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The New York State Society of CPAs say unresolved rule differences and related comparability issues make adoption of IFRS by U.S. companies problematic.
Marie Leone, CFO.com | US
August 8, 2011
New York certified public accountants claim there are "critical unresolved differences" betweenU.S. generally accepting accounting principles and international financial reporting standards, and the disparity is contributing to a lack of comparability between the two rule sets. As a result, the New York State Society of Certified Public Accountants has called for "some kind of reconciliation process" in its most recent comment letter to the Securities and Exchange Commission, filed on July 28.
This is the second time the NYSSCPA has lambasted the SEC for trying to push IFRS on American companies without addressing what its members say are crucial comparability issues. The first time was in a March 2009 comment letter that, like the new letter, criticized the quality of IFRS, the cost of conversion from U.S. GAAP to international standards, and the SEC's claim that U.S.companies would benefit from a switch to IFRS.
Since 2002 the U.S.-based Financial Accounting Standards Board and its overseas counterpart, the International Accounting Standards Board, have been working to "converge" the two rulebooks in the hope of creating a single set of standards. During that time, the SEC has been monitoring the progress of the convergence project with the aim of determining whether U.S.-based companies should abandon GAAP in favor of IFRS, a set of rules that more than 100 countries have either already adopted or are in the process of adopting. A final decision from the SEC is due later this year.
But critics of the international rules argue that the more principles-based IFRS is not as precise and therefore is easier to manipulate than the more rules-based U.S. GAAP. Indeed, IFRS requires more professional judgment from both auditors and corporate accountants with regard to the practical application of the rules.
The judgment issue is a sticking point for the NYSSCPA, which contends that the increased use of professional judgment contradicts the SEC's view that adopting IFRS will improve comparability with non-U.S. reporting companies. In the end, an increase in judgment would automatically reduce comparability, and "[isn't comparability] kind of the whole point of IFRS?" asks Renee Mikalopas-Cassidy, one of the authors of the NYSSCPA letter.
The NYSSCPA also see problems with the SEC's conclusion that rule modifications to IFRS would be required only "infrequently," noting that the regulator's claim is without basis and may or may not be reasonable. In fact, the New York group claims that comparability would be further reduced across multiple jurisdictions by the tendency of preparers and auditors to apply IFRS in a manner that is as close as possible to former or existing standards. Such practices could result in lawsuits, wrote the society.
For its part, the SEC is considering three different approaches for the use of IFRS in the United States. The NYSSCPA noted that one of the proposed frameworks - dubbed the "condorsement" framework - actually makes it "highly likely that the U.S. would create exceptions or so-called carve-outs that would decrease the desired international comparability." However, Mikalopas-Cassidy says the condorsement method may be the best course to take, because even with comparability limitations, it is "urgently needed that the convergence process continue and be successful."
Nevertheless, the comment letter focused on the mismatch between rule sets, noting that "the lingering concern would be whether comparability - the stated purpose of IFRS - can truly be achieved given that the proposed framework will encourage individual nuances to develop." In light of potential carve-outs, the state society is encouraging the SEC to identify which standards would require a U.S. exception, before making its final decision.
As in the 2009 letter, the NYSSCPA also called on the SEC to suggest a time line of five years for IFRS implementation, to support education and training for financial-statement users, to offer early adoption possibilities, and to take into consideration the needs of private companies.