With the G-20 finance ministers having given accounting standard setters a new deadline of mid-2013 to get their convergence work done, the Securities and Exchange Commission is under fresh pressure to reach a decision on incorporating International Financial Reporting Standards into the U.S. financial reporting system.
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Grant Thornton CEO Stephen Chipman expects the SEC to make a decision soon, but he believes it is likely that the transition will be a slow one.
“My sense is that the SEC is getting closer to a position,” he said during an interview with the Accounting Today staff on Tuesday. “I don’t have any inside information. This isn’t based on anything other than intuition, just watching the tea leaves. But I think sometime during this year, they will bring some additional clarity to the way forward. I don’t expect it to be an aggressive timeline. I think it will be a timeline that acquiesces to the reality, quite frankly, that the issuers, investors and preparers are not falling over themselves cheering for IFRS here in the United States. They want time and they want a transition period, and they want to be able to deal with the disruption of costs associated with the change.”
Chipman anticipates the SEC plan will seek to address that issue, along with finding a place for the Financial Accounting Standards Board to stay involved in the process.
“I think it will also seek to address a compromise position for the FASB in a meaningful role that maintains the ability to have appropriate influence over the standards that are promulgated for use in the United States,” said Chipman. “I think they are getting closer and I would expect to see something in the next six months.”
Chipman doubts the U.S. wants to risk losing its seats on the International Accounting Standards Board, while at the same time, the IASB is reluctant to take away those seats from the U.S. He thinks the IASB would be willing to accept a longer U.S. timeline, even though the board would prefer the U.S. to be more aggressive in incorporating IFRS.
“There are two ways to look at this standoff,” said Chipman. “The U.S., I don’t believe, wants to or should lose those seats at the IASB. We need a seat at the table to be part of the dialogue for the development of a set of high-quality consistent global standards. We don’t want to allow that to happen without us being part of it. At the same time, the Europeans and the rest of the world are going to have a hard time completing that process without the largest economy at the table. So it’s in both sides’ interests to make this work, and if it takes a little longer, I think that compromise will be reluctantly accepted.”
Chipman likened it to Cold War thinking. “I described it earlier today as like the theory of mass mutual destruction,” he said. “Neither side wants to push that button where the U.S. gets kicked out or the U.S. withdraws. It’s in everybody’s best interest to figure this out. And ultimately, I think in the long term this is a competitiveness issue. The U.S. needs to be at the table. It makes sense for the capital markets, for the business community, for the investing public, to move towards a system where there’s a consistent set of high-quality global standards. The rest is transition details, which are messy and complicated and disruptive, but nevertheless they are details that can be resolved with patience and compromise.”
While China, India and Japan have made steps toward adopting IFRS, they’re not willing to fully commit until they see if the U.S. is in or out, he pointed out. Before Chipman became CEO of Grant Thornton’s U.S. member firm, the British-born accountant ran the firm’s Greater China Management Corporation, where he led the growth and development of services by Grant Thornton in China. He had some insights into the Public Company Accounting Oversight Board’s problems in convincing Chinese regulators to allow mutual audit firm inspections.
“The biggest obstacle, I think, is Chinese law, which does not allow for the workpapers related to the audits of Chinese public companies to be made available to institutions outside of China,” said Chipman. “So as long as that law exists, it is a major barrier to any form of external inspection process. In fact, as you’re probably well aware, some of the firms are getting caught in the crossfire on this because the PCAOB is saying, ‘Hand over your workpapers or we will take action against you here in the United States,' and China is saying, ‘If you hand over those workpapers and breach Chinese law, we will shut you down in China.’ Well, that’s a very uncomfortable position to be in, to be caught between the U.S. and China’s political and regulatory systems. No one wants to be in the middle of it, but right now the profession is in the middle of that. And until that barrier is resolved, everything else is secondary.”
Meanwhile, Chipman sees growth for Grant Thornton in the mid-market space. “We’re a firm that’s on the move,” he said. “We have a very clear and compelling strategy. We know which part of the market we want to serve. We’re not about being the biggest firm. We’re about being the best firm in that market space we have chosen. It’s not just here in the U.S., it’s global. We have a very cohesive global strategy, global brand, global commitment. We think that many firms serve this dynamic, mid-market space, but there’s only one global firm that’s absolutely committed and aligned to that space around the world, 30,000 people, all committed to making a difference in that dynamic organization’s space, with a commitment to quality and delivering a very distinctive service to unlock the growth potential in those dynamic companies.”