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SEC Official Discusses Convergence of Accounting Standards

SEC Deputy Chief Accountant Julie Erhardt believes that "getting to" the convergence of accounting standards and "living with" convergence are two different things. At a convergence conference last month in Frankfurt, Germany, Erhardt said that the number of countries moving toward global accounting standards is both a strength and a weakness. For instance, investors and creditors will benefit from financial statements prepared with international financial reporting standards ("IFRS"), but she questioned how investors will all become educated about the standards. She also noted that it is easier for the second country to move to IFRS than it is for the first, since more resources will be available to the subsequent countries.

Erhardt also noted that there may be a tendency to tinker with international financial accounting standards to fit local cultures, legal frameworks and national mandates, among other pressure points. Eventually, these small things may accumulate to a point where there is no longer one set of global standards, she said. She acknowledged that different jurisdictions may arrive at global standards in different ways. The SEC's roadmap for convergence accepts this possibility as long as progress is being made toward one set of global standards, she said.

The contemplation by the SEC's roadmap of eliminating the reconciliation requirement for IFRS to U.S. GAAP is based on financial statements that comply with IFRS, she added, but not for the recognition of financial statements that use jurisdictional versions of IFRS in which the financial statements do not comply with IFRS. The Internet allows different groups to explain the provisions of IFRS through examples, she said, which should make it less difficult for others to move toward IFRS. IFRS must be understood by the people applying them or auditing their application in order to be consistent, according to Erhardt. One set of standards does not guarantee the uniform application of those standards, she observed.

The way that regulators handle IFRS will influence the level of confidence felt by investors and issuers, according to Erhardt. She added that various actions by regulators to date, including IOSCO, have shown support for IFRS. Securities regulators appear to be proactive about the use of IFRS while continuing their roles in their local capital markets, she said. The SEC is focused on eliminating the need for and IFRS-to-U.S. GAAP reconciliation, she said, but not as some have suggested, a commitment to eliminating the reconciliation regardless of the outcome of the SEC's consideration of the factors identified in the roadmap.

Erhardt said the convergence initiative is an historic opportunity for regulators to provide leadership in a time of change. The SEC continues to be committed to its roadmap, she said, and will continue to carry out its roadmap work.