Speech by SEC Commissioner
Remarks at the Open Meeting:
Concept Release on Allowing U.S. Issuers to Use IFRS
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
July 25, 2007
Thank you. I'm also pleased to support the concept release. I'd like to thank the Office of the Chief Accountant, the Division of Corporation Finance and the Office of International Affairs for all of their hard work.
Obviously, this concept release follows on the heels of our release in which we proposed to eliminate the U.S. GAAP reconciliation requirement for foreign private issuers who file financial statements prepared in accordance with IFRS as published by the IASB. Given that we have proposed allowing foreign issuers to use IFRS without reconciliation, it at least raises the question of whether we should allow U.S. issuers to also use IFRS.
That said, I don't want to minimize the fact that allowing domestic U.S. issuers to use IFRS would be a very significant policy decision. There are many theoretical and practical issues that must be addressed before we actually take such a step. It does, however, seem appropriate to at least present the issue for public comment in a concept release.
Over the past few years, there has been increased focus on the use of IFRS around the world, and in particular, Europe. In just a few years, the Commission has seen a substantial increase in the number of filings containing financial statements prepared in accordance with IFRS - from just a few in 2005, to over 100 in 2006. That said, it is not clear how much thought and attention issuers, investors and other interested parties in the United States have given IFRS. Indeed, even the Commission's recent proposal to allow foreign private issuers to file financial statements prepared in accordance with IFRS without reconciliation is tailored to the needs of foreign issuers. The importance of today's concept release, therefore, it that is seeks to highlight the use, or potential use, of IFRS in the United States.
As with the proposed release we issued last month, though, we need to make sure that there are no unintended consequences of our actions. For example, it is important that allowing U.S. issuers to use IFRS would not remove the incentive for convergence between IFRS and U.S. GAAP. As I stated previously, I hope that this would not occur, because there are huge benefits of convergence. So, it is imperative that we continue to be vigilant with respect to the ongoing IASB and FASB convergence project, and ensure that it continues to move forward.
Protection of U.S. investors is also paramount. We need to ensure that allowing U.S. issuers to prepare financial statements in accordance with IFRS serves this goal. There's been a great deal of talk about the fact that IFRS is more principles-based, as compared to U.S. GAAP, which is supposedly more rules-based. While I think this is an oversimplification, the critical issue is ensuring that accounting standards - be they principles-based or rules-based - are specific enough to help guide conduct in a way that protects investors, yet promotes and facilitates capital formation. In my opinion, at least some degree of specificity is required if one wants to hold people accountable for their actions.
I have just a few questions.
We've already proposed to eliminate the reconciliation requirement for foreign private issuers. So, presumably, in just a year or so, we will be tasked with evaluating the disclosures and financial statements by foreign private issuers prepared in accordance with IFRS. I take it that the agency is acquiring expertise to do this?
We've recently been asked about the fact that we have insisted that IFRS be the IFRS as promulgated by the IASB, and not as adjusted by a different jurisdictions, such as the EU, and that by so requiring, we are meddling in sovereign concerns. Is this an issue, and if so, what does it mean to domestic issuers in terms of what version of IFRS they would use? For example, what if domestic issuers want to get the benefit of using IFRS, and they use the version that we find acceptable on our shores - that published by IASB - but Europe, for example, has something different? How are we going to reconcile this? How is this an advantage? Will there be various versions of IFRS?
I think this is a worthwhile and timely release. It's not often that we get a chance to think ahead and anticipate issues. This is one case where we are doing that, and we are asking commenters to get involved and give us their thoughts, which is very worthwhile. Thank you.