April 13, 2009
The scope of this comment letter is limited to the costs and benefits of FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS BY U.S. ISSUERS.
Costs
W. Edwards Deming, the American that transformed Japan after WWII, is well known for his quote: "The most important things are unknown or unknowable." The factors that have the greatest impact, long term, can be quite surprising. One example of an additional cost to U.S. issuers, in connection with adopting IFRS, is potentially higher external auditors professional liability insurance premiums resulting from increased malpractice risk with judgment-based IFRS. The seminar, "Malpractice risks: Navigating the New Frontier", given in connection with the AICPA Professional Liability Insurance programs, highlighted the risks that can lead to malpractice claims. Many malpractice suits are based on the perceived misapplication of financial reporting standards, with a high correlation between the ambiguity of a financial reporting standard and the percentage of related malpractice suits. With IFRS being more a judgment-based than GAAP, more malpractice suits can be expected to result under IFRS than currently under GAAP.
Benefits
American business has great respect for the 80-20 rule however this respect has often been found in the regulator arena. If IFRS was adopted by only those U.S. Issuers that believed they would achieve a favorable benefit/cost relationship, the merits of the 80-20 rule would be honored by the Commission on the IRFS issue. I recommend that the adoption of IFRS be optional for all U.S. Issuers and mandatory for none. This should result is as close to an optimal benefit/cost relationship, as is possible. This approach is also consistent with the flexibility extended to foreign private issuers by the Commission.
Thank you for the opportunity to submit a comment letter and especially for extending the comment period to April 20, 2009.