On May 26th, the SEC staff proposed an approach for transitioning from U.S. GAAP to IFRS that was so spectacularly different that it actually has its own name, “Condorsement”.
“What’s condorsement”? Well it’s a possible approach for adopting IFRS for U.S. public company reporting that: (1) continues the FASB and IASB convergence efforts and (2) requires the FASB, while working to converge with the IASB, to monitor standards issued by the IASB and “endorse” those new standards for U.S. public company reporting. Endorsement is explained as “incorporate[ing] directly into U.S. GAAP” IFRS modifications and revisions. As part of endorsing IFRSs, FASB retains “the authority to modify or add to the requirements of the IFRSs incorporated into U.S. GAAP”.
The FASB’s convergence efforts are well-defined. They have issued a “Memorandum of Understanding” between themselves and the IASB that details the manner by which the two standard setters would work together to develop a single set of high quality accounting standards. Periodically, the FASB and IASB reaffirm the MoU. Additionally, they issue regular progress reports detailing their status of MoU related projects.
The recent SEC proposal, if adopted, would give the FASB an additional responsibility, [need specific quote]. So, the proposed approach would likely slow down the adoption process, or at least, it avoids the “big bang” approach that is of concern to some U.S. financial statement preparers. In fact, the SEC staff indicated that the benefits of the condorsement approach would be providing for gradual implementation, which might result in a more effective transition.
For the record, I’m for full adoption, starting yesterday. I have a real problem accepting that, for the same economic event or transaction, different companies in the same industry and competing in the same capital market(s) can issue financial statements that recognize, measure, present and/or provide footnotes for that economic event or transaction that differ. And that is what is occurring. Currently, the SEC permits non-U.S. filers that apply IFRS for their consolidated financial statements to financial statements (called 20Fs) with the SEC using international financial reporting standards. Those companies are not required to provide any special reconciliation to indicate the differences between IFRS income, equity, or cash flows as compared with U.S. GAAP.
For interested parties, the SEC proposal can be downloaded from http://www.sec.gov. Comments on the proposal are due July 31, 2011.
Additionally, on Thursday, July 7th, the SEC convened a public roundtable to discuss the “condorsement” proposal and their on-going plan for the adoption of IFRS. A good synopsis of that meeting is available @ http://financialexecutives.blogspot.com/2011/07/carve-ins-not-carve-outs-can-help-ifrs.html