James Schnurr, chief accountant in charge of the Security and Exchange Commission’s Office of the Chief Accountant, said he disagrees with a former SEC chairman about abandoning convergence with International Financial Reporting Standards.
“This time last year, I had just retired after spending 30 years as an audit partner, and I was approached by Chair [Mary Jo] White to be the chief accountant,” Schnurr said last Friday during a speech at the 34th Annual SEC and Financial Reporting Institute Conference. “One topic we discussed was her speech in May 2014. Chair White indicated that she was making IFRS a priority and would be asking me to advise her on the next step forward if I were to be appointed. Although retired, I read with great interest the attention-grabbing headlines from former Chairman [Christopher] Cox’s keynote address at this conference last year that we should bury IFRS.’ Since arriving at the Commission last October, I have spent considerable time with my staff and others researching and discussing IFRS, and I believe Chairman Cox’s burial of IFRS entirely may have been premature.”
Schnurr was referring to comments last year from the former SEC chairman, who used to be a major proponent of IFRS and set up a proposed roadmap for transitioning to international standards before his term ended in 2008 (see Former SEC Chair Cox Backs Away from IFRS Support).
“Today there is a real risk that the continuing increase in global trading and investing has gotten far ahead of the accounting standards that are necessary to make it all work,” Cox said last June. “That is why, when I was SEC chairman, I worked to ensure that the United States was doing everything necessary to make financial information from companies in different countries both comparable and reliable. But that was several years ago. And a great deal has changed since then. Today, I come to bury IFRS, not to praise them.”
Schnurr, however, believes there may be a role for IFRS and has suggested in previous speeches that the SEC might allow companies to use some IFRS numbers as a supplement to their U.S. GAAP financial statements. He has heard negative feedback from stakeholders about allowing an option for U.S. public companies to prepare their financials in IFRS, although the SEC may propose allowing financial institutions to provide supplemental information on loan impairments and credit losses in IFRS to allow for differences in the new financial instruments standards that the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have been working to converge (see SEC Chief Accountant Backs Away from IFRS Proposal).
“As I mentioned publicly last month, the staff has recently heard from a number of different constituents about IFRS: preparers, investors, auditors, regulators and standard-setters,” said Schnurr. “We heard three key themes through those discussions: There is virtually no support to have the SEC mandate IFRS for all registrants. There is little support for the SEC to provide an option allowing domestic registrants to prepare their financial statements under IFRS. There is continued support for the objective of a single set of high-quality, globally accepted accounting standards. So, while full-scale adoption or an option does not appear to have support, it does not mean we bury’ the underlying objective of a single set of high-quality, globally accepted accounting standards. On the contrary, constituents continue to support that idea. So, the real questions are: what is the path to achieve that objective and how do we get there?”
Schnurr said he would like to see the two boards keep working on harmonizing the two sets of standards.
“In my opinion, in the near term, FASB and IASB should continue to focus on converging the standards,” he said. “The boards should renew their commitment to cooperate and develop standards that eliminate differences between IFRS and U.S. GAAP whenever it meets the needs of its constituents and improves the quality of financial reporting. I recognize the boards will not always be able to eliminate differences during the standard-setting process, primarily because they serve different constituents that have different needs. However, when differences in standards arise, the boards should monitor the implementation of those standards with the objective of learning from the implementation and re-engaging with each other with the goal of converging to the standard with the highest quality financial reporting outcome. The boards should apply the lessons learned from the recent revenue recognition standard and realize that even though the words may be the same, to achieve convergence, cooperation is needed after the standard-setting process is complete and during the implementation stage of the standards. Finally, the FAF [Financial Accounting Foundation] and IFRS Foundation should be supportive of the underlying objective and provide their respective boards with the support necessary to achieve convergence.”
Schnurr believes the two standard-setting boards and the foundations that oversee them should continue to cooperate on trying to eliminate differences between IFRS and U.S. GAAP. “I believe that, for the foreseeable future, continued collaboration is the only realistic path to further the objective of a single set of high-quality, global accounting standards,” he said. “Accordingly, how the FAF, IFRS Foundation, FASB and IASB decide to interact in the future is critical to the advancement of the objective of a single set of high-quality, globally accepted accounting standards.”
Schnurr added that his staff continues to monitor implementation of the new revenue recognition standard to encourage consistent application not only in the U.S., but globally. He said he is encouraged that preparers, auditors and standard-setters are working together to identify, evaluate and resolve issues in a consistent manner across all industries and transaction types. Schnurr is also pleased the two boards plan to amend the guidance for the revenue recognition standard to provide further clarity on performance obligations.
In addition, Schnurr said his staff is developing a recommendation to the SEC in the form of a concept release to seek feedback on how investors currently use the information provided in audit committee disclosures along with feedback on the usefulness of potential enhancements, including additional disclosures. The concept release is expected to be released by the SEC for public comment in the near future.
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