SEC Roundtable Ponders IFRS ‘Condorsement’

The Securities and Exchange Commission held a roundtable discussion Thursday on International Financial Reporting Standards and how they ultimately might be incorporated into the U.S. financial reporting system.

While the SEC has not yet made a decision on whether or not to approve the use of IFRS, a decision is expected by the end of the year. In the meantime, the SEC staff produced a work plan in May outlining how such a transition might happen (see SEC Releases Work Plan for How IFRS Transition Might Work). The roundtable, led by SEC Chief Accountant Jim Kroeker, was intended to solicit the views of investors, smaller public companies and regulators about how an IFRS transition should occur.

“The decision on whether to incorporate IFRS is not to be taken lightly,” said SEC chair Mary Schapiro.

Many of the panelists favored the “condorsement” approach that was included in the work plan. Under that approach, the Financial Accounting Standards Board would endorse new IFRS standards one at a time as part of the convergence process, instead of following a “Big Bang” approach. However, some panelists also expressed hesitations about the timing and costs of adopting IFRS, even as they said it was necessary to get a “date certain” for the transition.

During the investor panel part of the roundtable, Gregory Jonas, a managing director at Morgan Stanley, said he was a fan of the condorsement approach. “We'll bolster IFRS by bringing it into the U.S.,” he added. However, he pointed out that investors in the United States are already exposed to IFRS because of the many multinational companies whose shares trade in the U.S. and which use IFRS.

Mark LaMonte, a managing director at Moody’s Investor Services, said investors need to be able to compare U.S. companies to foreign companies. He had mixed feelings about exceptions to the international standards for U.S. companies to accommodate practices such as LIFO inventory accounting. “I don’t like carve-outs, but carve-ins are OK,” he said.

David Larsen, a managing director at Duff & Phelps and a member of FASB’s Valuation Resource Group, said, “Condorsement has a great deal of merit.” However, he added that FASB should not be “diluted” with a separate private standards board. FASB’s parent organization, the Financial Accounting Foundation, is currently studying the recommendations in a Blue-Ribbon Panel report suggesting that a separate board for privately held company accounting standards should be established.

Tricia O’Malley, the former chair of the Canadian Accounting Standards Board, described Canada’s experience in transitioning from Canadian GAAP to IFRS: “The Canadian experience was helped by industry involvement,” she noted.

On the panel for smaller public companies, David Grubb, a partner on the professional standards team at accounting firm Plante & Moran, commented on how IFRS is more principles-based than U.S. GAAP. “The IFRS standards tend to be a little easier and less complex,” he said. He noted that there are a diversity of approaches to using U.S. GAAP, for accounting for taxes and other matters.

Bill Yeates, a partner and national director of accounting and auditing at another firm, Hein & Associates, cautioned against a “Big Bang” approach. “Let’s not rush into this and make a mistake,” he said. “There’s too big a risk.”

SEC Commissioner Elisse Walter asked the panel what would happen if the SEC didn't set a date for condorsement and let companies decide for themselves.

Shannon Greene, CFO at Tandy Leather Factory, said she would prefer for companies to have the flexibility to use IFRS if they want to adopt it. Bank of the West controller Daniel Beck said there needed to be clearer timelines for such a transition. Cuisine Solutions CFO Ron Zilkowski said he would like there to be a date certain. Viropharma CFO Charlie Rowland said it was hard to come up with a cost estimate of adopting IFRS until standards stop moving.

On the regulatory environment panel, Gaylen Hansen, an audit partner at Ehrhardt Keefe Steiner & Hottman and a director-at-large at the National Association of State Boards of Accountancy, appeared to express the most vociferous opposition to adopting IFRS. “IFRS is not better than U.S. GAAP,” he said, adding, “FASB should not become a mere conduit to import IASB standards.”

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