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Chief Accountant: Planned IFRS Proposal to Have Limited Scope

SEC Chief Accountant James Schnurr said the market regulator will publish a statement that will assert the U.S.’s support for international accounting convergence and the agency’s expectation that U.S. companies will stick with preparing their financial statements in U.S. GAAP and not adopt IFRS. The statement is expected to accompany a proposal that offers U.S. companies an option of submitting IFRS information as an exhibit to the financial statements prepared in U.S. GAAP and filed with the SEC.

At one time, the SEC’s plans for IFRS had all the import of a world-changing event.

For most of the first decade of the current millennium, financial reporting professionals expected the market regulator to publish a rule that would let U.S. companies — or force them to — use international accounting standards. Had the anticipated move come about, U.S. GAAP would have been abandoned. The switch never happened, despite several definitive statements in recent years that the agency was prepared to move ahead on IFRS.

Now the SEC’s chief accountant, who assumed his post in October 2014 with the express goal of moving forward on IFRS, has acknowledged that the IASB’s guidance has, at best, a limited future in the U.S.

The SEC still plans to issue an IFRS proposal that it has been working on for more than a year, but the publication date is still not certain, and the substance of it will do little more than offer U.S. companies an option of submitting IFRS information as an exhibit to the financial statements prepared in U.S. GAAP and filed with the SEC.

SEC Chief Accountant James Schnurr said on February 20, 2016, that the agency’s forthcoming proposal on IFRS for U.S. companies will make clear that the U.S. will not be adopting international accounting standards.

Speaking at the SEC Speaks conference hosted by the Practising Law Institute (PLI) in Washington, he said the proposal that his office has been working on will have two aspects.

“First one, it would not be a proposal but a statement by the commission around supporting the objective of a single set of global standards,” Schnurr said. “It would make clear that, certainly for the foreseeable future, the U.S. would not be allowing domestic issuers to file financial statements under IFRS. But it’s very important for the two boards, the IASB and the FASB, to continue to work together to try to have further convergence down the road. The objective ultimately would be a single set of standards.”

Schnurr later told Accounting & Compliance Alert the statement will be a preamble to a proposed rule to let U.S. public companies voluntarily provide IFRS information as a supplement to their U.S. GAAP financial statements.

SEC Chair Mary Jo White said in a speech before the FASB’s parent organization, the Financial Accounting Foundation (FAF), in May 2014 that she wanted the commission to make a statement about its position on IFRS.

Most of the countries in the world, including member states of the European Union, have adopted IFRS, and there has been increasing pressure for the U.S. to make a decision in using global accounting standards.

The SEC statement will make it official that the U.S., at least for the foreseeable future, will not be converting to IFRS.

Schnurr’s latest explanation indicates just how much the SEC has backtracked from what was once one of its highest priorities.

Almost a decade ago, when the FASB and IASB were committed to completing convergence of their standards, full-scale adoption of IFRS in the U.S. looked nearly certain. In 2007, the SEC allowed foreign companies to report under IFRS without reconciliation to U.S. GAAP. A year later, the SEC floated the idea of adopting IFRS as the primary financial reporting regime for U.S. companies. Then the financial crisis hit. The FASB and IASB continued to work on their convergence projects, but it was clear the U.S. interest in IFRS had waned.

In 2012, the SEC released a much-awaited report on IFRS in the U.S., but it made no recommendations on whether international accounting standards should be used for domestic companies. Instead it described the challenges of adopting IFRS.

At this stage, the SEC plans to issue a rule to allow companies to voluntarily provide IFRS information on top of U.S. GAAP numbers, which will be the main part of the proposal, an idea Schnurr first discussed in December 2014, two months after he became the agency’s top accountant.

“Right now, if U.S. domestic issuers were to include IFRS-based information, that IFRS-based information is considered a non-GAAP measure subject to the rules that we currently have around non-GAAP measures,” Schnurr told conference attendees. “This would… essentially eliminate the requirement to reconcile IFRS-based measures back to U.S. GAAP.”

Schnurr was referring to some exemptions from Regulation G, which requires companies that use non-GAAP financial information in their regulatory filings to reconcile the differences between IFRS and U.S. GAAP. The supplemental IFRS information will be treated as non-GAAP information. Schnurr had previously said the Reg G waiver would keep costs down for companies that want to provide IFRS information. If the SEC were to allow companies to voluntarily provide supplemental IFRS information, the information could be limited to selected financial data instead of a full set of IFRS financial statements.

“It would also apply equally foreign private issuers,” Schnurr said at the PLI conference. “If they want to supplementally provide U.S. GAAP, they would be able to do that as well.”

Schnurr did not elaborate on the timing for the proposal’s release, but he previously hoped the document would be out by the end of 2015.

The timing of the rulemaking document’s issuance depends on Chair White’s priorities for the agency and the commission’s schedule.

White said she wants to devote much of her time in 2016 to completing congressionally mandated rules, market structure issues, and a project to overhaul the SEC’s disclosure requirements.