Many individuals and organizations have encouraged the U.S. Securities and Exchange Commission (SEC) to allow U.S. public companies to use International Financial Reporting Standards (IFRSs) instead of U.S. Generally Accepted Accounting Principles (GAAP). Some have even advocated that the SEC should require all companies under its jurisdiction to use IFRSs. But there's a huge difference between allowing and requiring such a dramatic change in financial reporting standards, and this blog post will examine whether requiring U.S.-listed companies to use IFRSs is something worth considering.
As readers may recall, my previous post examined the most-compelling rationale for allowing U.S.-listed companies to use current IFRSs. In my opinion, that rationale overrides any potential rationales for not doing so. In contrast, I think it would be highly undesirable for the SEC to require companies to use current IFRSs, just as I think it would be highly undesirable for the SEC to continue to require companies to use current U.S. GAAP (note that the SEC recently decided to give foreign issuers listed in the U.S. the choice of using either IFRSs or U.S. GAAP, while domestic issuers must still use U.S. GAAP).
The primary reason for my position is that neither existing IFRSs nor existing U.S. GAAP are suited to serve as the high-quality, single set of global standards that everyone agrees everyone should be using. What's more, neither the International Accounting Standards Board (IASB) nor the U.S. Financial Accounting Standards Board (FASB) are currently suited to serve as a standard-setter whose authority would be globally recognized.
Once everyone realizes that neither IFRSs nor the IASB as we know them today represent true goals of the Convergence process, it becomes much easier to focus on the roles that IFRSs and the IASB should play in attaining our true goals. And for all the reasons I have presented in past blog posts and will present in future ones, IFRSs and the IASB can and should have significant roles in the future of financial reporting in the U.S. despite the fact that they're not end goals in themselves.
Next week, I'll be back to debunk more fallacious reasoning regarding whether U.S. companies should or shouldn't be allowed to use IFRSs.
Allowing vs. Requiring IFRSs in the U.S.
Many individuals and organizations have encouraged the U.S. Securities and Exchange Commission (SEC) to allow U.S. public companies to use International Financial Reporting Standards (IFRSs) instead of U.S. Generally Accepted Accounting Principles (GAAP). Some have even advocated that the SEC should require all companies under its jurisdiction to use IFRSs. But there's a huge difference between allowing and requiring such a dramatic change in financial reporting standards, and this blog post will examine whether requiring U.S.-listed companies to use IFRSs is something worth considering.
As readers may recall, my previous post examined the most-compelling rationale for allowing U.S.-listed companies to use current IFRSs. In my opinion, that rationale overrides any potential rationales for not doing so. In contrast, I think it would be highly undesirable for the SEC to require companies to use current IFRSs, just as I think it would be highly undesirable for the SEC to continue to require companies to use current U.S. GAAP (note that the SEC recently decided to give foreign issuers listed in the U.S. the choice of using either IFRSs or U.S. GAAP, while domestic issuers must still use U.S. GAAP).
The primary reason for my position is that neither existing IFRSs nor existing U.S. GAAP are suited to serve as the high-quality, single set of global standards that everyone agrees everyone should be using. What's more, neither the International Accounting Standards Board (IASB) nor the U.S. Financial Accounting Standards Board (FASB) are currently suited to serve as a standard-setter whose authority would be globally recognized.
Once everyone realizes that neither IFRSs nor the IASB as we know them today represent true goals of the Convergence process, it becomes much easier to focus on the roles that IFRSs and the IASB should play in attaining our true goals. And for all the reasons I have presented in past blog posts and will present in future ones, IFRSs and the IASB can and should have significant roles in the future of financial reporting in the U.S. despite the fact that they're not end goals in themselves.
Next week, I'll be back to debunk more fallacious reasoning regarding whether U.S. companies should or shouldn't be allowed to use IFRSs.