational companies,” said IFAC President Robert Bunting.


The AICPA-affiliated Center for Audit Quality (CAQ) expressed similar sentiments. “The SEC’s action, in conjunction with the staff’s forthcoming work plan, should provide a path forward to the incorporation of IFRS into the financial reporting system for U.S. issuers,” said Cindy Fornelli, executive director. “We encourage the commission to execute its action plan so it is in a position next year to make a positive decision to adopt IFRS .”


Wednesday’s vote was the commission’s first formal action on IFRS since Schapiro took office in early 2009. During her confirmation hearings, Schapiro appeared to be skeptical of the road map proposed under her predecessor when she highlighted concerns about a lack of consistency in the application of IFRS, the cost for U.S. companies to switch to IFRS from U.S. GAAP, and the independence of the IASB (see “SEC Nominee Pledges to Revitalize Enforcement, Has Concerns About IFRS”).


Alexandra DeFelice ( and Matthew G. Lamoreaux ( ) are JofA senior editors.


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