On May 7, in remarks before a financial reporting conference in NYC, the SEC’s Chief Accountant, James Schnurr, signaled the end of the SEC’s efforts to converge International Financial Reporting Standards (IFRS) with U.S. GAAP. When Schnurr joined the SEC in October, he said, SEC Chair Mary Jo White asked him to make a recommendation regarding whether the SEC should take steps to further incorporate IFRS into the U.S. capital markets, and, if so, what those steps should be. After listening to the views of preparers, investors, auditors, regulators and standard-setters, Schnurr concluded that there “is virtually no support to have the SEC mandate IFRS for all registrants” and there is “little support for the SEC to provide an option allowing domestic companies to prepare their financial statements under IFRS.” However, he noted, “there is continued support for the objective of a single set of high-quality, globally accepted accounting standards,” apparently marking a handoff to the two standard-setting boards, FASB and IASB.
A long road has been travelled since the SEC voted in 2008 to propose a roadmap for U.S. issuers to adopt IFRS by 2014. (See this news brief.) To the frustration of many of the participants in that effort, extensive work was performed over a number of years, but to no avail. As reported By Thomson Reuters, Schnurr commented to reporters that, “’I think one of the reasons they’ve not gone forward is because as deeper analysis was done by commission staff, it was determined that it would be very difficult for the commission to actually move to those proposals, which is why we’ve had these long periods of time where nothing happened.’”
Schnurr lamented the adversarial tone that has often accompanied discussions about IFRS and convergence, but he wanted to “acknowledge the significant contributions the boards have made with respect to the objective of a single set of high-quality, globally accepted accounting standards.” Some of the areas that have been successfully converged include business combinations and revenue recognition. However, he urged that “[w]hen differences in the standards arise, the boards should monitor the implementation of those standards with the objective of learning from the implementation and re-engaging with each other with the goal of converging to the standard with the highest quality financial reporting outcome.”
Regarding his recommendation to Chair White about IFRS, Schnurr indicated in his speech that “we will collectively need to consider the best approach forward for the boards to continue their collaboration to support the objective of a single set of high-quality globally accepted accounting standards.” If the absence of any further mention of the SEC’s mandating IFRS or allowing an IFRS option was not enough of a hint about his intentions, in response to reporters’ questions after the speech, Schnurr reportedly also explained that the cool reception those ideas have received were “real impediments” to implementation of the two options, and, as a result, “It is reasonable to conclude those would not be in my recommendation.”
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