On July 13, the Staff of the SEC's Office of the Chief Accountant published its final report on its Work Plan intended to aid the SEC in evaluating the implications of incorporating IFRS into the US financial reporting system. The Staff report does not include a final policy decision as to whether IFRS should be incorporated into the US financial reporting system, or how such incorporation should occur. The Work Plan was not intended to provide an answer to the threshold question of whether a transition to IFRS is in the best interests of US capital markets and US investors. Instead, it is an important step in the SEC's decision-making process. This In brief article provides an overview of what's in the Staff report and what's next.
On July 13, 2012, the Staff of the SEC's Office of the Chief Accountant published its final report (the "Staff report") on its Work Plan intended to aid the SEC in evaluating the implications of incorporating IFRS into the US financial reporting system.
In early 2010, the SEC published a statement of continued support for a single set of high-quality, global accounting standards, and acknowledged that IFRS is best positioned to serve that role. The SEC initiated the Work Plan at that time to obtain information relevant to the determination of whether, when, and how IFRS might be incorporated into the US financial reporting system. Refer to the Staff report for more details.
First, what's not in the Staff report is worth noting. The Staff report does not include a final policy decision as to whether IFRS should be incorporated into the US financial reporting system, or how such incorporation should occur. The Work Plan was not intended to provide an answer to the threshold question of whether a transition to IFRS is in the best interests of US capital markets and US investors. Instead, it is an important step in the SEC's decision-making process.
In the Staff report, the Staff indicates that IFRS is generally perceived to be of high quality. However, there are areas where gaps remain (for example, accounting for rate-regulated industries and insurance) and inconsistencies exist in the application of IFRS globally. These findings were set forth in two separate Staff papers issued last year, A Comparison of US GAAP and IFRS and An Analysis of IFRS in Practice.1
The Staff also believes that improvements can be made to the IFRS interpretative process, and the enforcement and coordination activities of regulators across territories. Finally, although it acknowledges progress has been made, the Staff believes enhancements should be made to the IASB's coordination with individual country accounting standard setters and the IASB's funding process.
The Staff report does not address whether US public companies should have the option to adopt IFRS on a voluntary basis. However, the Staff report does state that investors are generally in agreement that companies should not be permitted to adopt IFRS early, because it would compromise comparability with US companies applying US GAAP.
As noted above, the Staff report does not reach any conclusions about incorporating IFRS. The Staff report does state, however, that adopting IFRS as authoritative guidance in the United States is not supported by the vast majority of participants in the US capital markets and would not be consistent with the methods of incorporation followed by other major capital markets (for example, the endorsement process followed by the European Commission).
On the other hand, the Staff found there to be substantial support for exploring other methods of incorporating IFRS that demonstrate the US commitment to the objective of a single set of high-quality, global accounting standards. Last year, the Staff issued a paper on one possible method, involving an active FASB incorporating IFRS into US GAAP over an extended period of time.2
US public companies will be affected by any decision ultimately made about whether, when, and how IFRS might be incorporated into the US financial reporting system.
The Staff report indicates that additional analysis is necessary before any SEC decision is made about incorporating IFRS into the US financial reporting system. The timing of this additional activity is currently unknown, but could extend beyond 2012.
The Staff has not requested comments, but welcomes feedback on the Staff report.
A PwC webcast has been scheduled for Thursday, July 19, 2012, that will provide insights and observations on the Staff report. Also coming soon is a PwC Dataline that will summarize the Staff report and our observations.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact David Schmid (1-973-236-7247) or Dieter Wulff (1-973-236-4856) in the National Professional Services Group.
1 Refer to Dataline 2011-36, SEC Staff continue progress on IFRS work plan, for further information about these Staff papers.
2 Refer toIn brief 2011-23, SEC Staff Paper explores one possible method to incorporate IFRS in the U.S.
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