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White Suggests Phase-In Process for Ending IFRS/GAAP Reconciliation

Division of Corporation Finance Director John White said recently that it might be useful to consider a phase-in process for ending the requirement that foreign private issuers using international financial reporting standards ("IFRS") reconcile their financial statements to U.S. GAAP. He suggested that certain issuers could be relieved of the requirement on a trial basis before the conditions of the SEC's convergence roadmap have been fully achieved. The idea needs much more consideration among the staff before going further, he said. White spoke at a NYSE/Brooklyn Law School roundtable, and his remarks are posted on the SEC's Web site.

White said the idea stems from the comments he heard at a recent SEC roundtable on IFRS/GAAP convergence, at which there was considerable support for moving quickly through the remaining steps of the roadmap. In light of what participants said, White suggested that the staff might start by recommending that the Commission end the requirement to reconcile interim period financial statements. The idea is still in the very early stages, he emphasized.

White supports ending the reconciliation requirement, as long as IFRS is widely used and consistently and faithfully applied across companies and jurisdictions. He believes that it is now time for the Commission to formally state its views on the issue. By offering its official opinion, he said, the Commission could provide a powerful signal of the seriousness with which it views the matter and a good next step down the road of aligning the SEC's rules with a world where reconciliation is not needed.

White noted that the chorus of voices calling for the U.S. to recognize and accept financial reports filed with IFRS has become louder in recent months. The move was among the eight recommendations of the Bloomberg/Schumer report, and was supported by SEC roundtable participants.

At the roundtable, White said he was struck by the fact that most of the market participants calling for the end of the reconciliation requirement are already ahead of the SEC. The various players and participants in U.S. capital markets, whether intermediaries or investors, already accept IFRS, he noted. Foreign private issuers want reconciliation to end, as do large domestic issuers with multinational operations. In many cases, those U.S. issuers already use IFRS for various reporting purposes, he said.

White believes that reconciliation cannot be ended carelessly. Among the critical concerns yet to be addressed is the sustainability of funding for the IASB, which is responsible for maintaining IFRS. At the moment, the industry should remain focused on the convergence process and on the robustness and strength of IFRS while sticking to the SEC's roadmap for ending reconciliation, he said.

Ending reconciliation and allowing IFRS reporting in the U.S. would improve the attractiveness and competitive position of U.S. capital markets, White said. He also believes that the staff needs to work in earnest to analyze and address the question of allowing U.S. issuers to report in IFRS rather than GAAP. Addressing this issue and its many competitive implications is an essential piece of the larger picture, he said.

Moving toward U.S. issuers' use of IFRS is likely to uncover some problems. For example, White said that he was surprised to learn that U.S. colleges do not today generally teach IFRS to accounting students. If the SEC allows U.S. companies to report in IFRS, there is likely to be a large learning curve before there would be sufficient accountants to prepare those financial statements, or to audit them, he noted.

Even so, White feels that U.S. issuers reporting in IFRS, like ending reconciliation, is not too far away and the industry and the SEC just need to figure out how to get there. White does not believe that ending reconciliation for foreign private issuers should be held up while the other issue is under consideration.