At the same time that the Securities and Exchange Commission was hosting a roundtable about the impact of fair value accounting on U.S. companies in Washington, D.C. yesterday, another meeting was taking place just three miles away that could have a huge impact on all accounting for U.S. companies.
For the past two days, the trustees of the International Accounting Standards Committee Foundation — the parent of the International Accounting Standards Board — have been meeting to discuss changes to their constitution. The topics — how the committee is funded, and how it would work with a proposed international monitoring group — might seem pretty arcane internal matters.
But they’re not. The Securities and Exchange Commission may have recognized International Financial Reporting Standards for foreign companies listed in the United States and even solicited feedback about moving U.S. companies to IFRS. But until the IASC has stable funding and international oversight, the seeming rush to abandon U.S. generally accepted accounting principles in favor of IFRS can’t legally happen.
Under the Sarbanes-Oxley Act, the SEC can only recognize accounting standards as “generally accepted accounting principles” if they are set by an independent organization that has stable funding. Paradoxically, that means that the SEC must have enough oversight of the group to ensure it is stable and independent.
That oversight, in turn, hinges on the development of an international monitoring group of securities regulators that would include the SEC and that would have substantial input into the appointment of IASC trustees.
During an interview during a break in their meetings, CFO.com asked IASC Chairman Gerrit Zalm and IASB Chairman Sir David Tweedie about recent developments in IFRS, and what they will mean for U.S. companies.
First of all, what significance, if any, should be attached to the fact that this portion of IASC’s constitutional review is being held in Washington, D.C.?
Zalm: It’s purely accidental — we normally gather in July in Washington or [somewhere] in the U.S. — so there is no deeper meaning. But of course we are happy with developments in the United States as far as IFRS is concerned. And we hope that the new SEC commission will like those proposals.
What particular developments are you pleased about?
Zalm: Well, what particularly pleases us is the reconciliation [requirement] is gone for all non-American companies on the New York Stock Exchange and the SEC has put forth the idea that American firms could apply IFRS also. There is a general consensus at the SEC, but also at FASB, that principles-based [accounting], which is IFRS, is superior to a rule-based system. So I think a lot of that is very positive.
Some of your documents say that it is a “clear organizational objective” of IASB to become “the world’s accounting standard-setter.” So, that is your official goal?
Zalm: We have a huge ambition. We are getting along fine — there are already about a hundred countries prescribing IFRS or allowing it, and there are a lot of other countries converging to IFRS or telling us they will adopt IFRS, so there is real momentum. Of course the U.S. is an important part, but I’m confident the U.S. will, in the not-too-far future, adopt IFRS.