Monday, January 19, 2009

SEC Nominee Inclined to Go Slow on IFRS

SEC chair-designee Mary Schapiro says she might take IFRS implementation off the fast-track "road map" established by departing Chairman Christopher Cox.

During a confirmation hearing last Thursday before the Senate Banking, Housing, and Urban Affairs Committee, Schapiro said in response to a question, "I will take a big deep breath and look at this entire area again carefully and will not necessarily feel bound by the existing road map that’s out for comment."

According to media reports, she expressed three concerns about moving from U.S. GAAP to international accounting standards: the cost burden for U.S. companies to make the switch, lack of detail within IFRS opening the door to inconsistent application, and the independence of the International Accounting Standards Board.

In one media account, the cost issue appeared to take center stage. According to Dow Jones newswire, Schapiro

told the committee that the SEC needs to "think carefully" about imposing these changes on the industry, saying that some estimates suggest it could cost up to $30 million for each company to convert to the IFRS.

However, a separate report in the Journal of Accountancy says Schapiro referred to questions about IASB's independence from politicians as her "greatest concern" about IFRS.

To be sure, the existing rulemaking structure for U.S. GAAP is hardly fully "independent," either. FASB pronouncements can be and sometimes have been overruled by the SEC, a government regulator whose purse strings are controlled by Congress.

These issues were neatly summed up by AICPA in a recent post on its IFRS Resources blog:

The more serious risk to adopting IFRS is not the quality of the standards, but the accountability and independence of the International Accounting Standards Board. The second milestone in the SEC’s roadmap discusses accountability. National accounting setters have traditionally been accountable to national regulators. In the U.S., the SEC oversees the Financial Accounting Foundation, parent of the FASB. Historically, the International Accounting Standards Committee Foundation has not had a similar link with national securities regulators.

The IASC Foundation Trustees have proposed amendments to its constitution that would create a Monitoring group composed of securities authorities. The Monitoring group will work with the IASC Foundation on oversight of the IASB and areas for consideration by the IASB in its ongoing work.

Even if a monitoring group is established, will an international accounting model be strong enough to fend off political pressure from governments around the world and are we in the U.S. ready to give up our direct regulator relationship with the accounting standards setter?

Several AICPA members' comments in response to that Jan. 7 post argued against adopting IFRS for U.S. companies. None argued in favor.

Schapiro is the current chief executive of the Financial Industry Regulatory Authority. She is also a former SEC commissioner and also served as head of the Commodity Futures Trading Commission.

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