On April 24, 2007, the U.S. Securities and Exchange Commission (SEC) announced "a series of actions it intends to take relating to the acceptance of financial reporting in International Financial Reporting Standards (IFRS)".
This summer, the SEC will issue a Proposing Release to request public comments on the Commission's proposed rule changes that would allow foreign private issuers to file IFRS-compliant financial statements without being required to reconcile those statements to U.S. GAAP. Currently, foreign private issuers (i.e., private-sector entities whose securities trade publicly in the U.S.) must either file financial statements prepared in accordance with U.S. GAAP or file statements under alternative standards and reconcile those statements to U.S. GAAP.
The SEC will also issue a Concept Release regarding the possibility of allowing both U.S. and foreign issuers the choice of whether to file their financial statements under U.S. GAAP or IFRSs.
The planned releases follow a recent roundtable discussion of the SEC's IFRS "roadmap." The roadmap was first articulated in April 2005 by the SEC's then-Chief Accountant Donald Nicolaisen and explicitly affirmed by current SEC Chairman Christopher Cox in February 2006. The objective of the roadmap is to eliminate – by 2009 – the requirement for foreign SEC registrants who file IFRS-compliant financial statements to reconcile those statements to U.S. GAAP. The purpose of the roundtable was to identify opportunities and obstacles for the SEC to consider as it pursues the objective of the roadmap. According to Chairman Cox, "The next steps that the Commission is announcing . . . will keep us on course with the Roadmap."
The full text of the SEC's press release is available at http://sec.gov/news/press/2007/2007-72.htm.
Commentary: The SEC's announced actions indicate that they consider IFRSs to possess quality and comparability similar to U.S. GAAP. In other words, U.S. GAAP is still sufficient, but no longer necessary, to protect the interests of U.S. investors. The implications of this shift in thinking are profound. The U.S. financial reporting environment will undergo significant change, for privately-owned companies as well as publicly-traded ones, as the SEC continues to follow its roadmap.
Many U.S. CFOs were surprised by the SEC's announcements. But that just means the CFOs had been ignoring the growing momentum of a global accounting phenomenon that has been underway for decades. In contrast, everyone who was paying attention to the international convergence of accounting standards saw the 'tipping point' coming well in advance.
