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Speech by SEC Staff:
Remarks before the 2007 AICPA National Conference on Current SEC and PCAOB Developments


Katrina A. Kimpel

Professional Accounting Fellow, Office of the Chief Accountant
U.S. Securities and Exchange Commission

Washington, D.C.
December 10, 2007

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 upon the staff of the Commission.


Thank you and good afternoon. The acceptance of financial statements prepared using International Financial Reporting Standards ("IFRS") continues to increase around the world. Just last month, the Commission voted to allow foreign private issuers to file financial statements that comply with IFRS as issued by the International Accounting Standards Board ("IASB") without a reconciliation to U.S. GAAP. One of the questions asked about IFRS financial statements is: Are preparers consistently and faithfully applying IFRS across companies and jurisdictions such that IFRS financial statements are comparable? Some foreign regulators including the U.K. Financial Reporting Review Panel,1 the Committee of European Securities Regulators ("CESR")2 and the Securities Commission of New Zealand3 have published observations on IFRS as applied in their jurisdictions. The SEC staff also has published observations based on its review of IFRS financial statements4 and the Division of Corporation Finance has available on the Commission website a discussion of international reporting and disclosure issues.5 Today, I'll share with you some of the experience that we have in evaluating the accounting of transactions in accordance with IFRS as issued by the IASB and related reporting presentations, and our work with other securities regulators to foster consistent and faithful application of IFRS around the world.

Faithful Application

Just as with U.S. GAAP, IFRS does not provide accounting guidance for every type of transaction. As demonstrated by IFRS being printed in one bound book and U.S. GAAP requiring a few more volumes, there may be fewer words in IFRS than U.S. GAAP describing the accounting treatment for a particular transaction, event, or condition. However, IFRS does provide a general framework for preparers to follow when accounting for and reporting on transactions that have no specific guidance in IFRS.

First, IAS 1, Presentation of Financial Statements, calls for financial statements that present fairly the financial position, financial performance, and cash flows of the entity.6 Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. Second, IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, recognizes that there may not be a standard or interpretation that specifically applies to a transaction. Preparers in this situation are required by IAS 8 to apply judgment to develop accounting policies that are relevant to the decision-making needs of users; represent faithfully the financial position, financial performance and cash flow of the entity; represent the economic substance of the transactions; are neutral and free from bias; and are prudent and complete. Additionally, IAS 8 allows preparers to consider pronouncements of other standard-setting bodies to the extent that such guidance does not conflict with the concepts underlying IFRS.

We appreciate that there may be diversity in applying IFRS both in determining the fair presentation of financial statements and in developing an accounting policy in the absence of a standard or interpretation of IFRS for a particular transaction, condition or event. When we are asked to evaluate a particular accounting treatment or financial statement presentation, we begin with the standards and interpretations and, consistent with IAS 1, ask whether the presentation is fair and provides relevant information for the users of the financial statements. As I discuss later, we aim to perform these evaluations for consistency with IFRS, not U.S. GAAP.

We have received a number of questions on the application of IFRS and the presentation of transactions in IFRS financial statements. Consistent with questions on U.S. GAAP, we receive questions either on a pre-filing basis or through referral from the Division of Corporation Finance in their review of IFRS financial statements. We have received a number of questions on the statement of cash flows including the starting point of the presentation of cash flows from operating activities and the classification of expenditures that are expensed as incurred. As use of IFRS has only recently become more widespread, I'd like to share our process through examples related to the cash flow statement. When evaluating presentation in the cash flow statement, we first consider IAS 7, Cash Flow Statements, and its reporting requirements as well as the appendices to IAS 7 that provide example presentations. Additionally, we consider the defined terms of IAS 1 and other IFRS that provide for cash flow presentation such as IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.

We consider the standards and interpretations first and then consider the implementation guidance. We may consult with the IASB staff if we have a question on the standard or the implementation guidance. For instance, preparers using the indirect method to present cash flows from operating activities are required by IAS 7 to adjust profit or loss. The appendices to IAS 7 include examples of operating cash flows presented using the indirect method but begin with a measure other than profit or loss. Before communicating our views to the issuer, we also will consult with the issuer's home country regulator on matters including those that are novel or unprecedented.

Consistent Application

Consistent application of IFRS around the world and between companies is the result of many preparers, auditors, standard setters and regulators working together to share their experiences in the application of and reporting in IFRS. We believe that users should be provided with adequate information to compare IFRS financial statements. Similar transactions should be evaluated using consistent IFRS literature. To the extent the literature provides alternatives, the resulting accounting and presentation of the transactions may differ. Adequate disclosure is important in situations where alternative accounting treatments are acceptable. The preparation of IFRS financial statements is a fairly new process and preparers may consider the familiar, that is historic home country GAAP, when preparing IFRS financial statements. Many have questioned how the Commission staff will not be influenced by our own home country accounting and presentation practices of U.S. GAAP. In addition to considering the IFRS literature, we also consult with other regulators to support our view is faithful to IFRS, not U.S. GAAP.

We have historically consulted with other regulators when considering the accounting of foreign private issuers under their home country accounting standards. However, with the increased use of IFRS around the world, the Commission has developed more formal protocols with respect to IFRS for interacting with the other regulators such CESR. The goal of these regulators is to identify and address the inconsistent and inaccurate application of IFRS globally which will foster the consistent and faithful application of IFRS around the world.

For example, the International Organization of Securities Commissions' ("IOSCO") Standing Committee on Multinational Disclosure and Accounting ("Standing Committee 1") monitors the development and interpretation of IFRS and provides comments on proposed standards and interpretations. Additionally, Standing Committee 1 promotes consistent regulatory interpretations and enforcement of IFRS. The committee has regular meetings and teleconferences at which the discussion includes areas of IFRS where application in practice has been questioned by a regulator. For instance, in our evaluation of the presentation of the statement of cash flow, we consulted with members of the committee to understand how practice has developed in their jurisdiction and whether they have found similar application questions.

Developing high-quality accounting standards and interpretations takes time. Regulators may find circumstances where neither the IASB nor the International Financial Reporting Interpretation Committee ("IFRIC") has addressed a particular accounting issue that may introduce challenges in practice. Regulators may, as an interim measure, state a view on an IFRS accounting or reporting issue. Regulators have developed more formal avenues to promote consistent application of IFRS through IOSCO. For instance, regulators may catalogue decisions made concerning application of IFRS in an IOSCO database. To support the consistent application of IFRS globally, IOSCO will monitor the database for these issues and refer such areas to the IASB and the IFRIC for consideration. Additionally, the preparer, auditor or the regulator may refer the issue to the IASB or the IFRIC for consideration.

Another step taken to avoid conflicting conclusions regarding the application and enforcement of IFRS is the August 2006 workplan between the Commission and CESR. The workplan focuses on the application by internationally active companies of IFRS and U.S. GAAP in the United Stated and the European Union and is implemented through protocols with each regulator. For instance, in April 2007, the Commission, the UK Financial Services Authority and the UK Financial Reporting Council ("FRC") signed a protocol for implementing the workplan. The protocol allows for information to be shared with respect to the application of IFRS in the financial statements of issuers listed in the UK and registered with the SEC. The protocol provides for consultation between the Commission staff and the staff of the FRC on matters affecting financial statements not yet filed with the Commission as well as for previously filed financial statements.

In addition to the coordination with organizations of securities regulators and under the CESR workplan, the Commission also has developed bilateral dialogues with particular securities regulators to discuss accounting matters. For instance, the Commission and the Korea Supervisory Commission have established a regulatory dialogue that includes discussion of accounting standards. The Commission also has established a regulatory dialogue with the Financial Services Agency of Japan for increased cooperation and collaboration that includes discussion of accounting standards. Finally, the bilateral dialogue of the Commission and the China Securities Regulatory Commission includes discussion of convergence of national accounting standards with IFRS.

More information about these agreements, workplans and dialogues is available on the SEC's website.

The information infrastructure established among securities regulators is intended to promote the consistent application of IFRS globally. The faithful application of IFRS begins with preparers. The global community of preparers, auditors, regulators and standard setters should continue to work together to support the consistent and faithful application of IFRS across jurisdictions and companies. It is essential that questions of interpretation be shared and resolved through the standard setting and interpretative process. The future of IFRS as a globally accepted, high-quality set of accounting standards is a possibility if the result is consistent and faithful application of IFRS around the world.



Modified: 12/10/2007