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Costs of IFRS Proposal Reviewed by Economic Staff

SEC Chief Accountant James Schnurr said the agency’s Division of Economic and Risk Analysis (DERA) is reviewing an internal draft of a rule proposal that, if completed, will give U.S. companies an option to provide supplemental documents with their regulatory filings disclosing their financial information in IFRS. If adopted as a regulation by the SEC, the rule will conclude a process that dates back several decades and would, on a much more limited scale than once envisioned, fulfill a goal U.S. regulators have had to get U.S. companies and their foreign rivals to use the same set of financial reporting standards.

The staff in the SEC’s Division of Economic and Risk Analysis (DERA) is reviewing an internal draft of a rule proposal that, if completed, will give U.S. companies an option to provide supplemental documents with their regulatory filings disclosing their financial information in IFRS.

Public companies will still have to file annual and quarterly reports with audited financial statements in U.S. GAAP, and they would have to be willing to incur an additional cost to provide the IFRS supplemental information if the rule is finalized by the SEC.

If completed, the rule will conclude a process that dates back several decades and would, on a much more limited scale than once envisioned, fulfill a goal U.S. regulators have had to get U.S. companies and their foreign rivals to use the same set of financial reporting standards. Still, the rule the SEC is working on will leave the U.S. on its independent system of GAAP written by the FASB in Norwalk, Connecticut. Meanwhile, most of the rest of the world is on the IASB’s IFRS, although in many nations the international standards are tweaked to suit national laws or reporting practices.

As recently as 2008, the SEC was still working on a plan to have U.S. companies fully switch to IFRS. But the interest in that course has evaporated.

James Schnurr, a retired partner from Deloitte & Touche LLP, who became the SEC’s chief accountant in October 2014 with the adoption of IFRS for the U.S. as his primary goal, has had to scale back his initial plans to the rule’s current version and wait for the proposal to work its way through a laborious regulatory process. The global financial crisis derailed the plan the SEC hatched in 2008. More recently, the workload of rulemaking stemming from the 2010 Dodd-Frank Act and the 2012 JOBS Act have dominated most of the market regulator’s time and delayed consideration of the IFRS rule. Dodd-Frank Act and JOBS Act

At the same time, U.S. companies, even multinationals with extensive overseas operations that use IFRS to satisfy foreign reporting requirements, have expressed little interest in adopting IFRS.

“It’s got a lower priority, but it’s still moving forward,” Schnurr said during a press briefing at Financial Executives International’s Current Financial Reporting Issues Conference in New York on November 17, 2015. “From my perspective, it’s a slower pace than I’d to see, but I understand why it is.”

Once the economic staff completes its review of the rule’s costs, Schnurr’s office will write the proposed rule alongside the SEC’s Corporation Finance Division. The version of the proposal that gets submitted to the SEC’s five commissioners will also be vetted by the agency’s enforcement staff and lawyers in the general counsel’s office.

As recently as September, Schnurr hoped the proposal could be out before the end of the year, but in his latest statements he offered no schedule.

If there’s additional delay, it may be somewhat compounded by turnover at the SEC’s most senior levels. Two vacancies have opened up among the five commissioners, and the replacements are still awaiting confirmation by the Senate. A confirmation hearing before the Senate Banking Committee has been tentatively scheduled for before Thanksgiving, but it is not clear when the full Senate will vote on the nominees, Lisa Fairfax, a professor at George Washington University Law School, and Hester Peirce, the director of the Financial Markets Working Group at the Mercatus Center at George Mason University.

The proposal will require support from at least three of the SEC’s five commissioners to move forward.