The head of the International Accounting Standards Board is calling on the U.S. Securities and Exchange Commission to make up its mind about adopting International Financial Reporting Standards and to play a greater role in converging world accounting systems into a single, strong set of rules.
Sir David Tweedie, chairman of IASB, speaking to reporters during a financial-reporting conference in New York last week sponsored by Deloitte, said IASB and the U.S. Financial Accounting Standards Board are making strides to converge IFRS and U.S. Generally Accepted Accounting Principles. Still, he added, “An important goal for us is to get the United States more actively involved in this. We are working with FASB, but we do really need a strong U.S. presence globally in international standards.”
Tweedie said pressure is increasing for the United States to commit to some date for moving domestic companies to IFRS, even if it’s not as soon as 2014, the date currently suggested under the SEC’s proposed roadmap for IFRS adoption.
Tweedie
“There’s a group that’s saying, ‘The United States is not interested. Throw them off the board’ that oversees creation of IFRS standards, Tweedie said.
Currently, six of the 22 trustees of the International Accounting Standards Committee Foundation (the body that oversees IASB) are from North America. The SEC also has a representative on another monitoring board comprised of securities regulators that was created early this year to bolster IASB’s independence.
“Once the U.S. commits—I don’t think it matters which year—you will have major clout and help counter some of the regional forces” trying to influence international standards,” Tweedie said.
The SEC published its proposed roadmap last November, but momentum for adoption slowed as the SEC grappled with the financial crisis and harsh criticism of its enforcement program. Moreover, SEC Chairman Mary Schapiro made clear when she took office in February that she is in no hurry to adopt IFRS and might not follow the roadmap proposed by her predecessor.
“We are working with FASB, but we do really need a strong U.S. presence globally in international standards.”
—Sir David Tweedie,
Chairman,
IASB
Tweedie said the SEC’s silence on IFRS during the last several months “caused a problem because it was interpreted … as being a lack of interest.”
As Compliance Week has previously reported, SEC officials have recently broken their silence on IFRS, stating that it will be a major area of focus for the agency in the next few months. Tweedie described the comments made by Schapiro and SEC Chief Accountant James Kroeker as “very positive.” He expects the SEC to make a statement shortly on what the agency plans to do about its proposed roadmap. “I have no idea what it will be, but I hope they’ll say it’s still on track,” he said.
Gannon
D.J. Gannon, head of Deloitte’s IFRS Center of Excellence in the United States, says he expects the SEC to announce its next steps on the roadmap by the end of the year. One possibility would be for the SEC to codify the roadmap as a policy statement, which would give it “more force” than a speech. Implementing the roadmap, however, would still require formal rulemaking.
Tweedie also said he’s optimistic that FASB and IASB can meet a June 2011 deadline to converge U.S. GAAP and IFRS on all major policy differences, a long-held goal some have been skeptical about. At the G-20 summit meeting last month in Pittsburgh, world leaders called on the two boards to redouble their efforts.
MONITORING BOARD MOU
The following excerpt is from the Memorandum of Understanding to Strengthen the Institutional Framework of the International Accounting Standards Committee Foundation:
The European Commission, the International Organization of Securities Commissions, the
Financial Services Agency of Japan, and United States Securities and Exchange Commission
(collectively referred to as “capital markets authorities” for the purposes of this Memorandum
of Understanding), which together represent authorities responsible for setting the form and
content of financial reporting in the majority of the world’s capital markets, and the Trustees
of the International Accounting Standards Committee Foundation (“IASCF”):
Considering that capital markets authorities are generally charged with the development
and administration of accounting standards;
Considering that capital markets authorities historically have looked to private or stand-
alone bodies to assist in establishing accounting standards;
Considering that capital markets authorities generally oversee national accounting
standard setters to ensure that they are capable of improving the accuracy, transparency,
comparability and effectiveness of financial reporting and the protection of investor
interests;
Considering that accounting standard-setters should strive to keep their standards current
to reflect changes in the business environment, as well as consider promptly emerging
accounting issues and changing business practices;
Recognizing that the International Accounting Standards Board (“IASB”) is a stand-alone
international accounting standard-setter committed to developing, in the public interest, a
single set of high quality, understandable and enforceable global standards, also known as
International Financial Reporting Standards (“IFRS”);
Recognizing that the IASB develops accounting standards for use by companies from
developed and developing economies;
Recognizing that IFRS are increasingly used around the world, yet the IASCF has no
formal relationship to capital markets authorities;
Asserting that establishing a formal relationship between capital markets authorities and
the IASCF will facilitate the ability of these authorities to effectively discharge their
mandates relating to investor protection, market integrity and capital formation;
Recognizing that the IASB is overseen by an independent body, the IASCF, which is
charged with serving the public interest;
Desiring to further enhance the public accountability of the IASCF to support the
increasing use of IFRS around the world;
Recognizing that the IASCF has changed its constitution to recognize the role of the
IASCF Monitoring Board in reinforcing the public accountability of the IASCF Trustees;
Affirming and supporting the independence of the IASCF in setting high-quality
accounting standards, through the IASB, for use around the world, and
Desiring to help strengthen this independence by supporting the establishment of a non-
voluntary, transparent and stable funding platform for the IASCF
Source
More Information About the Monitoring Board
The two boards are working on several projects to converge their standards in major areas, one of which is valuing financial instruments. FASB has proposed that fair value apply for all financial instruments. Tweedie, however, says the “rest of the world” doesn’t want a full fair-value system.
“At present we have differences in where we think the future should be,” Tweedie admitted. “If we don’t agree, we must have something so you can jump from one to the other quickly. We should try to get the net income the same.”
IASB expects to issue its revised standard on financial instruments in November. “We’ll probably go for a mixed model of fair value when you don’t know cash flows, and amortized costs when the cash flows are relatively predictable,” he said.
Other Projects
Other joint projects include rules related to pensions, consolidations, securitization, financial statement presentation, loan impairment, and leasing. Tweedie said that some differences may remain by the 2011 deadline, “but hopefully it’s minimized … Whatever date the United States picks [to adopt IFRS], you’ve still got years to try to smooth them all out before you actually change.”
Tweedie also said regulators have made progress addressing U.S. concerns about IASB’s funding and independence. IASB’s funding has been questioned since it’s been funded by donations from the private sector—just as FASB was until passage of the Sarbanes-Oxley Act in 2002.
Tweedie said most countries that use IFRS—such as Italy, the United Kingdom, and the Netherlands—have set up a system to levy fees on their listed companies based on gross domestic product. The SEC uses a similar mechanism on public companies here to fund FASB, and the American Institute of Certified Public Accountants has now called on the SEC to allocate some of that money to help fund IASB as well.
Tweedie said a commitment by the United States and Japan to adopt IFRS would effectively solve the independence issue. “At the moment, the major region using the standards is Europe,” he said. “The minute the SEC and Japan commit, that changes the entire game.”
Japan’s Business Accounting Council, a key advisory voice to the Japanese Financial Services Agency, has already approved a roadmap to adopt IFRS in Japan. The last unknown, then, is the United States.
“At the moment we’re vulnerable, and that will stay until the U.S. comes in,” Tweedie said. “To get truly global independent standards, we need the SEC.”
No comments yet