Washington, DC - The Securities and Exchange Commission has published its inaugural progress report on the work plan related to the move to global accounting standards.

The SEC had directed its agency staff earlier this year to execute the work plan to provide the information needed to evaluate the implications of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers.

Although the 40-plus-page report drew no specific conclusions, it addressed six key areas: sufficient development and application of IFRS for the U.S. domestic reporting system; the independence of standard-setting; investor understanding and education regarding IFRS; how the U.S. regulatory environment would be affected by a change in standards; the impact on issuers both large and small; and human capital readiness.

The commission indicated that following successful completion of the work plan and the convergence projects of the Financial Accounting Standards Board and the International Accounting Standards Board, it would be in a position in 2011 to determine whether to incorporate IFRS into the U.S. financial reporting system.

"The staff has invested significant time and effort in executing the work plan, and we've made great progress to date," reported SEC Chief Accountant Jim Kroeker. "This progress report emphasizes the importance of transparency in the staff's activities, and can help the public's understanding of the magnitude of this project and the staff's progress."

Among other issues, the SEC analyzed how the IASB and its overseer, the IFRS Foundation, are funded. The SEC is also mulling a number of scenarios regarding U.S. contributions to both. The SEC staff estimated that just 25 percent of jurisdictions that use IFRS as part of their financial reporting system contribute to the IFRS Foundation.

The SEC staff is evaluating the roles of standard-setters in jurisdictions currently using IFRS, as well as an overview of approaches that other countries have used in incorporating IFRS.

The report lists concerns of industry regulators about an overall lack of IFRS industry-specific standards, and stated that analysis is currently being conducted on federal and state tax impacts, audit regulation and standard-setting, and broker-dealer and investment company reporting.

The SEC staff also plans to meet with accounting firms of all sizes to "discuss their expectations regarding availability and cost of audit services and understand how they intend to address client concerns."

One of the possible hurdles in IFRS adoption according to the report is the role of other federal regulators, including those overseeing the banking industry. Their regulations often specify the use of GAAP. One way to get around this would be to endorse IFRS as a way to incorporate it into U.S. GAAP, but even that would not solve all the issues. "Members of several regulatory agencies have informed the staff that any potential incorporation of IFRS will entail significant effort by the agencies," said the report. "This effort will be necessary because the regulators would need to invest a potentially significant amount of human capital to evaluate and modify the financial metrics currently derived from U.S. GAAP financial reports, as the accounting results under IFRS may materially differ from those under current U.S. GAAP."

The SEC staff expects to continue to report periodically on the status of the work plan in 2011, although it was not clear when the next progress report would be released.

If the commission next year decides to incorporate IFRS into the U.S. financial reporting system, the first time that U.S. companies would be required to report under international standards would not be before 2015.

"The SEC staff has been diligent in executing its IFRS work plan and this announcement demonstrates that," said DJ Gannon, deputy managing partner of U.S. regulatory and public policy at Deloitte. "While there are many issues the staff will be working through over the next several months, the ultimate goal is to make a final recommendation next year on next steps related to the incorporation of IFRS into the U.S. public company reporting framework."



Meanwhile, in a recent survey conducted by Big Four firm KPMG, corporate executives said that they are getting ready to move to IFRS, but indicated that they probably won't do it until the SEC mandates it, even if an early adoption option is allowed.

The survey, by KPMG and Financial Executives International, found that 75 percent of the over 900 accounting and financial executives polled said that their organizations would wait until the SEC requires IFRS as the standard for filing financial reports before they move away from U.S. GAAP.

Nearly half of the respondents anticipated an SEC decision on IFRS in 2011, with only 15 percent saying that they do not expect a vote next year on whether to incorporate IFRS into the financial reporting system for U.S. issuers. In addition, 94 percent of the respondents said that their organizations could accomplish the adoption of IFRS by 2016 if a decision is made in 2011.

One third of respondents said that they understand IFRS well, compared with just 20 percent of executives who responded to a similar survey a year ago. Yet a third of the executives also said that the lack of knowledge elsewhere in their organization would be their biggest concern if they were required to adopt IFRS immediately.

Meanwhile, in a poll of more than 500 chief financial officers and controllers conducted by Chicago-based Grant Thornton, nearly half said that the U.S. should not adopt IFRS until after U.S. GAAP and IFRS have converged to the point where the differences are inconsequential - a time frame of between five to seven years. And 81 percent of those polled revealed that their companies did not prepare financials in accordance with IFRS.

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