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Schnurr Says Market Will Accept Plan for Supplemental IFRS Information

When SEC Chief Accountant James Schnurr in 2014 first floated the idea of letting companies voluntarily provide financial information in IFRS in addition to their financial statements in U.S. GAAP, the idea generated little interest and was met with some skepticism. A year later Schnurr is determined to go forward with the proposal. In his view, the U.S. financial markets will respond positively to it and even demand information in IFRS.

Despite the skepticism and a general lack of interest by companies and analysts, the SEC is planning to issue a proposal in 2016 to let companies voluntarily provide financial information reported in IFRS in addition to their financial statements in U.S. GAAP.

James Schnurr, the SEC’s chief accountant, who has been pushing for the plan since he joined the agency in October 2014, admitted that there may be reluctance to use extra IFRS information in the beginning. But over time, he believes the U.S. capital markets will respond positively to the proposal and even ask for IFRS information.

“We did some outreach, … there is, I would say, some real question about whether initially U.S. companies would provide IFRS information supplementally,” Schnurr said during the question-and-answer portion of his presentation at the AICPA Conference on Current SEC and PCAOB Developments in Washington on December 9, 2015.

Schnurr first floated the idea of supplemental IFRS information in December 2014.

At the time, market observers said very few companies were likely to make use of the option, given their unwillingness to bear the cost and the lack of investor demand for it.

“However, I do think that, particularly as we see some of these new standards, one in particular, for example the credit impairment standard, implemented, I could see investors, users, regulators being very interested if you have a large foreign bank filing IFRS, wanting to know what a loan loss provision would look like under U.S. GAAP, I think there might be some interest in U.S. companies giving their comparable IFRS measure.”

Once the information gains acceptance, he said investors will begin to demand receiving IFRS financial information.

“We’ve seen that a lot where companies provide information in analyst calls and other venues because that’s what investors and others are asking,” Schnurr said. “So that’s kind of what I see [in] the long-term. It will certainly be advantageous.”

The SEC staff is working on a recommendation for a rule proposal that will be discussed with the commissioners. The rule proposal is expected to say that the IFRS information does not need to be a complete set of financial statements. The information also will not need to be audited, and it would eliminate some Regulation G requirements, which deal with non-GAAP measures. Under Reg G, companies that use non-GAAP financial information in their regulatory filings must reconcile the differences between the non-GAAP measures—in this case, IFRS—and U.S. GAAP.

Schnurr said the SEC wants to see if IFRS can be used more widely in the U.S. without dramatically increasing the cost of preparing financial statements and SEC filings.

The SEC’s plan to promote IFRS comes after a decades-long debate about the role international accounting standards should play in the U.S. markets.

In 2012, the SEC released a long-awaited report on IFRS in the U.S., but it made no recommendations on whether international accounting standards were suited for the domestic market. Instead, the Final Staff Report: Work Plan for the Consideration of Incorporating International Financial Reporting Standards Into the Financial Reporting System for U.S. Issuers , mainly described the challenges the nation’s companies, investors, and regulators would face if IFRS replaced U.S. GAAP.