Tweedie Pushes for IFRS Decision This Year

Procrastination by the SEC could cause the current global consensus on financial reporting to disintegrate, warns the International Accounting Standards Board chief.

If they put off a commitment to international financial reporting standards beyond 2011, U.S. accounting rulemakers and standard-setters would impose “unnecessary costs and risks on U.S. companies,” Sir David Tweedie, chairman of the International Accounting Standards Board, said Wednesday at a U.S. Chamber of Commerce gathering on the future of financial reporting.

The major risks are competitive ones, said Tweedie. U.S.-based multinationals already must fill numerous sets of accounting books. Many must file their financials under U.S. generally accepted accounting principles even as they report on the activities of their overseas subsidiaries under IFRS or the standards crafted by individual nations, he pointed out. At the same time, their foreign competitors can use IFRS for all purposes, even for filing with the Securities and Exchange Commission, he added.

As the chief purveyor of IFRS, Tweedie could well have been expected to make that point. But his remarks, distributed prior to the chamber meeting, packed particular punch and what appears to be a new sense of urgency. This year looms “as a year when the future path of financial reporting [will be] determined,” he said.

Indeed, two key activities will come to a head in 2011. First, the IASB and the Financial Accounting Standards Board are nearing the end of their five-year accounting-convergence project. Of the 10 major projects targeted for convergence by the two boards in their 2006 memorandum of understanding, just 3 remain to be completed: revenue recognition, leasing, and financial instruments. FASB chairman Leslie Seidman has targeted June 30 as the date for completion. (Perhaps not coincidentally, that is the same day Tweedie will step down as IASB chairman.)

Tweedie 3-11-11

Second, SEC officials have said the commission will make a decision this year whether to require U.S. companies to use IFRS, rather than GAAP, to report their financials. Earlier this year, James Kroeker, the SEC’s chief accountant, said he and his colleagues would be watching the progress of FASB and the IASB in their convergence work for clues about what decision to make and when to make it.

Many who accept the need for global standards think their implementation should be delayed, arguing it would be counterproductive to adopt them while complying with the new financial reporting requirements of the Dodd-Frank Act, acknowledged Tweedie. Others are wary of the costs of converting to IFRS or believe that more convergence with GAAP is needed before that happens. “But the window of opportunity will close if a decision is delayed,” asserted Tweedie. “At the same time, a decision this year will provide U.S. companies, auditors, and educators with the necessary certainty and time they require to prepare” for putting IFRS into place, he said.

If the SEC procrastinates, however, “the clear risk is that having once converged, standards could then diverge,” said Tweedie. Citing Harvey Goldschmid, a trustee of the IFRS Foundation and a former SEC commissioner, Tweedie warned that the coalition of nations supporting IFRS could split apart. Rather than having two sets of accounting standards, the world could return “to the fragmentation in standards that existed before the year 2000,” the year the IASB was formed, added Tweedie. “We would once more have many incompatible national or regional accounting systems. The cost, in terms of lack of transparency and comparability, would be extremely high.”

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