The CFA Institute told the Securities and Exchange Commission that its long anticipated decision on whether or not to incorporate International Financial Reporting Standards into the U.S. financial reporting system should wait until the SEC completes its work plan for incorporating IFRS.
“The SEC should take the time necessary to thoroughly complete the work plan and not be beholden to a 2011 decision date with respect to the U.S. incorporation of IFRS,” said a comment letter from the institute in response to a recent SEC staff paper exploring a possible method of incorporating IFRS (see SEC Releases Work Plan for How IFRS Transition Might Work).
In the letter, the institute reiterated its support for a single set of high-quality, investor-focused financial reporting standards, and said that objective should not be set aside. It also backed the approach described in the staff paper for an endorsement-based approach to incorporating IFRS.
“An endorsement-based incorporation approach would permit the U.S. to retain its sovereign right to set accounting standards in the U.S. which may work to protect investor interests,” said the letter. The endorsement approach, which is also followed in many European countries, would allow the U.S. to endorse IFRS one standard at a time instead of adopting the standards wholesale. The U.S. Financial Accounting Standards Board and the International Accounting Standards Board have been converging the standards gradually since 2002, but lately FASB has talked of a “condorsement” approach that would combine convergence with endorsement.
The CFA Institute is recommending a standard-by-standard review with a single adoption date. “Our suggested approach would be that once the review of standards is complete there is a single adoption date for all of the reviewed standards,” said the letter. “A single date adoption will create initial discontinuity, but we believe that this is preferable to a period of continuous discontinuity.”
The institute is a not-for-profit association of over 107,200 investment analysts, portfolio managers, investment advisors and other investment professionals, many of whom hold the Chartered Financial Analyst designation. The letter was sent to SEC Chief Accountant Jim Kroeker and was co-signed by Kurt N. Schacht, managing director of the institute’s Standards & Financial Markets Integrity Division, and Gerald R. White, chair of the Corporate Disclosure Policy Council.
In the letter, they disagreed with the transition approach in the SEC staff paper. “We believe the transition approach proposed in the staff paper suggests a significant period of information discontinuity and appears more preparer than investor focused,” they wrote, adding that they are strongly opposed to prospective adoption of standards without providing comparative information that would be essential for investor understanding and analysis.
The institute said that both FASB and the SEC should retain a key role in the standard-setting process and not cede that authority to the international standard-setters. It added that FASB must also be sufficiently funded to attract and retain quality personnel.
Finally the institute expressed its doubts that equivalence between U.S. GAAP and IFRS would be achieved in the near future. “The term U.S. GAAP should be retained until such time as there is equivalence between the two sets of standards,” Schacht and White wrote.
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