SEC will seek comments on new possibility for voluntary IFRS adoption

The SEC is considering the merits of an informal proposal that would allow voluntary filing of supplemental material in financial statements by U.S. public companies, according to SEC Chief Accountant James Schnurr.

U.S. GAAP would be retained as the required basis for financial statements under an idea Schnurr is pursuing.

The SEC will ask investors, issuers, and other interested parties whether it should give companies the option to provide IFRS-prepared financial statements as supplementary items in their reporting to the SEC, Schnurr said Monday at the AICPA Conference on Current SEC and PCAOB Developments in Washington.

Schnurr’s idea aims to alleviate confusion in the marketplace regarding the possibilities for IFRS in the United States. Currently, IFRS use is permitted by the SEC only for foreign private issuers. The issue of expanding use of IFRS by U.S. registrants has been debated for years, and SEC Chair Mary Jo White said in May that she hoped to be able to clarify that situation soon.

Schnurr said he plans to discuss alternatives for potential further IFRS incorporation by U.S. registrants—such as the idea of informal IFRS adoption—with White and the SEC commissioners in the coming months.

“The optional use that we want to create a dialogue on is that the U.S. issuers would voluntarily be able to provide supplemental IFRS financial information,” Schnurr told reporters after his speech. “That could be anything from a full-blown set of IFRS financial statements with notes to selected financial data, to maybe even just a reconciliation, if they want to.”

Investors would continue to receive U.S. GAAP financial information as they do today, and the alternative would be optional for issuers and considered supplemental, Schnurr said.

Schnurr said that his analysis will consider feedback from U.S. constituents, which generally have not supported full adoption of IFRS. Legal issues and cost/benefit concerns are among the obstacles to full adoption, he said.

Under the voluntary option proposal, issuers that do not believe IFRS-based information would benefit investors wouldn’t be forced to take on those implementation costs. Companies that do believe their investors could use this supplemental information would be permitted to provide it, however.

If the possible change that Schnurr discussed Monday moves forward, it would require a full rule-making process, which would include a formal proposal and a request for comments.

SEC Commissioner Daniel Gallagher said Monday at the conference that although he hadn’t fully considered Schnurr’s idea, his initial impression was that it was a “brilliant” way to potentially move forward.

Gallagher said companies’ interest in IFRS has cooled since the days when Christopher Cox was SEC chair from 2005 to 2009.

“If we allow for the issuers to put out this IFRS information, we can see if people want it,” he said. “And if they want it, we can think deeper thoughts. At the same time, we’d retain the primacy of GAAP, FASB’s role. And we’d show the IASB [International Accounting Standards Board] that we’re not just sitting here trying to wait this out. In that regard, it’s a brilliant idea.”

Following Schnurr’s speech, FASB and its parent body, the Financial Accounting Foundation (FAF), issued a statement that said the organizations believe it makes sense to explore whether there are ways to remove barriers that might exist for companies that voluntarily choose to offer investors a second set of financial statements prepared in accordance with IFRS.

“We believe that voluntarily providing IFRS information on a supplemental basis, subject to audit, SEC review, and other regulatory scrutiny, could be an important tool in fostering further convergence of [GAAP] and IFRS,” FASB and FAF said in the statement.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.