On Wednesday, the Securities and Exchange Commission will propose a date for U.S. companies to be allowed to convert to international financial reporting standards.
The long-awaited deadline will come in the form of a roadmap that the SEC commissioners will consider whether to propose — and which would open up the conversion date to public scrutiny and debate.
The SEC also plans to consider proposing amendments to various rules and forms that would allow “a limited number of U.S. issuers” to prepare their financial statements using IFRS rather than GAAP earlier than the roadmap proposes, the commission announced on Friday.
For the past year — ever since the SEC began allowing foreign companies to submit their SEC-prepared filings without reconciling them with GAAP — companies, academics, and accounting firms have been waiting to hear when U.S. publicly traded companies would be given a similar allowance. In the meantime, the Big Four accounting firms have been telling their clients that an SEC mandate for IFRS use is inevitable.
In Europe, companies were given three years to change over their financial reporting systems from their home-country GAAP to IFRS — an enormous switch that was completed in 2005. The experience has given large multinationals domiciled in the U.S. fodder for persuading the SEC that the largest of U.S. registrants could make a similar conversion by 2011. In that year, Canadian, Indian, and Japanese companies are expected to begin using the global standards.
Accounting firms also have predicted that the year 2013 could be cited by the SEC as an IFRS-switchover date for large U.S. companies, with 2015 being the deadline for small companies to begin using IFRS. Earlier this summer, Conrad Hewitt, the SEC’s chief accountant, said the U.S. shouldn’t be left behind while the rest of the world makes the switch to IFRS within the next three years.
While IFRS has become the most popular accounting language worldwide, it’s looked at speculatively by accounting experts based in the United States. Some say it’s more principles based and than the more time-tested GAAP, which provides accountants with more guidance for each of its rules.
For the better part of this decade, the Financial Accounting Standards Board and the International Accounting Standards Board have working on harmonizing U.S. GAAP and IFRS. Accounting experts say the standards are not yet close enough to ignore the quality differences between the two and the need for U.S. accountants to be schooled in IFRS.