On October 23, 2012, the IFRS Foundation (the organization that oversees the IASB) published a response (the "Foundation Staff response") to the SEC’s final report on its IFRS Work Plan (the "SEC Staff report") issued in July 2012. The Foundation Staff response is an assessment of the matters discussed in the SEC Staff report, including the operations of the IFRS Foundation and the IASB, the use of IFRS as global accounting standards, and issues related to incorporating IFRS into the US financial reporting system. This In brief article provides an overview of the Foundation Staff response.
On October 23, 2012, the IFRS Foundation (the organization that oversees the IASB) published a response (the “Foundation Staff response”) to the SEC’s final report on its IFRS Work Plan (the “SEC Staff report”) issued in July 20121. The IFRS Work Plan was intended to aid the SEC in evaluating the implications of incorporating IFRS into the US financial reporting system.
The IFRS Foundation Trustees had committed to carefully considering the SEC Staff’s observations. The Foundation Staff response is an assessment of the matters discussed in the SEC Staff report, including the operations of the IFRS Foundation and the IASB, the use of IFRS as global accounting standards, and issues related to incorporating IFRS into the US financial reporting system.
Michel Prada, Chairman of the IFRS Foundation Trustees, summarized the major finding of the Foundation Staff response in comments accompanying its release: “While acknowledging the challenges, the analysis conducted by the IFRS Foundation Staff shows that there are no insurmountable obstacles for adoption of IFRSs by the United States, and that the US is well placed to achieve a successful transition to IFRSs, thus completing the objective repeatedly confirmed by the G20 leaders.”
The SEC Staff report identifies potential improvements in areas such as the funding of the IASB, the comprehensiveness of IFRS and the IFRS interpretative process, the enforcement and coordination activities of regulators across territories, and the IASB’s coordination with national standard setters. The Foundation Staff response addresses each of these areas and discusses responsive actions that, in many cases, are in progress. In some areas, the Foundation Staff response outlines different conclusions than those reached in the SEC Staff report. The Foundation Staff response also provides certain information that the Foundation Staff believes complements the SEC Staff’s analysis.
In response to the challenges outlined in the SEC Staff report of a transition to IFRS, the Foundation Staff response discusses lessons learned from the transitions of other territories. Specifically, it notes that issues of sovereignty, endorsement, investor education, human-capital readiness, and transition costs have been successfully addressed by other territories. Other notable observations made by the Foundation Staff in this area include:
The Foundation Staff response also discusses the benefits of IFRS, including how the US might benefit from adoption, and notes that this was not a focus of the SEC Staff report. An academic analysis on the topic is included as an appendix.
The Foundation Staff response does not reach any formal conclusions and is not a due process document of the IFRS Foundation. The Foundation Staff response recognizes that the size of the US economy presents significant transitional challenges that are unique to the United States. However, it states that the experience of other territories suggests many of the challenges can be overcome with the appropriate political will to make a commitment to the mission of a single set of global standards. The Foundation Staff also believes that in many areas the United States is better prepared than other territories to consider the adoption of IFRS.
The Foundation Staff response has no immediate direct impact. However, it provides additional information and perspectives for the SEC to consider in its evaluation of whether, when, and how IFRS might be incorporated into the US financial reporting system.
There are no next steps publicly announced by either the IFRS Foundation or the SEC. The SEC Staff report indicates that additional analysis is necessary before any decision is made about incorporating IFRS. The timing of this additional activity is currently unknown, but we expect it to extend beyond 2012.
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1 Refer to Dataline 2012-06, SEC Staff releases its final report on its IFRS Work Plan
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