The Securities and Exchange Commission will convene a roundtable meeting in two weeks to gather input on the current state of filing financial statements using International Financial Reporting Standards, as the Commission slogs ahead with plans to harmonize IFRS and U.S. Generally Accepted Accounting Principles by the end of the decade.
The meeting, to be held March 6, will bring together SEC staffers from the Office of the Chief Accountant, the Division of Corporation Finance, and the Office of International Affairs. It will be open to the public, and the Commission welcomes input from market participants who have an interest in IFRS and the “roadmap” to convergence with U.S. GAAP by 2009.
“This roundtable will help us identify both opportunities and speed bumps along the way,” SEC Chairman Christopher Cox said in a statement, noting that nearly 100 countries currently use or have a policy of convergence with IFRS—including the European Union, where IFRS reporting has been mandatory since 2005.
Beresford
“What happens at the meeting will be a good indication of where things stand and where they’re likely to go,” says Dennis Beresford, former chairman of the Financial Accounting Standards Board and now an accounting professor at the University of Georgia. “The nature of the questions and facts given will be tea leaves we can read about where things stand.”
SEC Chief Accountant Conrad Hewitt and Corporation Finance Director John White will moderate the roundtable. It will have three panel discussions: one on IRFS and convergence efforts’ effect on raising capital in the U.S. markets; one on the effect on issuers in U.S. markets; and one on the effect on investors in U.S. markets.
Ciesielski
“I think they are just trying to move the ball in the same direction they always have,” says Jack Ciesielski, owner of R.G. Associates and publisher of the Analyst’s Accounting Observer. “The goal is to eliminate that reconciliation, and they’re just sounding things out, it seems, as to what happens if they do that. It’s essential due process, according to the way the SEC works.”
“Given the sudden interest in capital formation by the SEC, it’s going to be very interesting to see what this roundtable produces in the way of recommendations,” Ciesielski continues. “The SEC has a way of following up on recommendations of roundtables” as it did with roundtables on compliance with Section 404 of Sarbanes-Oxley.
Meanwhile, the SEC’s counterpart in the United Kingdom, the Financial Services Authority, raised concerns about the cost of convergence in its recent report, Financial Risk Outlook 2007.
“Across all stakeholder groups in the U.K. (preparers, auditors, investors and regulators) there is growing concern that the costs of convergence may outweigh the benefits being sought,” the FSA stated in its report. “In particular, there is a view that a converged set of accounting standards that is acceptable to the SEC will need to be more like U.S. GAAP and more detailed and prescriptive than current IFRS, which are principles-based, albeit increasingly underpinned with more detailed rules.”
The FSA said progress made in the next 18 to 36 months will be “critical in determining whether the potential benefits of IFRS and convergence are realized, or whether the costs connected and the ultimate outcomes experienced are potentially disproportionate, or even negative, for U.K. stakeholders.”
The report cited two major risks to the continued success of IFRS: inconsistency across national economies and the potential direction of the future development of the IFRS framework. It also mentioned a “growing concern” that IFRS will be interpreted and audited in a more prescriptive and rules-based way than was typically the case under U.K. GAAP.
“My sense is that the roadmap to convergence is a little more difficult than everybody thought it would be,” says James Hamilton, an analyst at consulting firm Wolters Kluwer Law & Business. “I think everybody wants to get it done, but there a lot of things to work out … The consistent interpretation of IFRS is becoming a big issue in the EU.”
The FSA report contends that the true benefit of IFRS can only be realized “through enabling a better comparison of similar entities across national boundaries … Should local custom or national interest operate to threaten the consistent application of IFRS, much of this anticipated benefit could be lost.”
New Guidance On Filing Preliminary Proxies
The SEC’s Division of Corporation Finance has updated its guidance on Item 402 of Regulation S-K, to reflect its views about companies filing preliminary proxy statements without executive-compensation disclosures that are required under the Commission’s new rule for pay disclosure.
The bottom line: excluding some information in the preliminary proxy is acceptable, so long as the final proxy statement is complete.
Serota
The SEC clarified that in a situation where a company that is complying with the new rules for the first time files a preliminary proxy statement excluding the required executive and director compensation disclosure, SEC staff won’t request a revised preliminary proxy statement or deem the 10-calendar day waiting period specified in Rule 14a-6 to be active, so long as: 1) the omitted executive and director compensation disclosure is included in the definitive proxy statement; 2) the omitted disclosure does not relate to the matter or matters that caused the company to have to file preliminary proxy materials; and 3) the omitted disclosure is not otherwise made available to the public prior to the filing of the definitive proxy statement.
“Most companies are hard at work drafting their executive compensation disclosure, which is a very involved process,” says Susan Serota, a partner at law firm Pillsbury Winthrop Shaw Pittman. “This relief from including the executive compensation disclosure in the preliminary proxy will provide additional time to gather the information and to provide the disclosure in order to meet the SEC’s new requirements.”
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