The New York State Society of CPAs sees comparability and quality as two of the main obstacles to the adoption of International Financial Reporting Standards in the U.S.
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In addition to concerns about the comparability of IFRS to U.S., the NYSSCPA noted that the SEC’s work plan does not directly address whether IFRS meets or exceeds the Financial Accounting Standards Board’s standards for quality. The SEC’s contention that modifications would only need to be made “infrequently” is without basis, according to the NYSSCPA.
Claims in the work plan that adopting IFRS would improved comparability with non-U.S. reporting entities and provide management with greater judgment in preparing financial statements are inherently contradictory, according to the NYSSCPA, because the increased role of judgment would automatically reduce comparability.
The SEC is considering three different frameworks for the use of IFRS in the U.S. The NYSSCPA noted that one of these proposed frameworks—known as “condorsement,” as it would combine convergence with endorsement—would actually make it “highly likely that the U.S. would create exceptions and ‘carve-outs’ that would decrease the desired international comparability.
However, Mikalopas-Cassidy wrote in the NYSSCPA letter, the condorsement method may be the best course to take, because even with comparability limitations, it is “urgently needed that the convergence process continue and be successful.”
“The lingering concern would be whether comparability—the stated purpose of IFRS—can truly be achieved given that the proposed framework will encourage individual nuances to develop,” she noted.
Comparability would be further reduced across multiple jurisdictions by the tendency of preparers and auditors to apply IFRS in a manner that is as close as possible to former or existing standards, the NYSSCPA said, and these various comparability issues could potentially result in lawsuits. “We are concerned that with standards relying more on judgment, two independent parties can arrive at different conclusions and both be correct,” the society wrote.
The NYSSCPA recommended that before proposing any form of IFRS adoption, the SEC should identify which standards would require a U.S. exception. The NYSSCPA also suggested a timeline of five years for IFRS implementation; the need for education and training for financial statement users; early adoption possibilities; and the needs of nonpublic companies.
