The long-awaited final report the staff of the Securities and Exchange Commission on International Financial Reporting Standards does not contain a recommendation on whether the United States should transition to IFRS, but it does contain plenty of reasons why commissioners should remain cautious.
The staff's 127-page report explains how the staff went about its study of IFRS and the feasibility of adopting IFRS as the accounting standard to be followed by U.S. companies. It shares conclusions on some key issues with respect to IFRS, but it stops short of recommending a course of action to the commission. The staff says it has concerns about underdeveloped areas in IFRS where guidance is scarce compared with U.S. standards, along with concerns that the rulemaking process is not as responsive as it could be to need for changes.
The staff says it believes the International Accounting Standards Board, which writes the accounting standards that make up IFRS, should consider relying more on the input of national standard setters, such as the FASB to identify areas of concern and perform home-country outreach on new rule proposals. It also has enduring concerns, expressed in one of the staff's earlier reports, that global application of IFRS remains diverse. The report says if the United States were to join the IFRS world, the staff would need to spend a great deal more time and energy working cooperatively with other jurisdictions on interpretation, application, and enforcement issues. It also suggests the U.S. financial reporting community and the SEC could serve as a “constructive influence” on the consistent application and enforcement of IFRS.
The report says the staff is still concerned that the IASB is too reliant on funding from public accounting firms and still has no ability to compel or require anyone to provide funding. It also worries that the IASB has no specific mandate to consider the needs of any given capital market, so a U.S. switch to IFRS would still need a body like FASB in place to endorse international standards for use in the United States. The staff also is concerned about how investors in the United States can become educated in IFRS, suggesting investor education needs to be developed even if the United States does not adopt IFRS for use in the United States.
In its introduction to the report, the staff emphasizes that the report does not represent a decision or even a recommendation on whether, when or how to adopt IFRS in the United States. “Additional analysis and consideration of this threshold policy question is necessary before any decision by the Commission concerning the incorporation of IFRS into the financial reporting system for U.S. issuers can occur,” the report says. It provides no timeline for when such analysis or a final recommendation might be completed.