Senior figures from the US Securities and Exchange Commission (SEC) have indicated they are considering allowing US companies to provide some information, such as revenue, in International Financial Reporing Standard (IFRS) as a supplement to their US GAAP financial reporting on a voluntary basis, while talks on the new joint US/global leasing standard are set for January 2015
SEC chief accountant James Schnurr, who took up his post in October, stressed that providing greater clarity on whether or how IFRS could or should be incorporated into US company reporting was a priority when he addressed this week’s American Institute of CPAs’ conference on current SEC and PCAOB developments.
Schnurr said: ‘SEC chair White and I both recognize that any continued uncertainty around IFRS results in uneasiness for investors across the globe. Therefore, it is a priority of mine to bring a recommendation to the commission in the near future with the hope of resolving, or at least lessening, this uncertainty.’
Saying he did not have a ‘pre-determined view of an approach’, Schnurr pointed out that previous discussions had centred on ‘a full movement, optional or otherwise, to IFRS for domestic issuers’, with the evidence suggesting that US preparers were not in favour of full adoption.
However, Schnurr said he wanted to continue discussions about different alternatives for potential further incorporation of IFRS.
‘As one example, we understand that some domestic issuers may, now or in the near future, prepare IFRS-based financial information in addition to the US GAAP based information that they use for purposes of SEC filings.
'However, regulatory constraints may dissuade some issuers from providing this information, as current SEC rules would consider IFRS-based information to be a “non-GAAP” financial measure for a domestic issuer.
‘Should IFRS-based information continue to be considered “non-GAAP” financial measures subject to the requirements for such measures, or should it be thought of differently? Under this line of thinking, issuers that do not believe IFRS-based information would be beneficial to investors would not be forced to undertake what we understand to be, in some cases, significant implementation costs,’ Schnurr said.
In answer to questions from the audience, Schnurr said the information provided could range from reconciliation of US GAAP to IFRS to just providing selected financial data, such as revenues or net or gross margin.
Schnurr said: ‘The key is it would be voluntary. It will be interesting to see how many US issuers would be interested.’
Speaking at the same event, Ian Mackintosh, vice-chairman of the International Accounting Standards Board (IASB), described IFRS as ‘increasingly relevant for many American companies’, as more than half of Fortune 500 companies are reporting in IFRS. However, the remaining half of US Fortune 500 companies have shown no inclination to change their reporting to the international standards.
However, Mackintosh was positive about the adoption rates so far. ‘That means that an increasing number of American companies will be compared with peers that use IFRS.
'IFRS also makes it easier for American companies to understand the reporting of their competitors, business partners and potential acquisition targets. Streamlining internal reporting across subsidiaries is facilitated by the common use of IFRS,’ he said.
Mackintosh said IASB’s research showed ‘the commonly held view that most jurisdictions make their own version of IFRS is clearly fiction’, with the introduction of IFRS proving ‘a game changer’ in many instances.
‘The SEC oversees the financial reporting of nearly 500 foreign issuers filing IFRS financial statements. As such, it is an active and valued force seeking to drive consistent application of IFRS around the world. In the next couple of years we plan to collect more evidence on the quality of application of IFRS around the world,’ Macintosh said.
Macintosh also said that IASB would continue to work closely with the US Financial Accounting Standards Board (FASB) in the wake of what is expected to be the final meeting on the leasing standard next month, which will mark the end of a decade of work on convergence projects between the two standards bodies.
‘I believe that the bilateral relationship between the FASB and the IASB needs to remain strong. We have a joint responsibility to protect the body of convergence that has been reached and to minimise differences in the future. Convergence was not a perfect process but it was a good one and we achieved a great deal. The similarities between the two sets of standards are bigger than the differences,’ Macintosh said.
