Julie A. Erhardt
Deputy Chief Accountant, Office of the Chief Accountant
Washington, D.C.
Dec. 9, 2015
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.
Good morning. I am grateful to be in Washington, D.C. and to have the opportunity to speak at this conference. The focus of my remarks today will be on U.S. engagement with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and more generally on the goal of a single set of high-quality global accounting standards. I will offer my views about the possible future engagement of those in the U.S. with IFRS and the standard setting activities of the IASB. Of course, these remarks will be my own, and thus do not necessarily reflect the views of the Commission, the Commissioners, or other members of the SEC staff.
As you are likely aware, the work of the IASB is the quintessential group project, in that what underlies its accomplishments is both the willingness of people and organizations across many countries to help develop its standards, and then once they are developed the willingness of countries to give recognition via their policy decisions to its work. If you were to take away either aspect, then the IASB becomes like a band playing to an empty room. Accordingly, I think a matter for the U.S. accounting profession to consider is what tone should be set for the U.S. participation in this group going forward? I am sure there are as many perspectives on this question as there are people in this room. Nonetheless, let me lead off the conversation with my comments, informed by the fact that I interact quite often with members of the accounting profession from overseas. Then the other members of the U.S. accounting profession can take the conversation from there. I have organized my comments around five observations.
The first observation that I have is that the U.S. was a strong supporter and active participant in the global accounting profession’s decision to convert the former volunteer-based International Accounting Standards Committee into the permanently-staffed IASB. If nothing else, this genesis suggests that there are many companies and organizations in the United States with a connection to the IASB’s work and the ongoing international efforts to support it. This would suggest to me that we in the U.S. should continue to be actively involved with IFRS. Or by way of metaphor, we should continue to water the tree that we helped to plant. Two ways that the SEC staff itself helps to do this today are to serve as an Observer to the IASB’s IFRS Advisory Council and to serve on behalf of IOSCO as an Observer to the IFRS Interpretations Committee.
I would next observe that the U.S. is perceived as a perennial leader on financial reporting policy matters, possessing a lot of historical perspective as well as current real world experience. I think this leads to the conclusion that those in the U.S. may have financial reporting related experiences that others do not, and of course others have experiences that those in the U.S. do not. The potential benefits to everyone of sharing their experiences across borders would suggest to me that the U.S. should, and for that matter can’t afford not to, be involved with the work of the IASB. The question then becomes how to harness the unique U.S. experiences to support the work of the IASB. Certainly, the Financial Accounting Standards Board (FASB) does some of this by its participation in the IASB’s Accounting Standards Advisory Forum and the SEC staff does as well via its leadership of and participation in IOSCO’s multi-country Committee on Accounting, Audit and Disclosure. Also, for example, there are those from the audit firms who participate in the work of the IFRS Interpretations Committee. But are there further potential contributors of unique knowledge from the U.S.; for example, those from organizations in the private or commercial sectors?
The third observation I would like to make is at more of a grass roots level. This observation is how I see that the U.S. benefits from IFRS today. Perhaps understandably I first think of the SEC’s decision to allow IFRS reporting by its foreign private issuers without reconciliation to U.S. GAAP. This decision provided the opportunity for the U.S. capital markets to have a common financial reporting framework on which the listed foreign companies could prepare their financial statements.
I think that other benefits to the U.S. actually arise as a consequence of the IFRS policy decisions made by other countries. For example, U.S. companies and investors now encounter and use the more recognizable IFRS financial reporting framework as they evaluate the financial prospects of cross-border acquisition, investment, joint venture, and trade opportunities. Further, U.S. issuers that have overseas operations are more likely to be able to use a common IFRS-based accounting platform to meet statutory financial reporting requirements in several countries; audit firms benefit from this aspect as well.
Itemizing these benefits leads me to the conclusion that some of the branches of the IFRS “tree”, if you will, are present today in our U.S. capital markets. This would suggest to me that those from the U.S. be involved with the efforts to develop and maintain IFRS.
The last two observations that I would like to convey relate to my impressions of the perspectives of at least some in the accounting profession overseas on how the U.S. might engage with IFRS in the future. I convey these to help you get a sense of the overall environment into which the future U.S. involvement with IFRS would occur.
First, my impression is that at least some overseas do not anticipate that within the foreseeable future the U.S. will decide to adopt IFRS for financial reporting by our domestic public companies. My impression is that these individuals are not particularly resentful about this—maybe more like disappointed—because they recognize that for one reason or another IFRS is not seen in the U.S. as a realistic policy idea for this purpose at this time. My sense is that they know from their own experiences that generally the acknowledged legitimacy of an idea is a necessary precursor to policy making.
Second, among at least some within the accounting profession overseas there may be concern when it comes to the intentions of the U.S. for engagement with IFRS now that the known terms of engagement, as set out by the FASB and IASB convergence work program, are running their course. If U.S. involvement with IFRS is now to come in a completely ad hoc manner, this could give rise to concerns that there is no memorialized intention or longer term plan for parties from the U.S. to stay engaged with and be supportive of IFRS. A further statement by the Commission on global accounting standards, as discussed by the Chair earlier today, might help to provide reassurance and clarity in this regard. Moreover, I think U.S. practitioners could look for ways to provide input directly into the IASB’s work. This would give the IASB direct input from the U.S. companies and firms that are affected by and benefit from the current reach of IFRS. This input could also be helpful in fostering even further convergence between IFRS and U.S. GAAP.
Let me finish where I started, which is to remind you that I mention my observations as a catalyst for your discussions. Are my observations accurate? Complete? Fair? Would a potential further statement by the Commission on global accounting standards help to focus and encourage future U.S. involvement with IFRS? In any event, I hope you now feel more prepared to discuss and consider this matter. Thank you very much for your attention.