Without weighing in on when — or if — the Securities and Exchange Commission will incorporate international financial reporting standards (IFRS) into the financial reporting system for U.S. issuers, the SEC has staff issued a paper that sheds some light on one possible plan for implementation. The plan would change the Financial Accounting Standards Board’s role in standard setting.
The purpose of the Work Plan is to consider specific areas and factors relevant to a Commission to determine as to whether, when, and how the current financial reporting system for U.S. issuers should be transitioned to a system incorporating International Financial Reporting Standards (IFRS).
The Commission has not yet made a decision as to whether and, if so, how, to incorporate IFRS into the financial reporting system for U.S. issuers. While the Staff’s work on the Work Plan continues, including assessing the quality of the standard setting process, the focus of this Staff Paper is to outline a possible approach for incorporation of IFRS into the U.S. financial reporting system, if the Commission were to decide that incorporation of IFRS is in the best interest of U.S. investors.
According to this Paper, the FASB would remain the U.S. standard-setter, but its manner of participation would differ considerably from the FASB’s current standard-setting role and responsibilities for U.S. issuers. Most significantly, the FASB would participate in the process for developing IFRS, rather than serving as the principal body responsible for developing new accounting standards or modifying existing standards under U.S. GAAP.
The standards board would also play “an instrumental role in global standard setting by providing input and support to the International Accounting Standards Board in developing and promoting high-quality, globally accepted standards; by advancing the consideration of U.S. perspectives in those standards; and by incorporating those standards, by way of an endorsement process, into the U.S. GAAP.”
Further, FASB would become an educational resource enabling U.S. constituents to properly implement and apply IFRS “and promote ongoing improvement in the quality of financial reporting in the United States,” according to the paper.
While certain operational aspects of the framework are discussed in this Staff Paper, the framework represents only one possible approach to incorporation of IFRS. The details of this framework, and other potential methods of incorporation, would need to be subject to further review and development, if and when the Commission determines that IFRS should be incorporated into the financial reporting system for U.S. issuers.
This Staff Paper does not provide an extensive discussion of a potential timeline of incorporation. That is not to diminish the importance of the timing of incorporation but reflects the fact that the timeline for incorporation is a separate consideration.