The Financial Accounting Standards Board and its parent organization, the Financial Accounting Foundation, sent a comment letter to the Securities and Exchange Commission giving a thumbs-up to the proposed roadmap to International Financial Reporting Standards, but they urged more consultation and study.
The letter, signed by FAF Chairman John Brennan and FASB Chairman Robert Herz, supports the recommendation in the roadmap for the SEC’s Office of the Chief Accountant to conduct a study on the implications for investors and other market participants of implementing IFRS for U.S. public companies. The study would look at the implications of simply adopting IFRS, as opposed to continuing the longer process of converging IFRS with U.S. generally accepted accounting principles.
The FAF and FASB also recommend that the SEC set up a broad-based advisory committee with representatives from the many different parties that have a stake or interest in the U.S. financial reporting system. The advisory committee, if it recommends changing to IFRS, would then be charged with developing and implementing a transition plan or blueprint to minimize the cost and disruptions to investors, companies and other participants.
The comment letter also addresses questions about the independence of the International Accounting Standards Board, after the IASB came under pressure last year from the European Union to amend its standards to allow reclassification of certain investment securities (see Pressured IASB Chairman Considered Resigning).
“Recent events have demonstrated the significant pressure that can be brought to bear on standard-setters and the adverse consequences such pressure can cause, such as suspension of established due process procedures,” said the letter. “For accounting standards to serve the needs of users, the standard-setter’s governance and financial structure must be designed and operated such that the organization has the ability to maintain focus on the needs of investors and to withstand such undue pressure to the maximum extent possible.”
Herz and Brennan acknowledged that the IASB has taken steps to address these concerns, including setting up a monitoring group that should improve the governance of the IASB, and provide a formal link to market regulators.
However, FASB and the FAF leaders took exception to the proposal for limited early use of IFRS in certain circumstances. “We continue to believe that the SEC should not permit an option unless and until there is a decision that all U.S. public companies will ultimately be required to adopt IFRS,” wrote Herz and Brennan.
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