The Securities and Exchange Commission has raised the possibility that some U.S. publicly traded companies will be able to use international financial reporting standards next year.
On Wednesday, the SEC commissioners proposed a timetable for transitioning all public companies from U.S. generally accepted accounting standards to IFRS within eight years, with the allowance for some companies to begin using the global rules earlier. If this so-called roadmap is approved, the SEC estimates that 110 companies would be eligible to use IFRS at the end of fiscal years ending after December 15, 2009, depending on their size and industry.
The roadmap further calls for the SEC to make a decision in 2011 regarding whether to require all of its registrants to use IFRS. The commissioners would base their decision on the progress made on, among other things, funding the International Accounting Standards Committee Foundation (which governs the International Accounting Standards Board), IFRS data tagging, and accounting education.
Before the commissioners voted unanimously to release the proposal for a 60-day comment period, SEC chairman Christopher Cox said IFRS has the potential to become a “uniter of the world’s capital markets and investors everywhere.” Nearly 100 countries have required or allowed their companies to prepare their financial statements using IFRS, he added.
The widespread use of the global standards and the fact that the majority of U.S. investors own foreign companies’ securities “make it plain that if we do nothing and simply let these trends develop with each passing year, comparability and transparency will decrease for U.S. investors and issuers,” Cox said.
David Tweedie, chairman of the International Accounting Standards Board — the overseas counterpart to the U.S. Financial Accounting Standards Board — applauded the decision. “Following its decision to remove the reconciliation requirement last year, the SEC’s proposal is another important vote of confidence in the IASB and FASB’s process of convergence,” commented Tweedie. “The result of our work will be an improved set of IFRSs to assist investors throughout the world, he added.
Accounting firms, large companies, and academics have told the SEC that only a firm deadline could motivate people to get up to speed on IFRS in the United States. Under the proposed roadmap, large accelerated filers would begin using IFRS in 2014, followed by accelerated filers in 2015, and smaller companies in 2016 (see chart).
These dates don’t surprise D.J. Gannon, a partner at Deloitte & Touche, who said the deadlines are reasonable for U.S. companies to meet. “It is a sigh of relief in a sense because this expectation has been building since the [SEC's] concept release came out last year…. It will allow people to move forward with an actual plan,” Gannon told CFO.com.
During the past year, the SEC has held roundtables on the topic of IFRS and has reviewed the nearly 100 letters received to its questionnaire, or concept release, for gauging the public’s interest in allowing a second accounting language in the United States.