Lawmakers Ask White to Move Slowly on IFRS
Lawmakers Ask White to Move Slowly on IFRS
Twelve members of Congress who are accountants want the SEC to carefully consider its options and weigh public comments before making a decision about widening the use of IFRS in the U.S. SEC Chair Mary Jo White has called the international standards a priority several times, without indicating when a rule would come to a vote. The lawmakers asked the agency to carefully consider the public’s views before it makes a decision.
The 12 members of the Congressional Caucus on CPAs and Accountants asked SEC Chair Mary Jo White in a June 27, 2014, letter to carefully consider the problems that could develop from U.S. adoption of IFRS before allowing U.S. companies to use the international standards.
“We are worried that adopting IFRS alongside GAAP will set back the interests of investors in the name of global harmonization,” the lawmakers wrote.
The story was broken by Reuters news, which like Accounting & Compliance Alert, is owned by Thomson Reuters.
A spokeswoman for the SEC declined comment, as did spokesmen for the IASB in London and the AICPA in Washington.
White has been at the SEC’s helm since April 2013. Since taking over the agency, she’s spoken publicly about IFRS on a handful of occasions, usually in response to reporters’ questions. Each time, she’s called consideration of the international standards a high priority but has given no timetable for when a rule would be considered.
In May, during the SEC’s annual meeting with the FASB and its parent organization, the Financial Accounting Foundation (FAF), White said, “I have made it a priority for the commission to position itself to make a further statement on this very important subject, now that we have six years of experience working on the priority convergence projects with the IASB and over six years of experience with foreign private issuers filing IFRS-prepared financial statements without a U.S. GAAP reconciliation.”
White’s other formal comments have been relatively few. In April, Michel Prada, who chairs the IFRS Foundation, which oversees the IASB, described White as being somewhat favorably disposed to U.S. adoption of the IASB’s standards without specifying when a decision would come.
The lawmakers asked White that, before she makes a decision, she ensures that the SEC “use all of the regulatory tools at its disposal to seek stakeholder input, including a formal notice and comment period before it moves forward.”
The caucus is co-chaired by Reps. Michael Conaway, a Texas Republican, and Brad Sherman, a Democrat from California, and Sens. Mike Enzi of Wyoming and Ron Johnson of Wisconsin, who are both Republicans.
White’s statements suggest the agency is on track to make a decision many financial professionals expected it would make years ago until the global financial crisis and a change in leadership intervened. In recent years, the SEC has been noncommittal about the international standards, a position that’s a sharp contrast from the previous decade, when the agency actively promoted their adoption. In January, White signed off on an agreement by the FAF to send the IFRS Foundation $3 million to subsidize the cost needed to complete the effort by the FASB and IASB to converge the standard for lease accounting and some joint efforts related to the accounting for financial instruments and insurance contracts.
During the three-and-a-half years that Christopher Cox headed the agency, the SEC was an unabashed supporter of replacing U.S. GAAP with IFRS. Cox hired White’s husband, John White, to head the Corporation Finance Division, and at the end of 2007, the agency approved the use of IFRS by foreign companies that have their shares trade on U.S. markets in 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. Given the approximately 500 foreign companies that use IFRS in their SEC filings, the U.S. has, by some measures, become one of the largest markets globally to use the IASB’s standards.
In November 2008, the SEC proposed the much more dramatic move of abandoning U.S. GAAP and relying solely on the IASB standards for domestic companies in Release No. 33-8982, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers. The proposal was issued as Cox and White were winding down their terms, and they were unable to see it through to the final rule stage. It was also released at the peak of the global financial crisis.
By the end of January 2009, Mary Schapiro had become the SEC’s chairman, and during her tenure, the market regulator’s pronouncements about IFRS were much more open-ended. The agency’s rulemaking was also primarily devoted to post-crisis reforms.
The SEC’s efforts under Schapiro concluded with the Final Staff Report:Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, in July 2012. The report made no formal recommendation to accept or reject the international standards but essentially laid out the difficulties the U.S. would face incorporating them into its capital markets and regulatory system.
The report said the IASB’s reliance on the major public accounting firms for a large portion of its funding raised questions about its independence. The funding issue has particular resonance for the SEC and the FASB. When the Sarbanes-Oxley Act of 2002 reformed the FASB’s funding, it established the fees that are collected from public companies to finance the operations of the PCAOB and the FASB. The fees were seen as crucial to establishing an arm’s length relationship between the accounting board and auditing firms that have to interpret its standards in the aftermath of the plague of accounting scandals that followed the bankruptcies of Enron and Worldcom.
The report also found problems with some inconsistencies in the way IFRS is applied globally, in part because of legal and regulatory differences among the more than 100 countries that have adopted the standards in whole or in part.
The report’s cautionary tone was familiar to people who had been tracking the IFRS debate. Staffers at the SEC had given Cox and John White some of the same information in 2007-2008 when the SEC’s leadership was promoting adoption of international accounting standards.
In June, Cox told a University of Southern California conference that the time for U.S. adoption had passed. Cox said his statement didn’t represent a change in his views but a recognition of changes in the global financial reporting system.
Mary Jo White’s favorable tone about IFRS since becoming SEC chair has caused many financial professionals to speculate about what she will do. Some professionals have wondered how the U.S. might incorporate the standards and looked at the Japan — which uses a mix of domestic GAAP, U.S. GAAP, and IFRS — as a model. But it’s not clear that the SEC’s staff considers the Japan’s three-pronged approach a suitable course for the U.S., given the many differences between the two nations’ capital markets and legal systems.