In late 2008, the Securities Exchange Commission (SEC)

In late 2008, the Securities Exchange Commission (SEC) in the United States published its roadmap to IFRS that would look at adopting IFRS. Read the article entitled “IFRS: Dead in the USA,” by Lawrence Richter Quinn from CA Magazine, April 2010, which is available at www.camagazine.com.

Instructions

(a) The article suggests that the SEC has been slow in providing guidance as to whether or not IFRS will be adopted in the United States. Outlined in the article are examples of how this indecision has cost companies. Explain how these costs might be incurred and the examples provided.

(b) What are the arguments for and against the SEC requiring companies to adopt IFRS?

(c) Research what recent announcements have been made by the SEC on this topic.

(a) The article states that in November, 2008, the SEC published a roadmap regarding adoption of IFRS in the United States.  At the time feedback comments were requested, but the SEC only received about 200 comment letters in total, which seems insignificant given the number of organizations that would be impacted with this move.  Since that time, there has been virtual silence on this issue.  The article suggests that this lack of progress has cost companies in the way of operational efficiencies and credibility in crunching the numbers.  One example was provided of a company that had hired IFRS expertise to use 40% of their time to look at strategies to implementing the IFRS standards.  This IFRS transition was now on hold until notice from the SEC.  A second company that will go public in the near future and wants to use IFRS in its reports, has hired the expertise required and is now waiting for approval from the SEC to go forward.

(b)       Some argue that the US will never adopt IFRS for the following reasons:

·         There is no compelling reason for public companies or private companies to adopt IFRS (as stated by Bruce Pounder, president to an accounting education firm).

·         A professor (and a  former academic fellow in the SEC’s office) conducted an informal survey and found that most respondents felt that IFRS was not perceived to be better than US GAAP and that efforts to try to make IFRS and US GAAP consistent  was not worthwhile.

·         A Grant Thornton study found that only 23% of (800) respondents felt that the IASB should be setting accounting standards for the United States.

·         A partner in a US CPA firm stated that stakeholders are not asking for IFRS so there is no sense of urgency.  In addition,  there seem to be other more important things going on – there is just little interest on conversion to IFRS right now.

·         Microsoft has studied the conversion to IFRS for a while and has concluded that savings will not likely be achieved.

·         CFO’s in the past 24 months have had larger issues to deal with including the impact of the recession and the financial crisis, the mandate to move XBRL, along with uncertain public policies related to health care,  employee benefits, and taxation.

·         In a survey of Financial Executives International, IFRS has moved from the No 2 challenge facing these respondents to No.5.

·         Some believe that trial lawyers will have more to argue under IFRS since IFRS is a principles-based system and allows more choices than under the rules- based US GAAP.  Historically, US GAAP was once a principles-based approach and moved to rules-based primarily due to litigation and perceived lower liability risk.

·         In the rush to converge IFRS and FASB, many suggest that compromises will be made, which might be detrimental to companies in the long run. 

·         Estimates of costs to convert to IFRS vary between 0.1% and 0.5% of revenues, again making companies wary of the transition.

(c)  Others argue that the US should proceed to IFRS conversion and this is supported by the following comments:

·         Many US multinationals are already moving towards adopting IFRS.

·         A 2008 survey of 200 CFO’s of firms with more than $1 billion in revenues found that 83% of respondents felt that one standard would produce business benefits and help with comparisons across international peers.

·         By streamlining the back office and having only one accounting standard across all geographic locations for multi-national firms, significant cost savings could be achieved.

·         Small and medium sized private companies that are involved in international operations and raise debt internationally are moving to adopt IFRS for SME’s since it is less complex that US GAAP.

·         The AICPA supports the move to IFRS and states that IFRS is credible and authoritative.

·         In February, 2010, the SEC issued a notice indicating that it still believes that a single set of high quality accounting standards will benefit US prepares.  It is working on a plan to evaluate US conversion to IFRS and will make a statement in 2011 as to whether or not it will proceed with incorporating IFRS into the US reporting system.