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Will SEC Speak On IFRS This Week?

All eyes and ears may be on PLI’s SEC Speaks conference later this week, watching for follow-on remarks by SEC Chief Accountant Jim Kroeker, SEC Chairman Mary L. Schapiro, or other SEC officials in response to this week’s reports that the SEC may be moving closer to reaching a decision on the use of IFRS by U.S. companies.  (PLI is still taking registration for "The SEC Speaks in 2012," taking place this Thursday and Friday in Washington, DC; you can register to attend in person or tune in via webcast.) 
The reports generally cite remarks made by SEC Chief Accountant Jim Kroeker at a meeting  IFRS Advisory Council  yesterday in London, including remarks made directly to a Reuters reporter.  See especially U.S. Official ‘Optimistic’ on Global Accounting Move (Huw Jones, Reuters, 2/20/12) and  U.S. Nears Accounting Shift (Michael Rapoport, The Wall Street Journal, 2/21/12, sub req’d).
Reuters’ Jones should get a great deal of credit for reporting on the big picture when you read his story yesterday about the SEC’s ‘optimism’ in moving toward a positive decision on IFRS, together with his Feb. 9 article - Global Accounting Reform Ups Pressure on U.S. to Sign Up -  in which he highlighted crucial points made in a pair of reports issued that day,  including a report of the Monitoring Board of the IFRS Foundation, and a companion report released by the IFRS Foundation Trustees, which tighten the requirements for membership in the Monitoring Board (of which the SEC is currently a member) and for membership on the IFRS Foundation and IASB Board to countries that use IFRS. As reported by Jones:
The IASB's Monitoring Board …said that in future it would only accept members from countries that use IASB rules and set January 2013 as the date for its first eligibility assessment. Nigel Sleigh-Johnson, head of financial reporting at global accounting body ICAEW, said the plans assumed the United States will adopt IASB rules…
…In a separate strategy paper to set a framework for the IASB's second decade, the [IFRS Foundation] Trustees agreed that failure to commit to adopting its rules "in some form" could lead to changes in the way Trustee and IASB seats are distributed geographically.
In a similar vein, AccountingTODAY’s Michael Cohn noted the emphasis on “full adoption” of IFRS - above and beyond ‘convergence’ – as of key import in the IFRS Foundation’s report. Cohn previously reported in IFRS Groups Release Key Reports :
As in recent statements by IASB officials, the strategy report shows that the IFRS Foundation trustees are beginning to run out of patience with the convergence process with U.S. GAAP, and with the SEC's long-awaited decision on IFRS. "There is a natural temptation for countries (and stakeholders within those countries) to argue against full adoption of IFRSs, to call for convergence of national standards and IFRSs rather than adoption, or to introduce national exceptions to IFRS rules," said the document. "The temptation to pursue convergence rather than adoption should be resisted. Full adoption of IFRSs must be the end goal. Convergence will not, by definition, lead to a common set of global standards, because convergence is not identical to adoption. Convergence has been, is, and will likely remain a useful process to facilitate adoption by narrowing differences. Convergence, however, will not produce identical results because each set of standards has a different starting point and convergence will not address all of the details. Having once achieved convergence, standards could well diverge again."
See also’s Sarah Johnson’s Feb. 13 report, Footdragging on IFRS Decision Could Strip SEC of Power.

My two cents
If there’s one thing that’s difficult to parse, its nuances involved in the language used by SEC, IASB, FASB officials and others around the SEC’s impending decision about the use of IFRS by U.S.-based SEC registrants. (This would be an opportune time to also remind our readers of the disclaimer posted on the right side of this blog.)

But the main takeaways I have at this point in time from the two reports issued on February 9 by the Monitoring Board of the IFRS Foundation, and by the IFRS Foundation Trustees , are that:
  1. “Use of IFRS”: It is interesting, although I’m not yet certain how ‘significant,’ that the Monitoring Board report does not use the language ‘full adoption’ of IFRS (which the report of the IFRS Trustees uses) but instead speaks of requiring the “use of IFRS’ by all permanent members of the Monitoring Board, by 2013, with ‘criteria’ for what constitutes the ‘use of IFRS’ to be articulated by the Monitoring Board in 2012.  Transition time will be among the issues considered. As further noted in the IFRS Foundation’s report: “Convergence may be an appropriate short-term strategy for a particular jurisdiction and may facilitate adoption over a transitional period. Convergence, however, is not a substitute for adoption. Adoption mechanisms may differ among countries and may require an appropriate period of time to implement but, whatever the mechanism, it should enable and require relevant entities to state that their financial statements are in full compliance with IFRSs as issued by the IASB.” The report goes on to describe that where there are variance from IFRS as issued by the IASB, there should be transparency as to those differences.
  2. Funding: Another requirement for members of the Monitoring Board will be funding by the member’s jurisdiction.
  3. Sovereignty and endorsement: The IFRS Foundation and the Monitoring Board appear to explicitly recognize that nations will not give up their sovereignty over determining accounting standards, and although participation in the Monitoring Board will include a commitment to the ‘use of IFRS” and a funding commitment, the individual countries’ mechanisms for determining such commitments may vary. For example, in the U.S., as noted in the some of the press reports cited above,   ‘endorsement’ of IFRS by the U.S. FASB may ultimately become the formal mechanism  for ‘incorporation of IFRS” or for “the use of IFRS” in the U.S.  

The report of the Monitoring Board was chaired by Masamichi Kono, Vice Commissioner for International Affairs, Japan Financial Services Agency. Additional information about the monitoring board can be found in the Monitoring Board section of IOSCO’s website.

See related news on the international front: FEI Launches First Ever International Chapter in Japan (FEI press release 2/21/12), and our earlier post: ASBJ, FASB Meet: FEI Japan Event Features Bolash, Danaher, Taub.  
Posted: 2/21/2012 5:15:50 PM by Edith Orenstein | with 0 comments
Filed under: Huw Jones,Jim Kroeker,Mary L. Schapiro,Michael Cohn,Michael Rapoport,Monitoring Board,SEC Speaks,IASB,IFRS,IOSCO,PLI,Reuters,SEC,WSJ,AccountingTODAY

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