The SEC is expected to turn its attention once again this fall to the question of adopting International Financial Reporting Standards now that the financial crisis has eased.

The U.S. has lagged behind the 113 or so countries that have already adopted or agreed to adopt IFRS. In part, the slow process of convergence with U.S. GAAP has held up adoption of IFRS here, but so have fears that a move toward principles-based professional judgment could make accounting standards overly vague and subject firms to greater legal liability if their judgment were questioned successfully before a jury. The International Accounting Standards Board’s governance and composition, as well as political pressures on both the IASB and its U.S. counterpart, the Financial Accounting Standards Board, have also contributed to these doubts.

Those concerns, among others, combined with the immediate demands forced upon the SEC by the financial crisis, have prompted the commission to delay making a decision on the proposed IFRS roadmap that the commission issued last fall. The change in administrations and the replacement of SEC Chairman Christopher Cox with Mary Schapiro have also kept the roadmap off the front burner at the SEC.

Now the SEC seems ready to take up the question again. SEC Chief Accountant James Kroeker told an audience at a New York State Society of CPAs conference last week that turning back to the roadmap would be an important priority this fall. Schapiro confirmed this with her own remarks last week, saying, according to Dow Jones Newswires, “It would be ideal if we can have a single set of high-quality accounting standards that worked globally. I expect we will speak a little later this fall about what our expectations are with respect to IFRS.”

During a webcast Tuesday on the changing landscape of IFRS, Ernst & Young chairman and CEO James Turley welcomed the move toward IFRS adoption rather than the slow process of convergence. “I think that adoption is the preferable route in countries across the globe and right here in the U.S. as well,” he said.

Ruth Picker, leader of IFRS services at the global firm, noted that, like the U.S., her native Australia had also first tried convergence, but then decided that wholesale adoption was really the only answer. “Ultimately, the board decided to adopt IFRS fully,” she said. “They went through a process of denial, but they realized it was the right thing to do.”

The U.S. has lost some credibility because it has had a strong presence on the IASB since the board was first set up, but with its commitment to IFRS so vague, international entities such as the monitoring board of international securities regulators that oversees the IASB and its parent organization, the IASC Foundation, have come to be more international in scope. That has generally been a good thing, with greater involvement now by Asian countries such as Japan. But the U.S. has also lost some influence along the way. Turley is worried that if the U.S. does not approve the roadmap, then support for international standards will also erode among some other countries that had committed to IFRS.

What we might see are more countries that adopt localized versions of IFRS with significant differences that will continue to make it difficult to compare financial statements from country to country. Investors might even have to look to the practices that become prevalent at certain firms, so we get an Ernst & Young version and a PricewaterhouseCoopers version and a KPMG version and a Deloitte version and a Grant Thornton version and a BDO version, etc., of IFRS rather than a single set of high-quality standards.

IFRS is a constantly-moving target, though, especially as the demands of the financial crisis have forced both the IASB and FASB to push through standards to rapidly respond to demands from both politicians and bankers. Picker believes the standards will be significantly different in 2011, when many of the members of the IASB are set to rotate off the board, than in 2014.

The standards need to be relatively stable in order for accounting firms in the U.S. and other countries that decide to commit to IFRS over the next few years to be able to transition to them successfully. As she pointed out, it’s going to be important as the SEC makes its decision on the roadmap in the coming months to determine whether the U.S. will be committing to a 2011 form of the standards or a 2014 form of them, and whether or not those are going to be radically different.

As we’ve seen in the past year, accounting standards can change quickly, especially when the standard-setters are called to appear before Congress or the European Commission and threatened with laws or special carve-outs. That can be a good thing when circumstances demand quick responsiveness in the face of a crisis, but it can also make it challenging for accounting firms to conform to standards that are constantly evolving.

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