SEC decision over IFRS kicked into the long grass

by Richard Crump

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12 Jul 2012

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THE LONG-AWAITED decision on when, or if, the US will adopt IFRS will not be fulfilled anytime soon, according to the country's financial watchdog.

The US Securities and Exchange Commission (SEC) has failed to end speculation about conforming to global reporting standards, and when it will do so, as its final staff report on its IFRS workplan will not contain any recommendation on whether to move from US GAAP accounting to international reporting rules.

SEC spokesman John Nestor said: "Staff have been working on a report and separately developing a recommendation. The report is nearing completion but staff have not established a timetable for completing a recommendation."

The lack of a definite timeline on when a decision will be made by US regulators bears out fears expressed earlier this year by Hans Hoogervorst, chairman of the IASB, architects of the global standard, that the process of replacing US GAAP with international accounting rules could feel like "Chinese water torture".

Speaking at the Economist CFO Summit in March, Hoogervorst said SEC chief accountant James Kroeker had been very upbeat about the likelihood of the US adopting IFRS. Kroeker, who joined the SEC as deputy chief accountant in 2007, recently announced he will step down this month to return to the private sector.

US regulators are currently grappling with the behemoth Dodd-Frank Wall Street reform, specifically the complex Volcker Rule, which placed trading restrictions on financial institutions.

"Recent smoke signals emanating from the US Securities and Exchange Commission suggest that the long-awaited decision on adoption of IFRS may still be months away, as the US re-negotiates its role in international standard-setting," said ESSEC-KPMG Financial Reporting Centre chairman Peter Walton.

The path towards convergence has been a tortuous one. Essentially having begun in 2002, real progress seemed to have been made when, in 2010, the SEC directed staff to conduct an analysis of all the issues related to switching between US GAAP and IFRS, with a decision expected in 2011. However, differences between the IASB (International Accounting Standards Board) and US counterpart the FASB (Financial Accounting Standards Board) on certain standards proved a roadblock to progress.

The two standard setters are currently working through a number of projects on leasing, revenue recognition, financial instruments and insurance, and it is only when these are finished – probably in mid-2013 – that the convergence programme can come to end.

Last month, it emerged the two parties had managed to agree on a two-model approach for accounting for lease expenses on the balance sheet after much wrangling over the issue. The IASB and FASB have been wrestling with how to recognise lease liabilities since 2006, but finally agreed to allow companies to use one of two methods.

The boards undertook the leases project to address the widespread concern that many lease obligations are not recorded on the balance sheet and that the current accounting for lease transactions does not represent the economics of all lease transactions.

Under the two-model approach, one method will require leases to be accounted for using a straight-line expense method, while the second will allow lease contracts to be accounted for using an approach similar to that proposed in the 2010 leases exposure draft, in which lease expenses can be recognised evenly in the income statement over the course of the lease term.

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