Risk & Compliance

Could IFRS Delay Strip the SEC of Power?

International standards group gently prods the SEC to step up its involvement.
Sarah JohnsonMarch 1, 2012

While the Securities and Exchange Commission continues to procrastinate on a decision about whether publicly traded U.S. companies must file financials using international financial reporting standards (IFRS), an international group has given the regulator a nudge.

In February, the group that monitors the International Accounting Standards Board made a change in the types of entities that can oversee the IASB. Starting in 2013, qualifying members will need to mandate “domestic use of IFRS in [their] jurisdiction’s capital market,” the IFRS Foundation Monitoring Board stated.

The new membership criterion could be interpreted as “a gentle hint” to the SEC to move forward with an IFRS plan, says Joel Osnoss, global leader of IFRS clients and markets for Deloitte Touche Tohmatsu. Otherwise, the SEC could wind up with no say in how the IASB operates. The SEC has delayed deciding on an IFRS plan since it proposed a road map in 2008 for companies to move to the international standards.

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The monitoring group will assess its current membership next year after defining “use of IFRS.” Theoretically, the SEC’s current rule allowing some SEC registrants based outside the United States to file financial statements using IFRS instead of U.S. generally accepted accounting principles could be deemed sufficient to preserve the U.S.’s membership in the monitoring group.

Currently, the SEC is a member of the monitoring group through its involvement in the International Organization of Securities Commissions. Financial institutions such as the World Bank and other regulators like the European Commission are also members.

The SEC was an early supporter of creating the IFRS monitoring group, which for the past three years has been responsible for approving the appointment of trustees and reviewing the IASB’s oversight activities and budgeting and funding mechanisms. The IASB previously acted autonomously, without the equivalent of an SEC looking over its shoulder.

Even if the SEC is deemed qualified for membership in the oversight group, its role could be diluted if the group, as planned, adds up to four new members, says Tom Selling, an accounting consultant and longtime IFRS critic. Still, the U.S. appears to retain significant sway. “Until you have the SEC at the table,” says Osnoss, “you don’t have truly global standards.”

Sarah Johnson is senior editor for news at CFO.