SEC’s Chief Accountant Signals End to Convergence Efforts

“There is virtually no support to have the SEC mandate IFRS for all registrants,” James Schnurr tells accountants.
David KatzMay 8, 2015

Sounding a death knell for the more-than-decade long effort to fully “converge” International Financial Reporting Standards with U.S. Generally Accepted Accounting Principles, James Schnurr, the chief accountant of the Securities and Exchange Commission, said that he probably won’t recommend that the SEC should mandate IFRS or that U.S. companies should have the choice of preparing their financials under those standards.

James Schnurr

James Schnurr

Speaking at the 14th annual Baruch College Financial Reporting Conference in New York City, Schnurr said that “there is virtually no support to have the SEC mandate IFRS for all registrants.”

Further, he said, “there is little support for the SEC to provide an option allowing [U.S. public] companies to prepare their financial statements under IFRS.” Since 2007, the commission has permitted foreign private issuers in the United States to report their financials under IFRS without reconciling them to U.S. GAAP. (Under the pre-2007 regime of reconciliation, foreign issuers had to identify and quantify the material differences they reported under IFRS in terms of U.S. GAAP.)

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However, he added, “there does seem to be continued support for the objective of a single set of high-quality globally accepted accounting standards.” The chief accountant stressed that the U.S. Financial Accounting Standards Board and the International Accounting Standards Board continue to communicate and keep each other’s views very much in mind when each considers its own actions.

Schnurr bemoaned the current emphasis on the deterioration of relations between FASB and IASB. “The conversation seems to quickly transition to convergence, or the lack thereof, often with an adversarial, U.S. GAAP vs. IFRS, tone. Conversations on this topic typically highlight the differences and shortfalls in the efforts towards convergence in an attempt to suggest that the two sets of standards will never be able to achieve uniformity,” he said.

“For example, you often read news articles that focus on the opposing positions of the FASB and the IASB in key projects such as leasing and credit impairment, but rarely do we see headlines that highlight where the standards are converged,” he said, noting the standard on revenue recognition in particular. “I think it’s important for us to acknowledge the significant contributions the boards have made with respect to the objectives of a single set of high-quality globally accepted accounting standards.”

When Schnurr joined the SEC last October, Mary Jo White, the commission’s chair, asked him to supply a recommendation about “what action, if any, the commission should take regarding deferring incorporation of IFRS into the U.S. capital market.”

In December, he gave a speech at an AICPA conference mentioning the potential alternative of allowing U.S. issuers to prepare IFRS-based financial information along with the U.S. GAAP-based information that they use for purposes of SEC filings.

At the conference, SEC staff listened to reactions to the notion of convergence from financial statement preparers, investors, auditors, regulators, and standard setters, according to Schnurr.

“In many cases, this was the first time that these constituents had discussed their views on IFRS with the staff since the completion of the [SEC Work Plan for Global Accounting Standards] in 2012,” he said.

Schnurr told the Baruch conference attendees that the key questions constituents had raised at the AICPA gathering included:

  • “Is the commission still committed to the objective of a single set of high-quality globally accepted accounting standards?”
  • “If the commission moves forward with proposed rulemaking to allow domestic issuers to include IFRS-based information without reconciliation, would that rulemaking be the commission’s final word on IFRS with respect to domestic issuers?”
  • “Why would a company spend the time and effort to prepare this information? What are the benefits of providing the information?”

For his part, Schnurr thinks there are “real impediments” to mandating IFRS use in the United States or enabling domestic issuers to include IFRS-based financial information along with U.S. GAAP-based filings, he said at Baruch.

The accounting chief told the AICPA last year that an example of such an impediment to letting U.S. companies file in IFRS here stems from the fact that some of them use financial information calculated under IFRS in their SEC filings.

“However, regulatory constraints may dissuade some issuers from providing this information, as current SEC rules would consider IFRS-based information to be a ‘non-GAAP’ financial measure for a domestic issuer,” Schnurr said then. (The SEC currently restricts the use of “non-GAAP” standards by domestic issuers.)

“Should IFRS-based information continue to be considered ‘non-GAAP’ financial measures subject to the requirements for such measures, or should it be thought of differently?” he asked.

“Under this line of thinking, issuers that do not believe IFRS-based information would be beneficial to investors would not be forced to undertake what we understand to be, in some cases, significant implementation costs,” Schnurr added in December. Investors, in that case, apparently wouldn’t have access to the IFRS-based information.

The chief accountant seemed more definitive on Wednesday. Plans to mandate IFRS or give U.S. companies the chance to file under those standards “probably will not be in my recommendation” to Mary Jo White, he said in answer to an audience question.

Asked about when he expects to provide the recommendation, he refrained from specificities. “We’re pretty close to getting it to the chair’s office,” he said. “These things take a lot longer than you expect.”

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