Global Standards Alive and Kicking, SEC Accounting Chief Says

Rather than sidetracking international financial reporting standards, the economic crisis may have underscored their importance, Kroeker says.

The roadmap to the convergence of U.S. and global accounting standards is alive and well and a Securities and Exchange Commission priority, says James Kroeker, the commission’s chief accountant. The roadmap is a loose time line for the transition of U.S.-based public companies to the use of international financial reporting standards proposed by the SEC in 2008.

The effort seems to have been on hiatus since new SEC chair Mary Schapiro took the reins from Christopher Cox, who introduced the roadmap. But Thursday morning, Kroeker assured a roomful of accounting experts that the roadmap is on track. “Don’t read anything into the deferral” to extend the comment period for the time line, he said at a meeting in New York City sponsored by the New York State Society of Certified Public Accountants.

The end of the comment period was extended 60 days, from February 19 to April 20, 2009, after the proposed roadmap was released in November 2008. All told, the SEC received 200 comment letters on the pros and cons of moving away from U.S. generally accepted accounting principles to international financial reporting standards. Half of the comments came from corporations, with about 30% of those companies from the Fortune 100. About 25% were outside the Fortune 500.

Most observers agree that the current financial crisis diverted the SEC’s attention from the IFRS project. But Kroeker noted that the crisis may have, in fact, underscored the importance of IFRS. That’s because the discussions related to the credit crunch were global in scope, as were the responses and potential solutions, he added. For example, the Financial Stability Forum, a group of 26 finance and economic organizations from around the world including central banks and national treasury departments, has debated such issues as global banking regulation, accounting standards, and corporate governance.

Further, addressing such issues as off-balance-sheet accounting from a national perspective rather than an international one doesn’t make sense because of the interconnections among multinational companies and their investments, said Kroeker. “Turning back to the roadmap will be a priority” for the SEC, he added.

To be sure, Kroeker did hint that one aspect of the proposed roadmap might be scrapped because of a lack of support from most constituents. A handful of large multinationals should be able to convert to IFRS by 2011, even though most companies wouldn’t be required to convert until 2016 at the earliest.

Issues still in play include the idea of allowing U.S. and international standard-setters to proceed with converging accounting rules and requiring U.S. companies to report in IFRS after that project is complete. Critics of that approach say the wait would be too long and that companies that want to convert should be able to do so before the two regulatory systems fully converge. Another school of thought among the comment letters holds that companies should not be required to file in IFRS until after the Financial Accounting Standards Board and the International Accounting Standards Board complete projects on such complex issues as revenue recognition, pensions, and leases. At issue, says Kroeker, is whether standard-setters should agree on core principles like fair value first, and then work through rule making.

 

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