Wrinkles in the IFRS Roadmap

The SEC wants some of the largest U.S. companies to adopt international rules early, but limitations and uncertainty in its plan could diminish those hopes.

Video interview:
Click here to watch former FASB member Ed Trott explain why he opposes the SEC’s plan to move to IFRS.

Video interview:
Click here to watch former Michael C. Fina CFO Mark Ellis explain why he believes IFRS is inevitable and will be good for small businesses in particular.

American companies that are allowed to use international accounting rules in their U.S. filings next year will still have to hold onto their U.S. GAAP knowledge.

In its proposed plan for transitioning all publicly traded companies to international financial reporting standards, the Securities and Exchange Commission has given commissioners room to change their minds in three years — raising the possibility that early adopters of its proposal will have wasted their time.

“Were the Commission to determine not to continue to permit or require additional U.S. issuers to use IFRS, the Commission would determine whether to require U.S. issuers that had elected the early use of IFRS to revert back to U.S. GAAP,” the SEC wrote in its proposed roadmap, which was released for a 90-day comment period on Friday, pending its filing in the Federal Register.

The proposal suggests that guinea pigs for the SEC’s plan envisioning an IFRS transition — companies that could pay an estimated $32 million in first-time costs — would need to retain certain records and controls in case they were later required to return to U.S. GAAP. Under the current plan, the SEC would vote in 2011 whether to move forward and require that all U.S. companies registered with the regulator use IFRS.

Indeed, the SEC has made it clear the 2011 vote will not be a “rubber stamp,” says Danita Ostling, Ernst & Young Americas IFRS technical leader. “It will be a robust decision based on their view of what’s best for the capital markets and what’s best for investors,” she tells CFO.com.

However, notes D.J. Gannon, a partner at Deloitte & Touche, the possibility of the SEC backtracking on its IFRS plans is slim. “It would be very difficult for the commission to turn back,” he tells CFO.com. “At this point, everything turns to the ultimate destination [toward IFRS] but how long will that journey take?”

If the SEC goes ahead with its current plan, all U.S. publicly traded companies will submit IFRS-prepared financial statements for years ending after Dec. 15, 2016. In the meantime, the U.S. and international accounting standard-setters have pledged to wrap up their convergence project by 2011. They may be pressured to work even faster; after Saturdays G20 meeting on the global financial crisis, top world leaders declared that the rule-makers “should work intensively toward the objective of creating a single, high-quality global standard.”

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