The Securities and Exchange Commission has published its first progress report on the work plan related to the move to global accounting standards.

The SEC directed 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. The SEC 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," said SEC Chief Accountant Jim Kroeker in a statement. "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."

The work plan addresses six key areas: sufficient development and application of IFRS for the U.S. domestic reporting system; the independence of standard setting for the benefit of investors; investor understanding and education regarding IFRS; examination of the U.S. regulatory environment that would be affected by a change in accounting standards; the impact on issuers both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and human capital readiness.

One of the possible hurdles 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.

“Regardless of the mechanism for incorporation of IFRS, 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.

“The SEC staff has been diligent in executing its IFRS work plan and today’s announcement demonstrates that,” said DJ Gannon, deputy managing partner of U.S. regulatory and public policy at Deloitte LLP, in a statement. “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. As the Commission affirmed in its February statement supporting convergence and global standards, IFRS is best positioned to be the set of standards for use globally.”

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