Staff members at the Securities and Exchange Commission say financial statements prepared under International Financial Reporting Standards generally comply with the standards, but suffer in some ways from diverse practices in different countries and instances where transparency and clarity could be better.

The staff studied IFRS application and published its long-awaited, 65-page analysis as part of the SEC's consideration of whether, when, and how to incorporate IFRS into U.S. capital markets. The staff also published a 52-page summary of where there are still differences between IFRS and U.S. Generally Accepted Accounting Principles, even after some intense, ongoing efforts between the Financial Accounting Standards Board and the International Accounting Standards Board to narrow those differences.

The SEC staff says across all topical areas, the transparency and clarity of financial statements prepared under IFRS at times was lacking, sometimes leaving questions about whether the accounting complied with IFRS. Some companies did not provide accounting policy disclosures that seemed warranted while others provided insufficient detail about those policies. Some companies used terminology that is not consistent with IFRS, leading to questions, or referred to local accounting guidance where the specific requirements were not clear. “Consequently, certain disclosures presented challenges to understanding the nature of a company's transactions and how those transactions were reflected in the financial statements,” the staff concludes.

Comparability also suffered as a result of diverse practices across countries or industries, the staff notes. Sometimes the diversity seems to arise because of options permitted under IFRS or a lack of guidance, but other times the diversity seemed to result from noncompliance with IFRS. In some cases, companies applied guidance from local standard setters or regulatory bodies or carried over practices from home country GAAP that was replaced by IFRS. “While country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level,” the staff says.

In its comparison of U.S. GAAP and IFRS, the SEC staff says GAAP still contains more detailed, specific requirements than IFRS. In some areas, IFRS provides no guidance or guidance that is not directly comparable to GAAP, but occasionally IFRS provides guidance that doesn't exist in GAAP. While the analysis points out differences between GAAP and IFRS, it's not meant to assess the effect those differences might have in practices, the staff says.

SEC staff promised the two whitepapers earlier this year as part of their work plan to help commissioners decide on incorporating IFRS into U.S. financial reporting. In May, the staff published a separate paper outlining an idea for how to incorporate IFRS by continuing to converge U.S. rules to international rules, adopting and endorsing them over time as they are deemed ready for use in the United States. The SEC has indicated it will make some kind of decision on the big IFRS question in 2011.