April 18, 2007
SEC Has Open Mind to Achieving Goals Internationally
SEC Commissioner Roel C. Campos: Remarks Before The IOSCO Annual Conference April 17th.
Commissioner has IFRS (International Financial Reporting Standards) on his mind:
"The good news is that the SEC is absolutely committed to doing what we can to facilitate meeting the goals of roadmap. To reiterate my theme, I think there has been increased focus on the roadmap given the fact that globalization issues have moved to the forefront over the past year. From the standpoint of the U.S., we hosted an IFRS roadmap roundtable at our SEC headquarters a few weeks ago. It was designed in large part to raise the profile of the roadmap in the U.S. At the roundtable, our Chairman Chris Cox and EU Internal Markets Commissioner Charlie McCreevy both affirmed their commitment to eliminating the need for reconciliation between IFRS and U.S. GAAP. So, the U.S. is serious about the roadmap and the timeline, and we're trying to make it work.
I should also point out some provocative new ideas that were bandied about at the roundtable. These ideas definitely moved beyond the main topic about when the SEC would accept IFRS financial statements without reconciliation. In particular, there was a discussion about whether U.S. companies — not just foreign private issuers — should be given a choice to use IFRS or U.S. GAAP. Given that the roadmap contemplates that foreign private issuers have such a choice, it certainly raises a legitimate question about whether U.S. companies should also have that choice. Interestingly, when the question was put to Don Nicolaisen, who was spurred on by Chairman Cox, he responded by stating that the SEC should consider requiring that all U.S. companies use the same standard as foreign companies, and not merely giving them a choice."
But they have been disappointed at the response from Foreign Private Issuers (FPIs):
"There has been a notable lack of foreign private issuers filing audited financial statements with the SEC that either use or are compliant with IFRS in the manner in which it is issued by the IASB. We had expected to see approximately 300 or so companies file their 2005 financial statements prepared using IFRS. Instead, we received only about 40 filings — hardly a critical mass. This fact is perplexing, given that the early goal is — to quote the roadmap itself — "to see convergence in action." So, the question is: why did only 40 companies so file?"
Possible answer:
"There are likely a number of different reasons, and I'll focus on just one here. That is, in many cases, financial statements prepared in accordance with home country adaptation of IFRS did not also contain a reference by both the company and its auditor that the financial statements also complied with IFRS in the form issued by the IASB. Indeed, the roadmap contemplated that we would see filings of financial statements prepared using IFRS as promulgated by the IASB. However, various jurisdictions have not accepted IFRS exactly as promulgated by the IASB, and have instead made various changes thereto. Consequently, we have seen filings containing financial statements based upon national jurisdictional adaptations of IFRS. These financial statements certainly fit within the SEC's filing requirements, but without the reference to IFRS as promulgated by the IASB, they do not appear to be financial statements that fit under the one set of global accounting standards that we wrote about in the roadmap.
Now, we certainly understand why a jurisdiction may wish to adopt its own version of IFRS. After all, we have U.S. GAAP. However, one goal of the roadmap was to allow the elimination of the reconciliation requirement, and as a consequence, have two versions of robust standards developed by independent standard setters in the U.S. capital markets, not thirty different versions. The question then occurs: how do we reach the "critical mass" — to use a term from the roadmap — of filers using IFRS as promulgated by the IASB?"
This is starting to sound like trade subsidies. Every country wants others to conform but maintain their own pet projects. No globalization will happen on accounting standards without convergence to one standard.
On another area that has a way to go...Auditing/PCAOB.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
Commissioner has IFRS (International Financial Reporting Standards) on his mind:
"The good news is that the SEC is absolutely committed to doing what we can to facilitate meeting the goals of roadmap. To reiterate my theme, I think there has been increased focus on the roadmap given the fact that globalization issues have moved to the forefront over the past year. From the standpoint of the U.S., we hosted an IFRS roadmap roundtable at our SEC headquarters a few weeks ago. It was designed in large part to raise the profile of the roadmap in the U.S. At the roundtable, our Chairman Chris Cox and EU Internal Markets Commissioner Charlie McCreevy both affirmed their commitment to eliminating the need for reconciliation between IFRS and U.S. GAAP. So, the U.S. is serious about the roadmap and the timeline, and we're trying to make it work.
I should also point out some provocative new ideas that were bandied about at the roundtable. These ideas definitely moved beyond the main topic about when the SEC would accept IFRS financial statements without reconciliation. In particular, there was a discussion about whether U.S. companies — not just foreign private issuers — should be given a choice to use IFRS or U.S. GAAP. Given that the roadmap contemplates that foreign private issuers have such a choice, it certainly raises a legitimate question about whether U.S. companies should also have that choice. Interestingly, when the question was put to Don Nicolaisen, who was spurred on by Chairman Cox, he responded by stating that the SEC should consider requiring that all U.S. companies use the same standard as foreign companies, and not merely giving them a choice."
But they have been disappointed at the response from Foreign Private Issuers (FPIs):
"There has been a notable lack of foreign private issuers filing audited financial statements with the SEC that either use or are compliant with IFRS in the manner in which it is issued by the IASB. We had expected to see approximately 300 or so companies file their 2005 financial statements prepared using IFRS. Instead, we received only about 40 filings — hardly a critical mass. This fact is perplexing, given that the early goal is — to quote the roadmap itself — "to see convergence in action." So, the question is: why did only 40 companies so file?"
Possible answer:
"There are likely a number of different reasons, and I'll focus on just one here. That is, in many cases, financial statements prepared in accordance with home country adaptation of IFRS did not also contain a reference by both the company and its auditor that the financial statements also complied with IFRS in the form issued by the IASB. Indeed, the roadmap contemplated that we would see filings of financial statements prepared using IFRS as promulgated by the IASB. However, various jurisdictions have not accepted IFRS exactly as promulgated by the IASB, and have instead made various changes thereto. Consequently, we have seen filings containing financial statements based upon national jurisdictional adaptations of IFRS. These financial statements certainly fit within the SEC's filing requirements, but without the reference to IFRS as promulgated by the IASB, they do not appear to be financial statements that fit under the one set of global accounting standards that we wrote about in the roadmap.
Now, we certainly understand why a jurisdiction may wish to adopt its own version of IFRS. After all, we have U.S. GAAP. However, one goal of the roadmap was to allow the elimination of the reconciliation requirement, and as a consequence, have two versions of robust standards developed by independent standard setters in the U.S. capital markets, not thirty different versions. The question then occurs: how do we reach the "critical mass" — to use a term from the roadmap — of filers using IFRS as promulgated by the IASB?"
This is starting to sound like trade subsidies. Every country wants others to conform but maintain their own pet projects. No globalization will happen on accounting standards without convergence to one standard.
On another area that has a way to go...Auditing/PCAOB.
"the Commission unanimously approved the staff approach with respect to each of the four issues, and hopefully the respective staffs of the SEC and PCAOB can now work to finalize AS 5 and the SEC's Management Guidance in a way that promotes effective audits while improving efficiency. In short, the Commission directed the staff to focus on these four broad areas:
aligning AS 5 with Management Guidance, particularly with regard to the level of prescriptiveness in AS 5 and the inconsistent definitions and terms;
scaling the SOX 404 audit to account for the particular facts and circumstances of companies, particularly smaller companies;
encouraging auditors to use professional judgment in the SOX 404 process, particularly in using risk-assessment; and
following a principles-based approach to determining when and to what extent the auditor can use the work of others.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
