The staff of the Securities and Exchange Commission is wrapping up its report to the Commission recommending a way to set the United States on a course toward international accounting standards.

Without giving away too much detail, Chief Accountant Jim Kroeker told the IFRS Advisory Council the staff is putting the finishing touches on a 150-page draft report that will recommend a framework for incorporating International Financial Reporting Standards into U.S. reporting requirements. The framework would demonstrate a “strong U.S. commitment” to use international accounting standards while preserving a role for the Financial Accounting Standards Board to endorse those standards for use in the United States, he said.

The framework would establish a process for FASB to follow to make decisions about endorsing specific international standards while seeking “substantive involvement” for FASB and other significant national standard setters in the development of international standards. “I wouldn't say there should be differential treatment for FASB,” he said, but the staff would hope to see FASB having a strong voice in the development of international standards, “not unequal from other (countries) with significant standard setting bodies.”

The SEC originally said it hoped to make a determination in 2011 about whether, when and how the United States would eventually adopt IFRS. But that was before Congress passed the Dodd-Frank Act, requiring the SEC to take up more than 100 rulemakings and studies, Kroeker said, an “unprecedented magnitude” of activity for the SEC to take on. So over the past year IFRS has had to make way for a new derivatives regulatory system, issues related to credit rating agencies and hedge funds, and other significant initiatives, he said.

Also key to the decision making process, said Kroeker, is some promising new developments in the convergence efforts of the FASB and the International Accounting Standards Board around financial instruments, he said. The boards have renewed their efforts to narrow the differences between their approaches, especially around classification and measurement. If the boards can't come to a more converged approach with respect to financial instruments, it makes it hard for the Commission to adopt IFRS, Kroeker said. “The more progress we see there, the easier it is to make a decision,” he said.

The SEC still has some big issues to figure out, according to Kroeker, like what do about investment companies or other entities that operate in rate-regulated environments where a shift to IFRS could produce major complications. Also a big concern, he said, is what to do about last-in-first-out accounting for inventory, which is forbidden under IFRS but permitted in the United States and heavily tied to tax accounting. U.S. companies that would be stripped of LIFO would experience a tax impact “somewhere north of $50 billion,” Kroeker said. “In an environment where people are keenly focused on the bottom line, that's a $50 billion fight worth having.”

Even further, the SEC is sensitive to concerns about the ripple effect of uprooting an accounting system that is deeply embedded in U.S. commerce at all levels. “Even moving away from the term ‘U.S. GAAP' could be exponentially compounding to a decision,” he said. Canada, for example, retained the term “Canadian GAAP” while bringing IFRS into Canadian GAAP to facilitate such concerns, he said.

Kroeker said the staff is still on course with the time line he provided in early December when he said the staff needed “a few additional months” to finalize its recommendation to the Commission for its consideration. With tongue in cheek, he declined to be more elaborate. “I'm not going to be specific about what ‘a few' means,” he said. “It's something more than a couple but less than many.” He doesn't want to create a target date for concern it will create undue pressure on the staff to meet it, he said.