I would like to echo Chairman Schapiro’s thanks to the staff of the Office of the Chief Accountant, the Division of Corporation Finance and the other offices, for their outstanding work in helping us draft the Statement that we are adopting today and developing the Work Plan that will guide the staff’s work and inform the Commission’s consideration of the use of IFRS by U.S. issuers.
The Statement and the Work Plan represent significant steps forward in the Commission’s ongoing commitment to support the development of a single set of high-quality globally accepted accounting standards for use in the capital markets.
In 2007, the Commission voted to allow foreign private issuers to use IFRS without reconciliation to U.S. GAAP, and in 2008, the Commission proposed the Roadmap, which set forth a set of proposed milestones for the potential use of IFRS by U.S. issuers in their Commission filings. The Roadmap provided a mechanism — in the form of the comment process — for evaluating these milestones.
As the Chairman noted, we have received over 200 comment letters in response to the Roadmap, and the Commission’s Statement and the Work Plan that has been developed by the staff have been informed by those comments.
Consistent with the timeline set forth in the Roadmap, the staff’s execution of the Work Plan, together with the completion of the joint convergence projects of the FASB and the IASB according to their current work plan, will position the Commission to make a decision in 2011 on whether and how to incorporate IFRS into the Commission’s reporting system for U.S. issuers.
Importantly, the Work Plan does not raise any new obstacles and does not constitute a “checklist” of steps or items that must be accomplished prior to the Commission’s decision relating to IFRS or prior to the use of IFRS by U.S. issuers. Instead, the Work Plan sets forth, with specificity, the key steps and processes that the staff will undertake:
I am confident that, much as the Commission did when it voted to allow foreign private issuers to file periodic reports using IFRS without reconciliation to U.S. GAAP, the staff will report to us that they continue to find IFRS to be of high quality, and the IASB to be focused on investors’ information needs.
I am also confident that, if the Commission does decide in 2011 to proceed with incorporating IFRS for U.S. issuers, the staff’s evaluation of transitional considerations pursuant to the Work Plan will provide the basis for well-informed rulemaking by the Commission. In particular, the staff’s efforts should enable the Commission to resolve avoidable transitional complications, and to manage and minimize the impact of any remaining transitional obstacles.
Separate from the progress we make today by issuing the Statement, I want to note the significant ongoing progress in the convergence of IFRS and U.S. GAAP. Most recently and notably, in November 2009, the FASB and IASB reaffirmed their commitment to improving and converging their respective accounting standards, and further committed to intensify their efforts to meet the 2011 timeline for completion of their joint convergence projects.
In addition, through the Commission’s work with IOSCO and its bilateral and multilateral dialogues with foreign regulators, we see much progress in regulatory cooperation aimed at improving the consistent application of IFRS. These cooperative initiatives are instrumental to realizing a key premise underlying our objective — and that is comparable financial reporting that increases the efficiency of our capital markets.
The Commission’s Statement today sends a strong signal of the Commission’s support for the goal of transitioning the U.S. capital markets to a single set of high-quality globally accepted accounting standards. In particular, the Statement:
Notably, although the Commission is not at this time pursuing optional or early adoption of IFRS by U.S. issuers, the Statement clearly signals that optional or early adoption remains viable as a potential element of the transition to the use of IFRS by U.S. issuers.
The upcoming months, while the staff performs its research and analysis under the Work Plan and the FASB and the IASB move toward completion of their convergence projects, will mark a critical time in the development of, and the transition of the U.S. capital markets to, IFRS.
As we continue to emerge from the worst financial crisis in generations, the potential value of a single set of high-quality globally accepted accounting standards has never been more evident. As the Statement notes:
Some believe that [during the crisis,] differences in accounting standards contributed to difficulty in the ability of investors and other stakeholders to assess the financial results of companies operating and competing in the global markets in determining how to allocate capital.
The Statement further notes that:
As part of the G-20’s efforts to address the economic crisis, it specifically requested that accounting bodies redouble their efforts to achieve a single set of high-quality, global accounting standards through their independent standard-setting processes . . . .
These are important factors that support incorporation of IFRS for U.S. issuers; nevertheless, the Commission’s decision of whether to incorporate IFRS into its reporting system for U.S. issuers will depend upon our evaluation of key considerations.
One of these considerations is the independence of the IASB’s standard-setting process. Thus, it is as important now as ever that standard-setters be free from undue pressure that could compromise the standard-setting process.
Above all, the standard-setting process must result in high-quality standards; that is, a comprehensive set of neutral principles that require consistent, comparable, relevant and reliable information that is useful for investors, lenders and creditors, and others who make capital allocation decisions.
Again, I’d like to thank the staff for your excellent work on the Commission Statement and the Work Plan.