International Accounting Standards Board chairman Hans Hoogervorst said the U.S. Financial Accounting Standards Board is not likely to face obstacles in joining the new multinational Accounting Standards Advisory Forum that is being set up to provide input to the IASB on setting future accounting standards, even though the Securities and Exchange Commission has not formally committed to supporting International Financial Reporting Standards.
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During a conference Thursday at the offices of the New York Society of Security Analysts, Hoogervorst appeared alongside FASB chair Leslie Seidman and an SEC official, Jenifer Minke-Girard, senior associate chief accountant in the SEC’s Office of the Chief Accountant, in a discussion moderated by former FASB chairman Robert Herz.
“The proposal would require a commitment to support a single set of standards written by the IASB, in full and without modification,” said Seidman. “On the surface, that condition would seem to exclude some major jurisdictions that haven’t yet decided to adopt IFRS. In our case, as we all know, it is the SEC that has the ultimate authority to decide what accounting standards are followed by public companies in the U.S. It’s my understanding from talking with Hans and others at the IASB that the proposed commitment was not intended to exclude the United States from participation in the ASAF. Nonetheless, the FAF, the FASB’s oversight body, suggested that the commitment be modified to encourage broad participation by the world’s largest capital markets, regardless of their current status regarding IFRS. We understand that the IFRS Foundation will consider potential modifications to the wording of this commitment as well as some other aspects of the proposal.”
Hoogervorst indicated that he thought the proposal for the ASAF would be modified to include the U.S. in the new multilateral arrangement. “The period of an almost exclusive relationship with the FASB will soon be over,” he said. “Now, what will be next? All our major participants in our community want a place at the table, and that’s what they are going to get. We’ll have a body of about 12 standard-setters and regional bodies. They should become a technical sounding board for the IASB throughout the lifecycle of the standard-setting process. We want to deepen cooperation and encourage the sharing of resources and knowledge and ultimately to deliver a higher-quality single set of global standards. We hope also by involving national standard-setters at a very early stage in our standard-setting, in an advisory function, to increase the buy-in for our standards and to decrease the risk of non-endorsements in the future. Leslie said that a couple of countries including the FASB have commented on the required commitments. I think that can be fixed. Our current MoU is governed by joint commitments to the single set of global standards. If we can use those words, I think, which are a bit more neutral than the words that were proposed in the original draft of the paper, I think that we should be able to resolve our problem.
Seidman said that FASB would still work towards convergence with IFRS. “We remain committed to the goals set many years ago,” she said. “We still believe that improving U.S. GAAP and promoting its convergence with IFRS ultimately will result in differences so insignificant that for all intents and purposes, we have a single set of standards, sort of like American English and the Queen’s English,” she said. “This won’t happen without an ongoing, sincere commitment to working together, with active engagement and sharing of technical perspectives and practical views during the development of standards, coordination of implementation efforts and post-implementation reviews, and sharing information about emerging financial reporting issues.”
Minke-Girard noted that the SEC has a statutory obligation to define accounting standards for public companies and has recognized FASB’s standards as generally accepted for purposes of the federal securities laws. “Therefore the commission and its staff have a responsibility to oversee FASB,” she added. She noted that the SEC staff also monitors the IASB and considers convergence with IFRS. In 2011, there were approximately 200 foreign issuers filing financial statements with the SEC using IFRS, she noted. In 2012 that number had climbed to about 400. “The expectation is that by the end of 2013, when companies file their 2012 annual reports, we will have about 500,” she added. “A lot of that increase is due to the first-time adoption of IFRS in Canada and South Korea as well as early adopters in other countries such as Argentina and Mexico.”
Summarizing the various points of view of the panelists, former FASB chairman Herz noted that the FASB and FAF position is that global comparability is very important, and probably the most practical way for the U.S. to achieve that would be to continue over time through various mechanisms to narrow the differences between U.S. GAAP and IFRS. “Eventually you’ll get to a point where the differences are de minimis,” he said. “You can almost have a clean-up call and essentially U.S. GAAP would be IFRS. On the other hand, the position of the IFRS Foundation, from their strategy document of a year or so ago, was that in getting to a single set of standards, the most effective way is really wholesale adoption, and while convergence in the interim might be OK, it’s probably not the most effective way to get there.” He noted that they were on almost opposite sides of the same coin in getting to global comparability.
Seidman pointed out that FASB serves at the pleasure of the SEC. “We have our authority because the SEC has looked to us to set the standards for public companies in the United States,” she said. “My comments must be taken in the context that the SEC has not made a decision that we should adopt IFRS. So the question is what do we do in the meantime? What I want to do is emphatically state that we do believe that having globally comparable standards is extremely important. I have tried to lay out the manner in which I think we should do that in the absence of a decision by the SEC to move further and definitively to IFRS.”
Hoogervorst agreed with Seidman. “That’s very well put,” he said. “As long as there is no decision, the best you can do is indeed to try to move as close together as possible. If you look around the world, there are a couple of countries that have, prior to adopting IFRS, gone through a couple of years of convergence, making the most important differences in national standards go away. For example, the Mexicans have operated that way. That is one way of doing it, but there the regulator had given the national standard-setter a very clear message: In the end, it’s going to be IFRS. And obviously we would not have made such progress around the world if every country had adopted a continuous convergence goal where you sort of get there in the end. We did reach a lot of progress in the last decade, but there are still quite a few differences between IFRS and U.S. GAAP, and of course U.S. GAAP is very much intertwined with national regulations. That was the case in many other countries that have adopted IFRS. That was the case in South Korea and Brazil. You have to make some adaptations.