The Securities and Exchange Commission (SEC) is exploring the possibility of allowing U.S. public companies to prepare financial statements using either International Financial Reporting
Standards (IFRS) or U.S. GAAP standards.
To gauge the public’s interest on this subject, the SEC issued in August of 2007 a
concept release that includes 35 questions
to provoke feedback on the subject. The
concept release addresses various issues,
including the effects of not allowing U.S.
issuers to use IFRS, the costs of converting
to IFRS for companies, investors, auditors
and others, and the costs of training and
education.
Smart Business asked J. Marc Welch,
CPA, principal-in-charge of the audit department at Tauber & Balser, P.C., about
the implications of allowing U.S. companies to file financial statements using International Financial Reporting Standards.
What are the benefits of allowing the use of
international standards?
Having a single set of high-quality globally accepted accounting standards is expected to greatly benefit both the global
capital markets and investors. The use of a
single set of standards should help
investors better understand investment
opportunities, as opposed to making
investment decisions when differing sets of
national accounting standards are used.
As such, the SEC has long supported the
idea of reducing the disparity between the
accounting and disclosure practices of the
United States and other countries as a way
to ease cross-border capital formation.
In 1997, the SEC noted that for companies wishing to raise capital in more than
one country, preparing more than one set
of financial statements to comply with differing jurisdictional accounting requirements increased compliance costs and created inefficiencies.
The Financial Accounting Standards
Board (FASB) and the International
Accounting Standards Board (IASB)
announced in 2002 their formal commitment to the convergence of U.S. and international accounting standards and have
undergone a robust and active process for
converging IFRS and GAAP.
Almost 100 countries now either require
or allow the use of IFRS, and other countries are moving to do the same. The SEC
expects to see this number of IFRS filings
increase in the future — in fact, Canada
has announced a move to IFRS, and there
are approximately 500 foreign private
issuers from Canada.
If we are moving in this direction anyway,
what are the concerns with allowing U.S.
public companies to use IFRS now?
The SEC’s Aug. 7, 2007, concept release
poses 35 questions to trigger feedback as
the commission gathers input on the
potential significance and effect of any
such change to investors, companies and
market participants as well as to the
accounting profession in general. Some of
the concerns raised include:
- How long will it take for most U.S.
companies, their auditors and investors to
understand and implement IFRS? - Will we see a time where the SEC
requires adherence to IFRS? - What will it cost companies to convert
from GAAP to IFRS? Do the benefits of
converting justify the costs? - When will U.S. companies be allowed
to use IFRS?
If U.S. public companies have the option to
use IFRS, how will this affect the comparability of financial reporting among U.S.
issuers?
One of the most significant concerns
revolves around how the convergence
work done by the IASB and FASB to date
would be impacted. If the SEC were to
begin accepting IFRS financial statements
from U.S. companies, would market participants still have an incentive to support
convergence work?
Another concern is that if the convergence work is interrupted or halted, the
future work of the IASB and FASB may
result in standards that are significantly different or that are not timely in their development.
What’s next?
The purpose of the SEC’s concept release
is to gather input on the questions surrounding this issue. Comments are due by
Nov. 13, 2007, and can be submitted in various formats, including via the SEC Web
site: www.sec.gov/rules/concept.shtml.
It is important for many voices to be
heard before standard-setters determine
the next best steps to take in the move
toward embracing the use of international
standards.
J. MARC WELCH, CPA, is the principal-in-charge of the audit
department at Tauber & Balser, P.C. He has more than 20 years of
experience with a concentration in assurance and attestation services. Marc has obtained experience in the technology, construction, manufacturing and wholesale distribution industries, among
others. His background includes consulting with public companies on the application of GAAP and other reporting requirements
of the SEC. Reach him at (404) 814-4990 or [email protected].
