The all but certain transition to international accounting standards is sure to be a marquee event for public and private companies, according to Crain's Financial Week.
But it looks as if the Securities and Exchange Commission is leaning toward a soft open that would give U.S. companies the option of switching to the new standards before their use is required.
Although plans are not yet set in stone for the rule proposal expected later this summer, two SEC officials said last week that the agency is considering giving U.S. companies the option to switch to international financial reporting standards (IFRS) using a phased-in approach.
“The road map concerns whether U.S. companies should have the option to switch to IFRS,” said SEC chief accountant Conrad Hewitt, noting the SEC will also set goals for an eventual IFRS mandate.
wuch a phased-in approach would mimic ther SEC regulations, such as a recent rule requiring interactive data in financial filings, that focus first on large companies and eventually expand the mandate to include all registrants.
John White, who heads the SEC's division of corporation finance, added that the agency is examining an “optional first” approach to IFRS, followed by more intensive rule-making for a mandate.
But giving companies the option to switch to IFRS before making it mandatory has several trade groups up in arms.
The CFA Institute, for example, has criticized an optional approach as being too confusing for investors and analysts.
Accounting expert Jack Ciesielski has argued that for investors, “hurry-up optionality” on IFRS would make comparisons to financial statements prepared using U.S. generally accepted accounting principles (GAAP)—already riddled with accounting treatment options—even harder.
Other groups, including the Institute of Management Accountants and the American Institute for Certified Public Accountants, favor a one- or two-year period in which use of IFRS is optional, but want the SEC to set a mandatory deadline as well. \Both groups have said that three to five years should be enough time for all public companies to become acquainted with the new accounting rules.
Many experts predict private companies would likely be given a five- to 10-year period in which to transition to IFRS, although that would likely reflect bank requirements, rather than an SEC rule.
Early adoption would give companies a chance to assess and practice using the new accounting framework, according to Arleen Thomas, senior vice president of member competency and development at AICPA.
“I, personally, would like a road test,” she said, noting that the SEC would likely include some kind of screening mechanism to determine which companies would be eligible to adopt IFRS early.
Patrick Daugherty, a partner with Foley & Lardner who served as counsel to SEC commissioner Edward Fleischman in the 1980s, suggested that to stem the concerns over optionality, the SEC may require companies that adopt IFRS early to reconcile their filings to U.S. GAAP.
Mr. Daugherty said such a requirement would pose a competitive disadvantage for the U.S. companies involved, and noted that the SEC ended the reconciliation requirement for foreign filers last year.
But requiring reconciliations could be necessary to limit initial investor confusion, he said, adding that such reconciliations could be phased out within a short time. An SEC spokesman declined to comment.
Experts predict the SEC road map, due out later this summer, will include a time frame for full adoption, but it seems that 2013 may be the target date. Mr. White said earlier this month that the SEC would wait for the arrival of its three new commissioners before voting on the road map.
Those commissioners have been vetted but not yet approved by the Senate Banking Committee.
Also expected later this summer is an updated memorandum of understanding between the Financial Accounting Standards Board and the International Accounting Standards Board, in which the standard-setters will outline further steps to converge IFRS with U.S. GAAP.
IASB's foundation is also conducting a constitutional review of the organization's trustee governance and funding, which should be completed in the next few months.
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