On July 13, the Office of the Chief Accountant of the Securities and Exchange Commission issued a Final Staff Report on the Work Plan for considering the incorporation of International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers. The Work Plan, published by the SEC in February 2010, was to consider specific areas and factors relevant to an SEC determination as to whether, when and how the current financial reporting system for U.S. issuers should be transitioned to IFRS.
The Final Report contains no recommendation or conclusion with respect to either the ultimate adoption of IFRS or any particular timetable or phase-in period for its adoption, though it concludes that there is “relatively less support” within the U.S. financial reporting community for pursuing the designation of the standards of the International Accounting Standards Board (IASB) as authoritative for use by U.S. issuers but “substantial support” for exploring other methods of incorporating IFRS to ultimately obtain a single set of high quality globally accepted accounting standards.
Utilizing this focus, and exploring, for example, an endorsement mechanism with respect to specific applications of IFRS or continued convergence of accounting standards issued by the Financial Accounting Standards Board and the IASB, the Final Report nevertheless strikes a cautionary note with respect to IFRS finding, among other things, that (i) there “continue to be areas underdeveloped,” (ii) the IFRS Interpretations Committee “should do more to address issues on a timely basis,” (iii) a majority of U.S. issuers expressed concern that moving to IFRS has the potential to result “in significant expense to the company and confusion for investors” and, finally (iv) significant effort would be required to change the references from U.S. GAAP, as U.S. GAAP is “imbedded throughout laws and regulations and in a significant number of private contracts.” Several commentators, including officials of the IASB, expressed disappointment with the Final Report, particularly since it was not accompanied by a recommended action plan for the SEC and did not specifically endorse either a method or a timetable for adopting or incorporating IFRS for U.S. issuers.
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