The Securities and Exchange Commission voted unanimously today to publish a statement updating its position on the possible adoption by U.S. companies of International Financial Reporting Standards that keeps a 2011 deadline for making a final decision on whether or not to make the move, but would delay adoption until at least 2015.
Under the statement approved at a Feb. 24 open meeting, if ongoing convergence projects are successfully completed and a forthcoming SEC staff work plan is executed, the Commission would still make a decision in 2011 on whether to adopt IFRS for all U.S. companies.
However, based on views by commenters on its 2008 proposed roadmap for IFRS adoption that companies would need a four- to five-year timeframe to make the change in their financial reporting systems to incorporate IFRS, SEC officials said if they decide to move forward with IFRS adoption, U.S. companies wouldn't report under IFRS any earlier than 2015.
The 2008 proposed roadmap for IFRS adoption contemplated letting some U.S. companies use IFRS as soon as filings for fiscal years ending on or after Dec. 15, 2009, and would've mandated adoption on a phased-in schedule starting in 2014.
Under today's statement, the SEC isn't pursuing the early use option at this time, but said it may consider it later. It also left open the question as to how issuers would adopt IFRS—for instance whether it would be mandated or voluntary and phased-in or all at once.
The statement directs the SEC staff to gather information to help the Commission evaluate the impact that the use of IFRS by domestic companies would have on the U.S. securities market, with public progress reports beginning by October 2010 on a staff work plan and on the status of convergence efforts by U.S. and international standard setters.
The Financial Accounting Standards Board, which oversees U.S. Generally Accepted Accounting Principles, and the International Accounting Standards Board, which sets IFRS, set a 2011 target date for a completion of their current convergence projects. The Commission said it will continue to monitor the progress of those efforts.
According to an SEC fact sheet, the staff work plan will focus on concerns raised by commenters including:
- Determining whether IFRS is sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S. reporting system.
- Ensuring that accounting standards are set by an independent standard-setter and for the benefit of investors.
- Investor understanding of and education about IFRS, and how it differs from U.S. GAAP.
Understanding whether U.S. laws or regulations beyond the securities laws, such as tax laws and regulatory reporting, would be affected by a change in accounting standards.
- Understanding the impact on large and small companies, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
- Determining whether the people that prepare and audit financial statements are sufficiently prepared, through education and experience, to make the conversion to IFRS.
Roughly a third of the capital markets outside of the United States use IFRS, according to the SEC. Foreign private issuers have been permitted since 2008 to file financial statements with the SEC prepared in accordance with IFRS without reconciling to U.S. GAAP.
"Incorporating IFRS into our financial reporting system would involve a significant undertaking," SEC Chairman Mary Schapiro said in remarks during the meeting. "We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets."
At the same meeting, the SEC voted 3-2 to adopt an alternative uptick rule, which amends Rules 201 and 200(g) of Regulation SHO to impose short sale restrictions.
Under the rule, which was opposed by Republican Commissioners Kathleen Casey and Troy Paredes, a circuit breaker would be triggered for a stock any time its price drops 10 percent or more from the prior day's closing price in one day, and short selling in that security would only be allowed if the price is above the current national best bid.
The alternative uptick rule would apply to short sale orders in that stock for the remainder of the day and the following day. The SEC said the rule generally would apply to equity securities listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market.