Building on an earlier speech
delivered in Melbourne, Australia in November, in which he called upon the U.S. Securities and Exchange Commission to provide more 'clarity' on its impending IFRS decision, adding that that "convergence ...has served its purpose, but now it is time to move on," the Chairman of the IASB, Hans Hoogervorst, told an AICPA conference yesterday
that, "I’m sure the SEC realises that the outcome of its decision cannot be convergence by another name."
In my view (please see disclaimer on the right side of this blog
), Hoogervorst's warning against 'convergence by another name' is a veiled reference to the 'condorsement' approach - a blending of 'convergence' and 'endorsement,' as first defined in a speech by SEC Deputy Chief Accountant Paul Beswick in Beswick's remarks at a previous AICPA conference
one year ago, incorporated into the SEC Staff Paper circulated for public comment in May of this year.
Hoogervorst indirectly broke down 'condorsement' into its two components, giving props to 'endorsement' of IFRS by national standard-setters for use in their own jurisdictions - a process he noted is in place in 'most other parts of the world' - while reiterating that, "Our convergence history with FASB has been extremely useful in getting us to a point where IFRS and US GAAP are much improved and closer together...But for the long-term, the status quo is an unstable way of decision making"- [i.e. with two separate boards continuously working on ongoing convergence] - "that inevitably leads to diverged solutions or sub-optimal outcomes."
Hoogervorst outlined for the AICPA group some 'key characteristics' that would lead to a positive outcome in an upcoming SEC decision regarding the U.S. and 'global accounting standards.' Here are the 'key characteristics' he described (reformatted into bullets):
- There should be a clear timeline for the completion of the initial ‘endorsement process’.
- There should also be a presumption that - given full due process and extensive involvement of the national standard-setter - non-endorsement would be very rare indeed.
- Once the initial process of endorsement is completed, US companies should be able to assert compliance with both US GAAP and IFRSs.
- Finally, as my own festive season request, I hope that the SEC gives serious consideration to the merits of an early adoption option to use IFRS for a number of US companies.
A more formal role for FASB, Other National Standard-Setters
Significantly, Hoogervorst voiced his view that it may be time to move from 'consultation' to "a more institutional arrangement for engaging national standard-setters." Such a move would not be a great surprise - see e.g. our earlier post from Feb. 14 of this year,IASB Parent Org Opens Regional Office in Tokyo; Could Norwalk be Next? - although the ultimate logistics and politics would likely be challenging.
Two More Cents on Condorsement
In my view (remember the disclaimer, noted above), Hoogervorst's focus on 'endorsement' over 'condorsement' (in fact, the term 'condorsement' was notably absent from his prepared remarks, as well as those of the SEC Chief Accountant and the FASB Chairman) is a natural course of events, leading from the earlier focus on 'convergence' of two separate sets of standards (FASB's and the IASB's), to the presumed end-goal, in the long-run, of a 'single' set of global accounting standards, incorporated into U.S. GAAP via 'endorsement,' vs. the intermediary goal of a 'common' set of global accounting standards, along the lines of the practical recommendations included in the FAF's November, 2011 comment letter on the SEC's May 2011 Staff Paper (aks the 'condorsement' paper).
The intermediary step of proposing consideration of a 'condorsement' approach, I believe, proved useful in moving the ball forward in getting people to consider the potential incorporation of IFRS into the U.S. financial reporting system, without falling back on extremist views of an 'all-or-nothing' approach as to future FASB involvment in a system of global accounting standards, with respect to contributing to and maintaining a set of high quality standards.
However, issues of sovereignty over accounting standard setting, and a host of other issues relating to the impact on regulatory reporting to other regulators (other than the SEC), tax implications (e.g. LIFO vs. FIFO), and other matters are still key considerations that will likely be addressed in the SEC's final staff report under the IFRS workplan established to support the Commission's upcoming decision on IFRS. As noted in our separate post earlier today, the SEC staff's final report under the workplan is expected to take 'a few additional months.'