Securities and Exchange Commission chief accountant James Schnurr indicated Tuesday that he plans to recommend to SEC chair Mary Jo White that U.S. companies be allowed to use International Financial Reporting Standards to provide supplemental information, in addition to filing their financials in accordance with U.S. GAAP.
Schnurr has been tasked with helping resolve the longstanding question of whether U.S. companies should be permitted to use IFRS. The Financial Accounting Standards Board and the International Accounting Standards Board have been trying to converge U.S. GAAP with IFRS for over a decade. Last year, they released a mostly converged revenue recognition standard, and FASB plans to release its lease accounting standard early next year, along with major parts of the financial instruments standard, including impairment, classification and measurement (see FASB Getting Closer to Finalizing Major Standards).
However, some key differences remain between the U.S. GAAP and IFRS approaches to the leasing and financial instruments standards. Schnurr floated the idea of allowing supplemental use of IFRS to report on information such as revenues last December during a speech at an American Institute of CPAs conference (see SEC Considers Supplemental Use of IFRS by U.S. Companies).
Asked about where he stood on the proposal during a press conference at Financial Executives International’s Current Financial Reporting Issues Conference in New York, Schnurr said he would make that recommendation to White. “The proposal would come out of our office and Corporation Finance because it is a disclosure,” he said. “We have a formal process that has a number of different touch points within the Commission: Enforcement, General Counsel, CorpFin, just to name a few. It’s a comprehensive process.”
“It’s going through the rule-making process,” he told The Wall Street Journal.
Earlier in the conference, Schnurr discussed an interview he gave to Accounting Today on Monday about how audit quality is improving (see SEC Chief Accountant: Auditors Need to Keep Improving). Speaking about the completion of the analysis of the IFRS alternatives he had made, with the goal of making a recommendation to White, he told Accounting Today, “I believe that the status of the use of IFRS for U.S. companies is better understood today, not only in the U.S. but outside the U.S.,” he said.
Schnurr also discussed a letter that the U.S. Chamber of Commerce sent to him and Public Company Accounting Oversight Board chairman James Doty back in May outlining concerns about Auditing Standard No. 5. He plans to discuss the issue further with the U.S. Chamber of Commerce.
SEC deputy chief accountant Brian Croteau explained during the news conference about the letter. “In short, it concerns whether auditors and PCAOB inspection were driving an inappropriate level of work in the internal control space,” he said. “In a nutshell, I think a PCAOB inspection is a very observable process in terms of the output. It’s not PCAOB inspections at issue here. It’s really understanding from a management perspective the design and operation of the controls and making their own assessments. … It’s one of the more complicated areas of internal control design and maintenance. It’s not surprising to me that this many years into the implementation of the internal controls that this is emerging as an area of focus.”
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