Integrating IFRS into the U.S. | IFRS Condorsement
Integrating IFRS into the U.S.
If you are a CFO, Controller, or Board Member for a publicly held company then you have an interest in the SEC’s latest approach to IFRS (International Financial Reporting Standards) integration in the U.S. The SEC’s Office of the Chief Accountant (OCA) published a comprehensive Staff Paper entitled, Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, which outlines a new integration method designed to ease U.S. based SEC registrants into IFRS. The goal is to create a single set of high-quality, globally accepted accounting standards and to ensure that a U.S. issuer complying with U.S. GAAP will be in a position to assert that it is compliant with IFRS as issued by the IASB. The goal is also to minimize the transition to IFRS costs.
Key Point: The SEC’s new recommended strategy for integrating IFRS into the U.S. financial reporting system is called “condorsement”. The condorsement approach is an “endorsement” model which incorporates the successesful approaches other countries have used to transition to IFRS. The framework explored in this Staff Paper would employ aspects of the Convergence Approach to address existing differences between IFRS and U.S. GAAP and include a transitional period during which existing differences between IFRS and U.S. GAAP would be eliminated through ongoing FASB standard-setting efforts.
The Condorsement Approach Defined
The Financial Accounting Standards Board (FASB) will replace existing US standards with IFRS statements, and IFRS will become part of U.S. GAAP. The proposed transition plan will minimize the number of accounting changes needed and instead focus on maximizing the number of standards subject to application.
FASB will provide input into the international standard setting process, offering significant insight, information, and perspective on how U.S. companies view the new standards. After endorsing the new international standards and integrating with GAAP, FASB would retain the authority to modify or even add requirements. Full convergence is expected to take 5 -7 years.
The Benefits of Condorsement
Condorsement would allow both the SEC and FASB, while assisting the IASB, to retain substantial control over the financial reporting process in the U.S. This is extremely important due to worries that transitioning to IFRS would result in compromising the quality of U.S. financial reporting and consequently hurt investors and others who rely on this financial information.
Any transition plans must allow for prospective application of new requirements whenever possible. Prospective application could be defined differently for individual IFRSs and could include any of the following application approaches: for all transactions entered into subsequent to the incorporation effective date; from the beginning of the earliest period presented in the financial statements; or in other ways not requiring full retrospective application, as determined by the FASB in its evaluation of the individual IFRSs. The method prescribed in each case would be determined after giving consideration to comparability, reliability, cost/benefit, and other relevant factors, while promoting the integrity of the requirements of the underlying IFRSs.
The SEC is interested in constituents’ views on the IFRS transition framework and any other possible approaches of incorporation of IFRS, including views on those approaches explored in the (click to view) Staff Paper. The SEC is soliciting comments from the general public until July 31, 2011. If you are interested in submitting your comments, click here to review the instructions for submission.
It is imperative that your company stay informed of the SEC’s updates on the transition to IFRS. This is an issue that will impact all SEC registered companies in the years to come! For additional information please contact Scott Walters, CPA, at 561-367-1040, or click here to email Scott.