Lawmakers who are part of a group of current and former CPAs and accountants in Congress are expressing concern about the possibility of the Securities and Exchange Commission allowing U.S. companies a choice of using either U.S. GAAP or International Financial Reporting Standards.
In a letter late last month to SEC chair Mary Jo White, members of the Congressional Caucus on CPAs and Accountants wrote to share their concerns about White’s recent statements regarding the future incorporation of IFRS into the U.S. financial reporting system.
“We share the Securities and Exchange Commission’s belief that a single set of high-quality globally accepted accounting standards’ is a goal worth striving for,” they wrote. “However, we are worried that adopting IFRS alongside GAAP will set back the interests of investors in the name of global harmonization.”
The lawmakers warned that expanding the use of IFRS domestically would present “a host of potential problems.” They cited “placing standard setting with a foreign institution, beyond the purview of domestic regulators,” referring to the International Accounting Standards Board, which oversees IFRS. They also warned that such a move create a “’two-GAAP’ environment, enabling accounting arbitrage.” Other concerns cited include investor confusion arising from differences in accounting treatment and possible legal challenges of the accounting treatment under the principles-based system of IFRS.
Lawmakers on the caucus are also worried that the SEC might short-circuit the standard-setting process, which has traditionally been done in the U.S. by the Financial Accounting Standards Board. FASB has been working with the IASB for over a decade on converging accounting standards. Although they recently finalized a converged revenue recognition standard, FASB and the IASB remain at odds on some key elements of their other main convergence projects: leasing, financial instruments and insurance contracts.
White’s husband, John White helped develop a convergence roadmap back in 2007 when he was director of the SEC’s corporate finance division and Christopher Cox was SEC chairman, according to Reuters, which first reported on the letter. However, Cox’s successor, Mary Schapiro, hesitated to move forward on approving use of IFRS by U.S. companies as the SEC dealt with the fallout from the financial crisis. In 2012, the SEC staff issued a final report on a work plan for incorporating IFRS into the U.S. financial reporting system that described a number of roadblocks with incorporating the standards, and the convergence process has made little headway since that time, apart from finalization of the revenue recognition standard.
The lawmakers are concerned that White might jumpstart the process again without getting public input. At an April meeting of international accounting standard-setters in Sydney, Australia, White said she hoped to come back to the trustees of the IFRS Foundation with some proposals in the months ahead.
“The process by which the Commission arrives at a global accounting standard is just as important as the standard itself,” the congressional letter warned. “Throughout any standard setting process, it is essential that the public has the opportunity to make meaningful comments. This is a sentiment we have even asked of non-governmental authorities under the jurisdiction of the SEC. As the SEC looks to potentially deepen the use of IFRS domestically, it should use all of the regulatory tools at its disposal to seek stakeholder input, including a formal notice and comment period before it moves forward.”
FASB and the IASB are currently working on the convergence process, the lawmakers acknowledged. “Within that process we have seen where incongruous policies must be properly hammered out,” they wrote. “Simply skipping over this work is not advisable.”
The lawmakers in the Congressional Caucus on CPAs and Accountants, who are current and former CPAs and other accountants, invited White to meet with them to discuss with them the implications of IFRS. They include Rep. Mike Conaway, R-Texas, Rep. Brad Sherman, D-Calif., Sen. Mike Enzi, R-Wyo., Sen. Ron Johnson, R-Wis., Rep. John Campbell, R-Calif., Rep. Bill Flores, R-Texas, Rep. Lynn Jenkins, R-Kan., Rep. Patrick Murphy, D-Fla., Rep. Steven Palazzo, R-Miss., Rep. Collin Peterson, D-Minn., Rep. James Renacci, R-Ohio, and Rep. Tom Rice, R-S.C.
A spokesman in Conaway’s office declined to comment on whether White has responded to the letter.