SEC Roadmap
Herschel Mann
Texas Tech University
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Potential for IFRS as the Global
Accounting Standard
• 113 countries require or permit IFRS
• Market capitalization of exchange listed companies in
the European Union, Australia, and Israel comprises
26% of global market capitalization
• Market capitalization of exchange listed companies in
those countries plus Brazil and Canada totals 31% of
global market capitalization
• SEC believes that the benefits of moving towards
IFRS are attainable only if IFRS represents a single
set of high-quality accounting standards, which is
best accomplished through the use of IFRS as issued
by the IASB
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Past SEC Policy Considerations
Regarding IFRS
• SEC has long expressed its support for a single set
of high-quality global accounting standards (e.g.,
SEC Release 33-6807 – November 14, 1988)
• Convergence of U.S. GAAP and IFRS as issued by
IASB (predominant approach)
 2002 Norwalk Agreement
 2006 Memorandum of Understanding
• SEC allows foreign private issuers to file IFRS
financial statements without reconciliation to the U.S.
GAAP (SEC Release 33-8879)
• 2007 Concept Release – whether U.S. issuers should
be permitted, but not required, to use IFRS in their
filing with the SEC
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Milestones
• Improvements in Accounting Standards
• Accountability and Funding of the IASC Foundation
• Improvement in the Ability to Use Interactive Data for
IFRS Reporting
• Education and Training
• Limited Early Use of IFRS Where This Would
Enhance Comparability for U.S. Investors
• Anticipated Timing of Future Rulemaking by the
Commission
• Implementation of the Mandatory Use of IFRS
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Improvements in Accounting Standards
• Norwalk Agreement – 2002
• 2006 Memorandum of Understanding
 Agreed that a common set of global standards remains the
long-term strategy of both the FASB and IASB
 The next phase of the joint work plan goes through 2011
• SEC previously had noted areas where IFRS
provides only limited guidance on a particular topic
 Accounting for insurance contracts
 Accounting for extractive activities
 Current convergence projects (e.g., revenue
recognition and financial statement presentation)
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Improvements in Accounting Standards
• Accounting standards must be established under a robust,
independent process that
 Includes careful consideration of possible alternative approaches
and due process that allows for input from and consideration of
views expressed by affected parties, including investors
 Insures that accounting standards are promptly considered to
keep standards current and reflect emerging issues and business
practices
 Requires that accounting standards produced are capable of
improving the accuracy and effectiveness of financial reporting
and the protection of investors, and of resulting in a high quality
of financial reporting relative to the standards that may be
replaced
• The SEC will assess whether it believes the IASB continues to
develop its standards, including converged standards though
a process that reflects the above elements
6
Accountability and Funding of
the IASC Foundation
• IASC Foundation has financed IASB operation
largely through voluntary contributions
 Funding commitments were made for the period 20012005 and then extended for an additional two years
through 2007
• In 2006, the IASC Foundation Trustees agreed on
four element that should govern the establishment
of a funding approach
 Broad-based
 Compelling
 Open-ended
 Country-specific
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Improvement in Ability to Use Interactive
Data for IFRS Reporting
• May 2008 SEC proposed rules to
require companies to use XBRL
(eXtensible Business Reporting
Language)
• Under the proposal, foreign private
issuers that prepare their financial
statements using IFRS as issued by
the IASB would be required to provide
financial statements in interactive data
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Education and Training
• Increased need for effective training and
education about IFRS for investors,
accountants, auditors and others involved in
the preparation and use of financial
statements
• Investor education would be particularly
important
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Limited Early Use of IFRS
• Roadmap contemplates that the SEC will make a
decision in 2011 with regard to the mandated use
of IFRS for U.S. issuers
• The proposed rules would allow the limited early
use of IFRS by certain U.S. issuers
• The “early use” proposal has been somewhat
controversial; respondents have proposed other
alternatives
 Option to use IFRS should be extended to all U.S. issuers
 SEC should require IFRS for all U.S. issuers (no option for
anyone – even early adopters)
 Continue convergence project without mandatory use of
IFRS
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Anticipated Timing of Future
Rulemaking by SEC
• After reviewing the status of the milestones, the SEC
would determine, in 2011, whether to proceed with
mandatory IFRS by 2014
• Users would use U.S. GAAP during 2012, 2013, and
the first three quarters of 2014
• 2014 financial report would show financial statements
using IFRS for 2012, 2013, and 2014
• SEC directed the Office of Chief Accountant to
undertake a study and report to the SEC on the
implications for investors and other market participants
of the use of IFRS
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Implementation of Mandatory Use of IFRS
• All U.S. issuers adopt IFRS at same
time
• Staged transition
 Large accelerated filers must adopt for
financial statements for 2014
 Accelerated filers must adopt for financial
statements for 2015
 Non-accelerated filers must adopt for
financial statements for 2016
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Other Issues
• LIFO
• Debt covenants
• Market indices (e.g., S&P 500) currently
only include issuers that report under U.S.
GAAP
• Auditing standards
• Nonpublic entities
• Not-for-profit organizations
• State and local governments
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