Slow Death for GAAP: Cox

The SEC chairman slows down projections that the commission will expand the use of international financial reporting standards sometime soon.
Sarah JohnsonJanuary 10, 2008

Securities and Exchange Commission chairman Christopher Cox on Thursday pushed away criticism that the SEC is moving too fast toward allowing U.S.-based companies to use international financial reporting standards.

The concern is that such a measure would hasten the demise of U.S. generally accepted accounting principles before they are fully converged with IFRS. But according to Cox, that concern is unfounded.

During a conference on Thursday, Cox reiterated that he supports the idea of a single set of global accounting standards, as he has emphasized many times in speeches over the past year. But he said the end of U.S. GAAP won’t take place anytime soon. “I don’t see this happening for many, many years,” the Associated Press quoted Cox as saying during an American Institute of Certified Public Accountants meeting.

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The SEC voted last year to eliminate the requirement that filers based in other countries reconcile their IFRS-prepared financial statements with GAAP. The commissioners also released a questionnaire asking the public to predict what would happen if U.S. companies were given the same allowance.

Such a concept had many observers and major market participants — including the Financial Accounting Standards Board — worried about the problems of allowing dual accounting systems in the United States and whether it would eliminate the need for a U.S. standard-setter. In a letter sent to the SEC last year, FASB and its trustees suggested the board might no longer be the official source of the accounting rules that U.S. publicly traded companies follow.

However, at the AICPA conference, Cox told reporters that he predicts FASB will continue to be the U.S. standard-setter for “the indefinite future,” the AP reported.

That comment may be reassuring to observers who are wary of allowing IFRS to be adopted wholesale in the United States within three to five years, as has been projected. Some accounting experts consider the more principles-based international standards to be of a lower quality than GAAP and in much need of more improvement by FASB and the International Accounting Standards Board, which are working on converging their standards.

One expert, Jack Ciesielski, publisher of The Analyst’s Accounting Observer, considers IFRS too different from U.S. GAAP at this point for investors to be able to make comparisons. The tone of discussions from the SEC last year prompted him to recently write, “The SEC seems hell-bent on making the choice happen. It’s going to be quite a ride.”

He’s not alone in believing the SEC will give companies the choice between IFRS and GAAP. Former SEC commissioner Roel Campos, now a Cooley Godward Kronish partner, recently told he predicts the choice will be offered before the IASB/FASB convergence project is complete.

There’s also concern that IASB’s governance structure is not up to par with that of FASB and may not have enough independence from its constituents.

Still, the SEC forged ahead with allowing at least some of its filers to use IFRS — those foreign filers that use the IASB’s version of the standards — and it held two roundtables about giving U.S. companies the choice in December. At the roundtables, participants recommended that the SEC mandate the use of IFRS within a three- or five-year time frame if IFRS is to be allowed in SEC filings at all.

Cox has voiced concern that because nearly 100 countries either use IFRS or are in the process of adopting it, the U.S. capital markets could be left behind competitively.