A subtle shift in word usage yesterday by James Kroeker, the Securities and Exchange Commission’s chief accountant, may signal the SEC’s acceptance of the possibility of an end to the “special relationship” between the U.S. Financial Accounting Standards Board and the International Accounting Standards Board, according to a New York–based adviser of the IASB.
In remarks made by Kroeker on Monday during a meeting of the IFRS Advisory Council, which provides input to the IASB, Kroeker’s used the word endorsement rather than “condorsement,” a term coined last May in an SEC staff paper that combines the words convergence and endorsement.
“My sense is there will be an endorsement process where the U.S. standard-setter will be similar to other standard-setters and won’t have a special relationship with the IASB,” says Joel Osnoss, global leader of Deloitte Touche Tohmatsu clients that use international financial reporting standards and a member of the IFRS advisory group. FASB, however, would be given time to decide whether new IFRS rules and amendments should be incorporated into U.S. generally accepted accounting principles.
The two standard-setters have been working for years to achieve a “convergence” of U.S. GAAP and IFRS, with the idea that the SEC might mandate a single melded system more aligned with global financial reporting.
The issue of a possible diminishment of FASB’s role if the United States decides to go to a more international system first arose in the wake of a May 26 SEC staff paper that looked at a possible framework for IFRS adoption. The paper described a condorsement model for the incorporation of IFRS in the United States.
Under the condorsement plan, FASB would continue to hold sway in this country over a convergence of U.S. GAAP and IFRS during a transition period of five to seven years. But once convergence has been achieved, FASB would merely endorse the standards the IASB has developed. “Most significantly, the FASB would participate in the process for developing IFRS, rather than serving as the principal body responsible for developing new accounting standards or modifying existing standards under U.S. GAAP,” said the staff paper.
Kroeker suggested yesterday that the United States would still have input on new rules put out by the IASB, which provides public-comment periods on its proposals just as FASB does. In order to move forward, the United States would still have to “have a strong voice in the development of standards,” he said.
Despite a number of sticking points, the SEC seems poised to vote on a plan for moving companies toward using IFRS sometime this year, Kroeker’s remarks suggested. Holding up a 150-page document during the meeting, he sought to diffuse concerns by international standard-setters that the SEC has dropped the concept of incorporating IFRS in the United States. “You can see these are real; they are not blank pages,” he said, referring to the working draft by the regulator’s staff members that he will eventually run by the SEC’s five commissioners.
The SEC had given observers reason to wonder about the its progress on an IFRS plan after continuous delays on a decision following the 2008 issuance of a proposed roadmap for moving U.S. publicly traded companies to the rules. Kroeker himself had suggested some decision would be made by the end of last year — but it didn’t happen. On Monday, Kroeker said the SEC staff will put a plan before the commissioners in “a few months’ time” but declined to be more specific. “‘A few’ [is] something more than a couple and less than many,” he said.
In the meantime, the SEC will be closely watching the continuing work by U.S. and international standard-setters. Kroeker noted key differences that will make the details of a plan difficult, including the IFRS’s lack of LIFO (last in, first out) accounting. “My personal view is I would not want a handful of areas that might be particularly challenging to hold up the broader, important decision,” he said, suggesting that a solution might at first not be a perfect one.
He also expressed concern that the boards’ rules for accounting for financial instruments are still not more closely aligned. “A standard that is widely divergent would put us in a much more difficult position to say we are going to move forward with some form of adoption or incorporation yet our national standard-setter has its own best judgment and concluded differently [on the rule],” said Kroeker. He added that the differences between the rules will likely be narrowed as the standard-setters continue their work.