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IFRS Review Weighs Multiple Alternatives

SEC Chief Accountant James Schnurr is working on a set of recommendations for the regulatory agency to let more U.S. public companies use IFRS, while not fully adopting the international standards for the U.S. reporting system. The plan’s details are weeks, if not months away, from being made public, but at this stage they don’t appear to include a provision that would let all U.S. companies have the option to replace U.S. GAAP reporting with IFRS.

The SEC’s chief accountant is working on a set of recommendations for the regulatory agency to let more U.S. public companies use IFRS, while not fully adopting the international standards for the U.S. reporting system.

The plan’s details are weeks, if not months away, from being made public, but at this stage they don’t appear to include a provision that would let all U.S. companies have the option to replace U.S. GAAP reporting with IFRS. Judging from the statements SEC Chief Accountant James Schnurr made during a U.S. Chamber of Commerce event in Washington on December 3, 2014, the options under consideration have expanded beyond the handful of approaches previously discussed.

“I have spent a fair amount of time over the last eight weeks with my staff looking at this,” Schnurr said. “I am in the process of having dialogues with Chair [Mary Jo] White and some of the other commissioners. I am hoping that in the not too distant future to go public with another possible alternative we would like to get feedback on. All I can say is stay tuned.”

Schnurr listed the various alternatives that the U.S. could consider for using IFRS, from a wholesale replacement of U.S. GAAP, which is sometimes referred as the big bang approach, to a piecemeal transition done one standard at a time. The alternatives also include giving U.S. companies the option to file in IFRS. The new option Schnurr alluded to without detailing is also being assessed.

During a brief session with reporters after his remarks, Schnurr said he’s “not prepared to talk about” the additional alternative and added that his staff isn’t planning to do a formal study along the lines of the reports published from 2010-2012.

“I think each one of those alternatives has its own legal statutory practical considerations that have to be dealt with by the commission in order to reach a decision and move forward,” Schnurr said.

Schnurr said IFRS was on his agenda when he first came to work for the SEC, and he referred to Chair White’s speech in May that she hoped to say more on the matter in the near future.

Schnurr, a retired Deloitte & Touche LLP partner, took up his position in early October after his predecessor, Paul Beswick, stepped down.

White revived the debate on the use of IFRS shortly after taking over the SEC in April 2013. By that point, many financial professionals wondered if the issue was ready to be permanently set aside, given that the SEC had gone more than four years without giving a clear indication of its plan for IFRS aside from issuing a series of staff reports. The last publication in the series Final Staff Report:Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, from July 2012, made no recommendations while laying out various challenges of using IFRS in the U.S.

However, with White’s interest in the issue, speculation has abounded that perhaps U.S. public companies might be given an option to use IFRS.

“In looking at where we are today versus where we were many years ago when the commission decided to allow foreign private issuers to file IFRS financial statements without reconciliation, there have been very significant changes in the landscape,” Schnurr said. “First of all, the standards today are more closely aligned in many respects between convergence projects as well as many of the key areas, including the revenue recognition standard that was issued back in spring. Things are a lot closer.”

In 2007, the SEC issued Release No. 33-8879, Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP, which allowed foreign companies to submit regulatory filings to the SEC in IFRS.

The revenue standard Schnurr cited was published in May by the FASB as Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and the IASB as IFRS 15, Revenue from Contracts with Customers.

Schnurr said there doesn’t seem to be a “significant demand” for IFRS by U.S. investors. In the handful of public appearances he’s made since joining the SEC, Schnurr has stressed that the agency’s decision will hinge on its mandate to act in the best interest of U.S. investors.

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