Momentum to adopt international accounting standards in the United States, which had appeared to be a certainty as recently as last summer, is suddenly disappearing more quickly than an AIG bonus.

Public comments have been rolling into the Securities and Exchange Commission at a brisk pace ever since the SEC unveiled its proposed roadmap last fall to adopt International Financial Reporting Standards in the United States starting in 2014. But since the plan’s debut, the financial crisis and Washington’s dizzying array of legislative and regulatory solutions to it have pretty much put everything else on hold.

Schapiro

What’s more, while former SEC Chairman Christopher Cox strongly supported the IFRS roadmap, his Obama-era successor, Mary Schapiro, has made clear that she won’t be bound by the roadmap’s original timeline and isn’t even sold on the idea overall. The dozens of comments on file at the SEC already—the deadline for input has been extended to April 20—have equally mixed feelings.

“At this juncture, IFRS and its ‘principles-based’ accounting standards have not been shown to be ready to be substituted for U.S. Generally Accepted Accounting Principles, and it is premature to give consideration to the idea of mandating IFRS for U.S. issuers,” wrote Thomas Sadler and David Costello, chair and president respectively of the National Association of the State Boards of Accountancy. They called for the SEC to scrap the IFRS adoption plan, and to keep pushing the eventual convergence of IFRS and GAAP standards.

Similarly, FedEx Corp. Principal Accounting Officer John Merino said conversion to IFRS “is premature and should be indefinitely delayed” until IFRS “has sufficiently matured and a credible system of funding and governance over the International Accounting Standards Board has been established, tested, and proven.”

Schapiro has worried about the independence of IASB herself. In a letter to Sen. Carl Levin that she wrote in January, pending her confirmation, Schapiro said she wasn’t yet prepared to delegate standard-setting or oversight responsibility to the IASB. Noting that investors expect a standard setter “free from political interference and that has the resources to be a strong watchdog,” she wrote: “At this time, it is not apparent that the IASB meets those criteria.”

At a Senate Banking Committee hearing that same month, Schapiro also raised concerns about a lack of consistency in how IFRS is implemented among different nations, and questioned whether imposing the costs of adoption—which would be formidable under the best of circumstances—makes sense when Corporate America is confronting a fierce recession. Then came rumors that Schapiro wants to name Public Company Accounting Oversight Board member Charles Niemeier, a vocal critic of IFRS, as the SEC’s next chief accountant. No such appointment has been made yet, but it has only spurred speculation that IFRS adoption faces a tough road.

Carl Berquist, chief accounting officer for Marriott International, called converting to IFRS “a solution without an underlying problem.” Berquist favors continuing convergence, and said once the two sets of standards are sufficiently converged, “there will be no need to choose one set of standards over another.” However, he said, companies should “have the option to adopt IFRS if their particular situation warrants it.”

Ciesielski

Jack Ciesielski, writing on behalf of the Investors Technical Advisory Committee, said ITAC has “serious doubts as to whether the proposed roadmap, as currently envisioned, will tangibly benefit investors’ interests.” Among other things, he said the proposal “fails to provide sufficient support as to why it presents a better course of action than the current ongoing convergence efforts.”

ROADMAP REMARKS

A sampling of comments on the proposed IFRS Roadmap:

The SEC Roadmap does not present, in sufficient detail, the methodology and

criteria expected to be applied to the milestones in assessing the adequacy of IFRS in

meeting the needs of preparers, users, and auditors. Before requiring the adoption of

IFRS, the SEC should establish clear criteria on which decision makers, preferably a

committee consisting of a cross-section of representatives from the preparer, user, and

auditor communities, will assess the quality of IFRS. In addition, the SEC has

appropriately identified the need for effective training and education on IFRS for the

various stakeholders. While we agree with the Commission’s objectives in allowing early

use of IFRS, we believe that the eligibility criteria should be changed to allow a more

representative sample of U.S. companies to early adopt IFRS.

—Sharon Sabba Fierstein,

President,

NYSSCPA

[N]o set of accounting standards will be considered truly global until they are

permitted or required for companies domiciled in the United States, and therefore IBM

commends the Commission for its efforts in this regard. IBM also supports the timeline in the Roadmap for mandatory use of International Financial Reporting Standards for large filers and supports the optional use of IFRS for U.S.

domestic companies prior to that mandate. However … the company does not support restrictions on the option if the intent of the Commission is to have all U.S. listed companies use IFRS in the near future. Removing the restrictions proposed for optional use of IFRS will allow companies ready to adopt IFRS to do so in a manner that reduces their overall cost of conversion and disruption in operations.

—Gregg Nelson,

VP, Accounting Policy,

IBM Corp.

The most critical issue we believe is that there needs to be certainty in an implementation date. Resources in these challenging economic times, particularly Information Technology professionals and technical accountants, are in high demand, and we cannot justify investing those resources in a project when there is uncertainty as to the ultimate usefulness of that investment or a timeline. Furthermore, we do not believe it is possible to make a final determination in 20II and expect companies to adopt starting in 2014 while providing data from 2012. The realities of parallel systems and information technology roadmaps make such a conversion a five-year process if done appropriately, particularly at large, multi-national organizations. If we do not take a firm stand now on an implementation timeline, we are missing the opportunity to optimize that ultimate conversion, which we believe is inevitable.

—Thomas Sweet,

Chief Accounting Officer;

Annette Such,

Accounting Director,

Dell Corp.

We understand that if the milestones noted in the Roadmap were to be achieved, then U.S. issuers would be required to use IFRS beginning in 2014. As we state in this letter, we believe that this timeline is not in the best interest of companies or their stakeholders. We foresee potential problems with: costs exceeding benefits, timing and resource constraints due to dual reporting, and a lack of qualified sources of training and education.

As the Commission has stated in the Proposed Rule, in 2002 the Financial Accounting Standards Board and the International Accounting Standards Board issued the

Norwalk Agreement, in which they acknowledged their joint commitment to the development, as soon as practicable, of high-quality compatible accounting standards that could be utilized for standards that could be utilized for both domestic and cross-border financial reporting. In 2006, the FASB and IASB updated their timetable for their joint work and currently have a plan that goes through 201l. Rather than having a forced transition to IFRS, we believe that the FASB and the IASB should continue their current work on converging the U.S. and International accounting standards. We believe that once the two sets of standards are sufficiently converged, there will be no need to choose one set of standards over another. This will reduce the financial burden on U,S. companies by (l) eliminating the large up-front expenditures that would be required to implement IFRS, (2) eliminating the need for maintaining duplicate sets of records during a three-year transition period and (3) eliminating the need for three years of audits conducted under both sets of standards.

—Elyse Douglas,

Chief Financial Officer,

The Hertz Corp.

Source

Securities and Exchange Commission (2009).

Meanwhile, leaders of the Financial Accounting Standards Board and the Financial Accounting Foundation urged the SEC to undertake a study on the implications of implementing IFRS for U.S. issuers, to help the SEC make a decision on a mandate. (The study is part of the proposed roadmap.)

They also said the SEC should not permit early adoption “unless and until there is a decision that all U.S. public companies will ultimately be required to adopt IFRS,” to limit uncertainty and avoid having two different accounting systems in use for a long period of time.

Even those who support the switch to IFRS sooner rather than later have a few bones to pick with the proposal. As proposed, the roadmap would allow a limited number of large companies to adopt IFRS as soon as next year, so the SEC could observe those companies’ experiences and to help inform the Commission’s final decision in 2011 on whether to move forward with a mandate for all.

However, several commenters—including some who would be eligible for early adoption—say there’s no incentive to do so, since companies won’t make such a tremendous investment unless they know an SEC mandate is definitely coming.

Indeed, Patrick Mulva, controller for Exxon Mobil, threw down one of the strongest cards an executive can play against regulators these days: that the cost of IFRS conversion “would easily exceed the cost of SOX 404 implementation.” He added: “We do not anticipate many companies will be willing to make this investment in the absence of a date certain for mandatory adoption.”

That sentiment was echoed by a number of commenters, including Dell accounting executives Thomas Sweet and Annette Such, who said they can’t justify investing resources in such a project “when there is uncertainty as to the ultimate usefulness of that investment or a timeline.” Moreover, Sweet and Such added, “We do not believe it is possible to make a final determination in 2011 and expect companies to adopt starting 2014 while providing data from 2012.”

Others who favor the switch to IFRS, including Big 4 audit firm Ernst & Young; Gregg Nelson, IBM vice president of accounting policy and financial reporting; and Martin Miller, chief accounting officer at Wellpoint, also pushed the SEC to make a decision on a mandate before 2011. Waiting until then, they said, might leave some large filers (the first to go through the IFRS door) not enough time to prepare.

Moreover, E&Y and others said, as proposed, it is likely that “very few U.S. companies will choose” to early adopt because of the uncertainty of a future mandate, the potential for required reversion to U.S. GAAP, and the potential additional requirement to continue to reconcile to U.S. GAAP.

A number of commenters, including E&Y, the New York State Society of CPAs, IBM, and HSBC also said the SEC should expand the proposed criteria for early adoption.

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