International Accounting Standards Board chairman Sir David Tweedie made the case Thursday for U.S. businesses and the Securities and Exchange Commission to support International Financial Reporting Standards this year.

Sir David Tweedie

Speaking before the U.S. Chamber of Commerce in Washington, D.C., Tweedie said that 2011 would be seen as the year when the future path of financial reporting was determined.

“There are two key activities coming to a head this year,” he noted. “First, the IASB and the FASB are now nearing the completion of a nine-year program to improve International Financial Reporting Standards and US generally accepted accounting principles and to bring about their convergence. Second, the U.S. Securities and Exchange Commission will make a decision on the use of IFRS by U.S. domestic companies.”

This is also the year when Tweedie will be retiring from his chairmanship of the IASB after a decade as the head of the most powerful accounting standard-setting organization in the world. He is finishing his last term on June 30, and will be succeeded by Dutch financial markets regulator Hans Hoogervorst (see Hoogervorst Named as Next IASB Chairman).

“The SEC’s decision will be felt well beyond the borders of the United States,” Tweedie noted. “Today, more than 100 countries either require or permit the use of IFRS for listed companies in their domestic markets. This includes, among the Group of 20 members, Australia, Brazil, Canada, the 27 member states of the European Union, Korea and Mexico. However, China, India and Japan have yet to make a formal and full commitment to domestic adoption of IFRS. Their work towards adopting IFRS in their countries has been, in part, predicated on the implicit understanding that a truly global accounting standard must include the United States. They are therefore closely watching the SEC’s decision.”

Tweedie emphasized the need for the IASB to remain independent and not beholden to national, regional or special interest pressure. He likened it to the U.S. standard-setter, the Financial Accounting Standards Board. “A number of commentators, particularly in the United States, have questioned whether the IASB is more susceptible to undue political pressure than national standard-setters,” he added. “I will not deny that we do get our share of pressure. So has the FASB and every other accounting standard-setter that I have observed.”

After describing the progress toward acceptance of IFRS in various countries around the world, Tweedie cautioned that it still has a long way to go before it is universally adopted.

“None of this is to suggest that IFRS are yet a global standard,” he said. “Indeed, the United States still does not formally accept IFRS for its domestic companies. We all know that there cannot be a global system without U.S. acceptance of IFRS. This is an objective that I have been fully committed to over the past ten years.”

Tweedie tried to make the case for why the U.S. should commit itself this year to a clearly defined timetable for incorporation of IFRS into the U.S. financial reporting system.

“It is in the United States’ economic interest to be part of the global system,” said Tweedie. “When the IASB began its work in 2001, the United States was seen as the leading forum in which to raise capital. The U.S. financial reporting and regulatory system was the undisputed gold standard. It is not surprising that many here and elsewhere believed that if you wanted to adopt international standards, you should adopt U.S. GAAP. However, the shape of the world’s capital markets has changed rapidly in the past 10 years.”

Tweedie pointed to the rise of the capital markets in Asia and Europe and the increasing need for U.S. companies to turn to international investors for capital. “Delaying the adoption of IFRS imposes unnecessary costs and risks on US companies,” he said. “Already U.S.-based multinationals need to maintain multiple sets of accounting books, filing statements prepared in accordance with U.S. GAAP with the SEC while reporting under IFRS or national standards for their international subsidiaries. Their foreign competitors could use IFRS for all purposes, even for filing with the SEC, now that the reconciliation requirement has been removed.”

Tweedie urged the SEC to make a decision this year to support IFRS. “Even if you accept the need for a global standard, you may disagree with my assessment that the SEC must make a decision this year to allow the use of IFRS,” he said. “The window of opportunity will close if a decision is delayed. At the same time, a decision this year will provide U.S. companies, auditors and educators with the necessary certainty and time they require to prepare for IFRS.”

Tweedie warned that if the U.S. put off the decision any longer, it might risk derailing the whole effort to converge IFRS with U.S. GAAP. “The alternative of delay or further intensive convergence work is not a viable option,” he said. “The IASB and the FASB have worked together for nearly 10 years on the convergence program. We have made significant progress in improving accounting and eliminating major differences. The countries that have adopted IFRS, or that have committed themselves to adopting IFRS, have already accepted convergence with the FASB as a necessary step to facilitate U.S. adoption. However, there is no appetite internationally for the IASB to work in exclusive partnership with the FASB beyond 2011.”

He insisted that putting off adoption could also impose unnecessary costs on companies in the future. “The completion of our joint convergence work provides the moment in history when transition to IFRS will be easiest,” said Tweedie. “At that moment, IFRS and U.S. GAAP will be most closely aligned with each other. On the other hand, without an SEC decision, the clear risk is that having once converged, standards could then diverge.”

He warned that the coalition supporting IFRS could break apart if the SEC puts off the decision until later. “Rather than two sets of accounting standards, namely IFRS and U.S. GAAP, we could go back to the fragmentation in standards that existed before the year 2000,” said Tweedie. “We would once more have many incompatible national or regional accounting systems. The cost, in terms of lack of transparency and comparability, would be extremely high.”

The U.S. might even find itself excluded from future influence on international accounting standards, Tweedie cautioned. “The coalition in support of IFRS could hold together but the pressure to remove U.S. interests from the IASB, the trustees and the Monitoring Board would be overwhelming,” he said. “The absence of any formal convergence program would almost certainly lead to divergence between international and U.S. financial reporting standards. To my mind, this would lead to lower quality standards internationally. In my opinion, neither of these alternatives is acceptable or in the interest of the United States. Remember, the United States has made an enormous investment in the development of global standard—in establishing the IASB in 2001, through the convergence process, and through the involvement of U.S. trustees, IASB members and the input of U.S. stakeholders. If this occurs, all of our efforts over the past 10 years will have been largely for nothing.”