Accounting Alert

For those individuals who use or prepare financial statements, the Securities and Exchange Commission (the SEC), on February 24, 2010, approved a statement on global accounting standards in which they indicated that the SEC continues to believe that a single set of high-quality global accounting standards would benefit U.S. investors.

STAKEHOLDERS WHO MAY BE INTERESTED IN THIS ALERT:

  • Chief Financial Officers
  • Attorneys
  • Other Financial Statement Users
  • Bankers
  • Controllers
  • Audit Committee Members
  • Financial Statement Preparers
  • Members of Board of Directors

WHAT YOU SHOULD KNOW

  • As quoted by the SEC’s Chairperson Mary L. Schapiro, “for nearly 30 years, the SEC has promoted a single set of high-quality globally accepted standards, which would advance the dual goals of improving financial reporting within the U.S. and reducing country-by-country disparities in financial reporting”. Toward this end, the SEC has encouraged the convergence of U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS).
  • The members of the FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) have previously indicated their support for convergence in the 2006 Memorandum of Understanding which position was also recommended by world leaders at the 2009 G-20 Summit last summer. The target for completing these convergence projects is June 2011.
  • Following the release of the SEC’s statement, the American Institute of Certified Public Accountants (AICPA) endorsed the statement issued by the SEC. Its President commented that the AICPA supports the thoughtful and concrete steps the SEC is taking as outlined in its plan to prepare for this transition. He further indicated that it is critical for the SEC to set a date certain for use of IFRS in the U.S. and urged the SEC, as it completes its work, to ensure that investor confidence is maintained.
  • The SEC has directed its staff to execute a Work Plan which is to consider issues the SEC will view in determining if, when and how the U.S. should be transitioned to global accounting standards incorporating IFRS.
  • The Work Plan outlined six key areas for consideration:
    • Sufficient development and application of IFRS
    • Independence of standard setting for the benefit of investors
    • Investor understanding and education regarding IFRS
    • Examination of how the U.S. regulatory environment would be affected
    • Impact on issuers
    • Human capital readiness
  • By 2011, assuming completion of these convergence projects and the staff’s Work Plan, the SEC will decide whether to incorporate IFRS into the U.S. financial reporting system, and if so, when and how. The completion of the convergence project appears to be the gating factor in this decision process.
  • If so determined by the SEC to incorporate IFRS into the U.S. financial reporting system, the first time U.S. companies would report under such a system would be no earlier than 2015. The Work Plan would further evaluate this timeline.
  • Previously, in November 2008, the SEC proposed a series of milestones (also known as the Proposed Roadmap) that would guide the SEC in determining whether to transition U.S. capital markets to IFRS. At that time, they also solicited responses from a wide variety of market participants many of whom expressed widespread support for the goal of high-quality globally accepted accounting standards but who differed in their views about the approach of the Proposed Roadmap.
  • The Commission will provide public progress on the Work Plan, as well as the status of the FASB and IASB convergence projects, beginning no later than October 2010 and frequently thereafter until the work is complete.
  • In July 2009, the IASB published an International Financial Reporting Standard designed for use by small and medium entities (SMEs) who publish general purpose financial statements for external users who do not have public accountability (i.e. private companies, nonprofit organizations or governmental entities).
  • The AICPA has recognized the IASB as a standards-setting body and its members may report on financial statements prepared in conformity with either IFRS or IFRS for SMEs provided it is permissible under applicable state laws and regulations.
  • The ultimate effect on private companies and on U.S. GAAP is still an item of much controversy.

WHAT YOU SHOULD DO

  • The IASB and FASB have several convergence projects in place that will likely affect U.S. GAAP and IFRS in the near term. Therefore,you should continue to monitor the convergence efforts of these standard-setting bodies.
  • Track the periodic reports from the SEC which are scheduled to begin October 2010.
  • Understand the effect of the potential impact of any change in professional standards on financial reporting. Many countries have adopted or are scheduled to adopt IFRS. If your subsidiaries are required to convert, begin to provide the advice and guidance required for them to report.
  • Consider what related changes might be necessitated within your organization - namely, internal technology, processes and systems, internal controls, staff training, etc.
  • Take advantage of information found on the web as well as that published by the American Institute of Certified Public Accountants.

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