Over 30 comment letters were filed on the comment deadline date alone (April 20), based on what's posted on the SEC's comment letters page, with more letters filed prior to that date, and additional letters in the process of being posted to the SEC's website, including this comment letter filed yesterday by FEI's Committee on Corporate Reporting and Committee on Taxation.
The FEI CCR COT letter states, "The committees continue to believe there are benefits to be derived from the development and use of a single set of globally accepted accounting standards. The credit crisis has highlighted a world economy that has become increasingly global in its nature and the eventual use of a single set of global accounting standards is a further step in recognizing and adapting to the global flow of capital. We also note that, as an example, differences between US GAAP and IFRS in the area of financial instruments are causing concern among preparers, regulators and government officials. We believe that the use of a single set of globally accepted accounting standards has the potential to mitigate these accounting debates in addition to further providing efficiencies with regard to systems, processes, documentation and training as well as comparable financial information for investors."
However, the FEI CCR COT letter adds, "While we acknowledge that IFRS as promulgated by the IASB is likely that single set of global standards, we are concerned regarding the timing of its potential adoption by U.S. registrants as currently proposed by the SEC. In reviewing the proposed roadmap, we recommend that the consider an interim approach in the overall process of moving towards a mandate for adoption of IFRS." The 'interim approach' recommended by FEI's CCR and COT, in brief (detailed further in the letter), includes:
- FASB and the IASB should continue to focus on converging the most critical standards between now and 2011,
- The SEC's Office of the Chief Accountant should conduct a study of the implications for investors and other market participants on the potential use of IFRS in the US, as recommended in the proposed roadmap, and
- A broad based advisory committee should be formed, as recommended in the comment letter filed by FASB and the FAF, to advise the SEC on this matter.
Separately, the Corporate Roundtable on International Financial Reporting (CRIFR), of which FEI is a member, also filed a comment letter in response to the SEC’s IFRS Roadmap. See CRIFR letter on IFRS Roadmap. The CRIFR letter does not state an overall position of its member companies relative to the IFRS Roadmap, but rather shares with the SEC the varied perspectives that currently exist regarding the potential use of International Financial Reporting Standards by U.S. registrants.
Skimming through the comment letters filed to date, one common theme noted among a number of them, even if not in these precise words, is that the implementation clock begins to tick in earnest once a date certain for a move to a different reporting regime is established - and not before - because in the current economic environment in particular, companies generally are hesitant to invest significant dollars into converting to a different basis of accounting which 'may' (but not 'must') be required; similarly there are disincentives to becoming an 'early adopter' of a reporting regime that 'may' one day be required, or -at the other extreme - may even be disallowed.
Moving away from the comment letters specifically, another point of interest which seems to have been lost in some of the more extreme rhetoric over the past year or so surrounding whether and when to move to IFRS in the U.S., is that the compasses at FASB and the SEC have directionally pointed toward one global set of accounting standards - generically, if not precisely identifying that set as IFRS - since at least the Norwalk Agreement which formed the original Memorandum of Understanding in 2002 between FASB and the IASB, (see related FASB-IASB press release of 10.29.02).
An SEC press release supporting the Norwalk Agreement was also issued on 10.29.02, in which then-SEC Chairman Harvey Pitt said: "For years, many have believed that a desirable goal someday would be to move towards a single set of high quality accounting standards around the world. Now the time frame has a more immediate focus. With so many new users of IAS [International Accounting Standards] coming in 2005, in Europe and elsewhere, there is a great opportunity to focus attention on ways to improve information for investors while working for greater convergence in both the short term and the long term."
In fact, one can trace the compass needle back to the year 2000, when the SEC issued for public comment its Concept Release on International Accounting Standards. Then-SEC Chairman Arthur Levitt said in this statement at an open commission meeting on Feb. 16, 2000: "The Commission today is being asked to consider a concept release on the elements of a high-quality international accounting framework. Such a framework has the potential of developing, in the not too distant future, a universal business language for the global marketplace." [Foreshadowing the 'lingua franca' reference associated generally with a more recent SEC Chairman - Christopher Cox - as noted in the Aug. 27, 2008 statement by then-SEC Chairman Cox at the SEC's open meeting on that date, when the commission agreed to release for public comment the proposed IFRS Roadmap.]
Turning back to Levitt's Feb. 16, 2000 remarks, "No one can take issue with the need for markets to converge on a common set of accounting standards," said Levitt. However, he added, "At the same time, it is critical to remember that a truly transparent and comparable system of financial reporting necessarily depends on the existence of a sound infrastructure. Accounting standards must rest upon a foundation that includes a quality process for developing those standards. They must be verified by a rigorous audit process conducted by firms covered by profession-wide quality assurance programs and a credible oversight program."
"While GAAP in its application is not without some complexity, the secret of its success is profoundly simple: a determined and vigilant focus on providing useful information to users of financial information," said Levitt. He continued: "Any set of international accounting standards should subscribe to this same principle by being comprehensive, comparable, transparent and rigorously interpreted and applied."
Levitt closed his remarks: "As time passes, financial centers, whether in New York, in London or in the Ethernet of bits and bytes, will only become more integrated, not less. At the foundation of any truly global financial architecture will be a system of sound financial reporting; a system that must be predicated on a commitment to serving the informational needs of the marketplace."
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