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SEC Issues Concept Release on IFRS and U.S. Companies

The SEC has approved the issuance of a concept release seeking views on whether U.S. companies, including investment companies, should be allowed to prepare their financial statements using international financial reporting standards as published in English by the International Accounting Standards Board. Chief Accountant Conrad Hewitt observed at the open meeting that it was "truly amazing" for an accountant who has been in the business as long as he has to find himself recommending that the commissioners vote to approve the issuance of the concept release. The release is an information-seeking document, he explained, and does not conclude that U.S. companies should be able to report using IFRS or provide a timeline for implementing such a change.

Corporation Finance Director John White characterized the release as even more far-reaching than the recent proposal to eliminate the requirement that foreign private issuers reconcile their financial statements prepared under IFRS to U.S. GAAP. If U.S. companies are permitted to use IFRS, Mr. White noted that it could increase the number of companies using IFRS ten-fold. Issuers would have to carefully consider their choice, he said. Large multinational companies have a great deal of interest in the concept, according to Director White, but smaller companies that do not have a foreign presence would likely retain U.S. GAAP.

The availability of IFRS could benefit U.S. issuers, Mr. White said, but investors and other market participants would have to be able to understand IFRS in order to do comparisons among companies complying with two sets of accounting standards. The large multinational companies believe it would lower costs and the burden of using multiple sets of accounting standards. They are already following IFRS for their foreign subsidiaries, he explained. If companies in the same industry report in IFRS, others may also wish to do so from a competitive standpoint.

Mr. Hewitt noted that 100 countries have now adopted the IASB's standards, and more are moving in that direction. IFRS is very popular throughout the world, he said, but it will take time for companies to become familiar with the system in the United States. The SEC wants to remain competitive as IFRS becomes common throughout the world, he said.

Mr. White noted that the large accounting firms are moving forward on IFRS education and training. Mr. Hewitt has encouraged universities to start teaching IFRS, but there are no textbooks yet. All of the accountants at the SEC received training in IFRS in order to review the first Forms 20-F that were filed using IFRS for the first time.

The SEC is seeking input on when any change to IFRS might occur and how it would be implemented. The concept release will start the dialogue, Director White said. The comment period will be open for 90 days.

The concept release will be published in a forthcoming Report