The American Institute of CPAs has recommended that the Securities and Exchange Commission permit public companies in the U.S. to adopt International Financial Reporting Standards on an optional basis.
The SEC is currently weighing the possibility of incorporating IFRS into the U.S. financial reporting system. There are now over 100 countries that have adopted or endorsed IFRS, or have committed to doing so. The SEC is expected to make its decision this year on whether to support IFRS, and how the process would work. It currently allows foreign companies to file financial statements in IFRS without reconciling them with U.S. GAAP.
“Whether or not the SEC decides to incorporate IFRS into the U.S. financial reporting system through an endorsement/convergence approach, we believe U.S. issuers should be given the option to adopt IFRS as issued by the IASB,” AICPA chairman Paul V. Stahlin and AICPA president and CEO Barry C. Melancon wrote in a four-page letter to the SEC.
“An adoption option would provide a level of consistency in the treatment of U.S. companies and foreign private issuers that report under IFRS that does not exist today, and would facilitate the comparison of U.S. companies that elect IFRS with their non-U.S. competitors that use IFRS,” they added. “Furthermore, giving U.S. companies an option to adopt IFRS as issued by the IASB would be another important step towards achieving the goal of incorporating IFRS into the U.S. financial reporting system. Anecdotal evidence suggests that the number of companies that would choose such an option would not be such that system-wide readiness would become an issue.”
The SEC’s request for comments on incorporating IFRS into the U.S. financial reporting system sets the stage for a possible decision by the commission later this year that may set parameters for convergence of IFRS with U.S. GAAP and a phased timeline for U.S. adoption of IFRS.
The AICPA has long been asking the SEC to provide a “date certain” for the transition to IFRS. The U.S. Financial Accounting Standards Board and the International Accounting Standards Board have been working for nearly a decade on converging U.S. GAAP with IFRS and are expected to complete their work on three of the major standards involving revenue recognition, financial instruments, and leasing by early next year. However, the timeline has been pushed back repeatedly for converging these and other standards over which the boards disagree.
“The AICPA supports the goal of a single set of high-quality, comprehensive financial reporting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world,” wrote Stahlin and Melancon. “We believe one common financial reporting language would benefit investors, as well as issuers and capital markets, because it would facilitate the comparison of reporting entities domiciled in different countries. We believe the standards issued by the International Accounting Standards Board (IASB) are best positioned to become those global standards. We, therefore, agree with the objective outlined in the Staff Paper that a U.S. issuer compliant with U.S. generally accepted accounting principles (GAAP) should also be able to represent that it is compliant with IFRS as issued by the IASB.”
