When the U.S. economy went into a tailspin last September after big financial institutions faltered and the credit markets seized up, many a project was put on the back burner. One was the Securities and Exchange Commission’s proposal to move all publicly traded U.S. companies to international financial reporting standards by 2016.
The so-called roadmap — outlining the various deadlines for getting to the point where companies would no longer use U.S. generally accepted accounting principles — was first introduced by then–SEC chairman Christopher Cox last August before Lehman Brothers collapsed. But it wasn’t formally released for public view until November.
Now, nearly eight months after Cox declared IFRS could become a “uniter of the world’s capital markets and investors everywhere” and its adoption necessary to keep U.S. businesses competitive globally, CFOs are pressing his successor, Mary Schapiro, to table the IFRS project, focus on the financial crisis, and keep the convergence work between the United States and global standards-setters. “I don’t get the impression that the new Administration has made IFRS a priority in the same way the last Administration did,” concludes William Stocker, an audit and accounting partner with Marks Paneth & Shron, a regional firm.
Moreover, many of the nearly 40 finance executives who have commented on the SEC’s proposal worry about the cost of switching accounting systems and doubt many companies will consider the change worth the trouble. “Conversion to IFRS could lead to confusion and reduced marketplace confidence in financial statements at a time when confidence in the U.S. financial markets is already low,” wrote Patrick Mulva, controller for ExxonMobil.
Under the SEC’s proposed time line, all publicly traded U.S. companies would be required to use IFRS within five years if the SEC votes in 2011 to push its plan forward. Large accelerated filers (those with a market capitalization of $700 million or more) would begin using IFRS in 2014, followed by accelerated filers (those with a market cap above $75 million) in 2015 and smaller companies in 2016. The proposal would also let about 110 companies use the international rules as early as this year, depending on their size and their industry.
However, since the SEC extended the public-comment period for the 165-page roadmap proposal to April 20 from its original February 19 deadline, it’s unlikely the commission will stick to those original dates.
Schapiro has also indicated she may have changes in mind. At her Senate confirmation hearing earlier this year, she said, “I will not be bound by the existing roadmap that’s out for public comment.” She also expressed reservations about the independence of the overseas standards-setter that writes IFRS and the quality of the rules themselves.
Her qualms are matched by some finance executives. In their comments to the SEC, they cited concerns over whether the U.S. legal culture and auditors could handle a more principles-based accounting language, getting their staff up to speed on IFRS, the integrity of the International Accounting Standards Board, and whether the international rules are truly better than U.S. GAAP.