November 12, 2007

To Ms. Nancy M. Morris
Secretary, Securities and Exchange Commission
Washington, DC 20549-1090

These comments are in response to the SEC’s Concept Release on Allowing U.S. Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards. The comments come from discussions among students in a graduate accounting course entitled U.S. and International Accounting Standards offered this semester by National University in San Diego.

Question no. 13 in the Concept Release asks, “Do investors, issuers and other market participants believe giving U.S. issuers the choice to prepare financial statements in accordance with IFRS as published by the IASB furthers the development of a single set of globally accepted accounting standards?” It seems clear that if an increasing number of jurisdictions are either permitting or requiring the use of IFRS, the U.S. will eventually find itself alone among the capital markets of the world if it persists in denying U.S. issuers the use of IFRS. If on the other hand, the SEC permits U.S. as well as non-U.S. issuers to prepare financial statements under IFRS, the use of IFRS will certainly increase over time, however gradually, and thereby advance the development of a single set of globally accepted accounting standards.

As implied by questions raised in the Concept Release, there are more impediments to U.S. companies switching from U.S. GAAP to IFRS than there are motivations to do so. Being an educator, the lack of internal and external accountants who have been educated and trained to prepare and audit financial statements in accordance with IFRS comes to mind as just one such impediment. If U.S. companies are indeed given a choice between the two, it would likely be many years before the adoption of IFRS by U.S. companies would become widespread. This raises the question as to whether global acceptance of a single set of accounting standards might be achieved sooner if, as suggested by the FAF/FASB response to the Concept Release, U.S. public companies were required to move to IFRS upon the completed implementation of a comprehensive blueprint for transition. As pointed out in the FAF/FASB comment letter, such a strategy would, among other advantages, avoid a sustained period of a two-GAAP system in the U.S.

This recommendation by the FAF/FASB to require U.S. public companies to move to IFRS after the provisions of a comprehensive transition blueprint have been met and after improvements to certain areas of IFRS have been made is certainly worthy of consideration. But there are some serious questions, such as whether changes to IFRS that the SEC considers especially important can be made acceptable to the EU and other IFRS adopters. And whether the various American stakeholders will be able to agree on what a transition blueprint should look like, what its expected outcomes should be, and what benchmarks should be used in deciding whether there has been a satisfactory level of achievement of those outcomes.

Assuming that the SEC has already identified the changes to IFRS that it considers of particular importance, a reasonable course of action would be for the SEC to publish a list of such changes in the early months of 2008 for review by existing users of IFRS as well as by U.S. stakeholders. In the same timeframe, the SEC might invite two or three highly qualified representatives from each of the various stakeholder groups to hammer out the transition blueprint envisioned by the FAF/FASB by, say, June 30, 2008 for comment by September 30. If these preliminaries are not substantially achieved by reasonable deadlines, the reality may be that this strategy is not practicable, and that the proposal to give U.S. issuers a choice should be returned to the table.

Donald A. Schwartz, J.D., CPA
Professor of Accounting
National University, San Diego, CA