Kara Stein, a commissioner with the Securities and Exchange Commission, appeared to reject the need for convergence with International Financial Reporting Standards in a speech last week.

“I am not convinced of a need to abandon U.S. GAAP in favor of IFRS,” she said during a speech last Thursday at Brooklyn Law School’s International Business Law Breakfast Roundtable. “That is not to say that U.S. GAAP is perfect. Nor is IFRS perfect. I’m also not convinced that providing financial statements in two different sets of accounting standards would be beneficial for either investors or issuers. With complexity in both businesses and products on the rise, it seems that presenting information in a dueling set of financial reporting standards does not really aid in understanding.”

Stein said it was time to move on. “To be frank, this debate between dueling standards needs to move on,” she said. “Neither regime worked ideally in the financial crisis, and neither may serve investors well in today’s post-financial crisis, technologically disrupted, and data-driven world. In practice and in reality, accounting standards may vary between jurisdictions due to legal and cultural factors, as well as differences in perspective. Remember, IFRS is not consistently implemented around the world.”

She urged taking a new approach. “Rather than debating the winner of the battle between U.S. GAAP versus IFRS, we should be thinking anew about what kind of accounting regime we want going forward,” she said. “With technology increasingly transforming our world and the financial crisis still fresh in our minds, now may be a good time to reimagine our approach globally. In other words, while convergence makes sense, the question for me is, what are we converging to. Is it a regime that offers clear, predictable, and comparable accounting that facilitates electronic analysis? Or is it so flexible that investors cannot use it to compare companies, and companies themselves do not have the certainty they need to withstand scrutiny?”

She noted that the SEC’s Division of Corporation Finance is currently spearheading a project to examine the effectiveness of corporate disclosures. “While the initiative was initially named ‘The Disclosure Overload Project,’ its mission has been broadened to also address whether we need to enhance, improve, and in some cases add disclosure,” Stein pointed out. “I’d like to suggest that we might be able to use this initiative to address accounting and financial reporting as well. Much work has already been done to converge U.S. GAAP and IFRS, and we should not recreate that wheel. Rather, I’m suggesting that, post-financial crisis, we think about the next step—where should accounting be in the 21st century, a century in which technology and globalization are transforming the way the entire world does business?

"In a highly interconnected, digital world, can we reimagine accounting so that we minimize differences and maximize global investment and access to capital?" she added. "While this may be an aspirational goal, if we avoid an outcome-dependent approach, I believe we can begin to move beyond the constraints of the current debate. We should be looking, on a globally coordinated basis, at the real needs of investors and issuers in the 21st century and re-imagining our accounting regimes to better serve them. We can adopt the best of what we have here in U.S. GAAP, in IFRS, and the best of the new thinking out there.”

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