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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Remarks before the 2008 AICPA National Conference on Current SEC and PCAOB Developments


Liza McAndrew Moberg

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

Washington, D.C.
December 8, 2008

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.


Good afternoon. On behalf of my colleagues in the Office of the Chief Accountant as well as myself, I would like to remind you that none of us intend to, or believe that we will, change U.S. GAAP by any statements that we make today. I would, however, like to address a topic with the potential for profound changes to the accounting standards that we use in the United States: the Commission’s recently released proposed “Roadmap” for use of International Financial Reporting Standards (IFRS) by U.S. issuers.1

The Proposed Roadmap

The SEC in August of this year voted to publish for public comment a proposed Roadmap on the potential future mandatory use of IFRS by all U.S. issuers. We are currently in a 90-day comment period on this release. If you have not done so already, I encourage you to read the release and provide us with your reactions, concerns and commentary. The comment period ends on February 19, 2009.

I view this release as two releases in one. One part is a rule proposal that, if adopted, would allow a limited number of U.S. issuers the option to provide IFRS financial statements in their filings with the Commission. This rule proposal shares many of the policy considerations with the broader question of the role of IFRS for U.S. issuers generally. However, the rule proposal could stand on its own, independent of any future action taken under the overall Roadmap. The other part of the document, the Roadmap, is similar to a Concept Release in that it contemplates possible future rulemaking and seeks your reactions to that possibility. It does not represent a decision that the Commission has reached, nor does it represent any rulemaking action that the Commission currently proposes to take. This afternoon I would like to offer you some of my reflections on this Roadmap, or conceptual, part of the document. My comments are not meant to emphasize any particular part of or question in the release as being more relevant or important than another. To stay within my allocated time, though, it won’t be possible to cover all of the Roadmap’s 165 pages and 70 questions this afternoon.

First, I would like to emphasize that the Roadmap itself is a proposal. After the public comment period ends and after considering the input received, the Commission may determine to issue a final Roadmap. The details of that Roadmap may change from what is included in the current release, subject to the additional insight gained through the comment process. Understanding the multitude of views of market participants helps direct the momentum of an idea, and this idea has the potential for monumental impact. I therefore encourage you to share your thoughts as early in the process as you are able.

The Commission has not yet reached a decision on whether all U.S. issuers should be required to use IFRS. The proposed Roadmap anticipates that such a determination may be made in 2011, and lays out a number of considerations to be evaluated by the Commission before a decision would be reached. The release asks your opinion on a variety of matters and I will paraphrase some of them to include whether you agree that this is a policy question worth considering and, if so, whether there are additional matters, or modifications to those the Commission has identified, that should be evaluated prior to a conclusion being reached. If the Commission were to consider, for example in 2011 as contemplated in the proposed Roadmap, that IFRS should be required for all U.S. issuers, that decision would be exposed as a rule proposal for public comment.

Many people I speak with on the topic of global accounting standards share with me the view that increased comparability and convergence are commendable aspirations in accounting standard setting. Differences in points of view often center around the optimal way to increase comparability and what the ultimate goal should be. For instance, is convergence on a standard-by-standard basis ideal, as we have been pursuing in the U.S. through the FASB and IASB’s joint work? Assuming that full convergence is the goal, is there an optimal degree of convergence that should be achieved before any one-time jump to make the standards in the U.S. those in IFRS? Alternatively, how do investors and other users of financial information feel about full convergence as opposed to close proximity to a commonly-recognized set of accounting standards? Related to this point, earlier this year, the Technical Committee of IOSCO, representing the regulators of the world’s more developed capital markets, issued a statement addressing the risk of users not understanding the basis on which the financial statements are prepared, in particular when the accounting standards used are modified or adapted from IFRS. Specifically, the Technical Committee recommended that public companies include in the financial statements a clear statement of the reporting framework on which the accounting policies are based, whether the financial statements comply with IFRS as issued by the IASB, and, if not, in what regard the standards and reporting framework used differ from IFRS as issued by the IASB.2 Would a scenario of financial reporting with understandable and transparent variances, but coalescing around a global norm, improve the information available on which capital allocation is based? These are the “big picture” policy considerations that come to my mind as I evaluate the objectives underlying the Roadmap.

The Roadmap proposes that the Office of the Chief Accountant would undertake a study and report to the Commission on the implications for investors and others of the implementation of IFRS by U.S. issuers. The release anticipates that this study would be made available to the public and considered by the Commission, along with its evaluation of progress made on the proposed milestones, as part of its deliberation of whether a future proposal should be made with respect to use of IFRS by U.S. issuers. The comments on the Roadmap received by the Commission in the coming months will provide OCA staff with useful points of reference for the proposed study. I am aware of a number of studies and articles addressing the impact of conversion to IFRS in other jurisdictions.3 For example, some academic research has looked at the effect of IFRS conversion on liquidity, valuation, and the accuracy of analyst projections. A number of variables may influence the effect IFRS adoption has on financial reporting, including users’ understanding of the local accounting standards, the degree of similarity or diversity between those standards and IFRS, and the regulatory and legal environment in which the registrant operates. Therefore, to understand what IFRS adoption would mean to us here in the United States, it would seem appropriate to not only evaluate available information on the results of previous conversions to IFRS, but to also juxtapose the circumstances around those conversions to circumstances within our markets. While other countries have successfully transitioned from their local accounting standards to IFRS, each jurisdiction will have unique considerations, advantages and complications, such that it may not be reasonable to expect the impact of IFRS in one jurisdiction to be replicated in the U.S. should our domestic issuers adopt IFRS. It is important to look beyond the theory that financial reporting would be improved if all companies around the globe used the same set of reporting standards and understand the practicalities involved. After all, we have not been able to achieve universal application of something as relatively simple as the metric system; accounting and communication of financial information are far more complex constructs. The proposed milestones, considerations raised, and questions asked in the Roadmap attempt to capture the practical aspects that need to be understood as the Commission continues to evaluate the role of IFRS in our capital markets.

As part of any consideration of the mandatory use of IFRS, it is my opinion that a firm understanding of the costs involved, not only for issuers but also for investors and other users of financial information, would be critical. Sometimes the benefits to be derived from fundamental change justify the costs and discomforts it entails. These costs and benefits are largely qualitative, though many can be quantified. I would encourage those of you with a view on these costs and benefits, including any estimated numbers for either side of the cost-benefit equation, to share them with the Commission and staff through the comment letter process.

The proposed Roadmap includes a proposed milestone to assess the approach the Commission may take in implementing a transition to IFRS. The release seeks comment on whether transition to IFRS reporting should begin for years ending on or after December 15, 2014 for large issuers, with transition sequenced over three years by registrant size. Further, the proposed Roadmap anticipates that, as is required today, a U.S. issuer would present three years of audited financial information in its first IFRS filing with the Commission. Therefore, as suggested in the proposed Roadmap, the first annual report filed with the Commission under IFRS by a calendar-year large accelerated filer would include a January 1, 2012 transition date to IFRS and the results of operations for 2012, 2013 and 2014. Timing is a recurring topic when I speak with companies and others involved in SEC filings. Specifically, I am aware of the concern of some preparers about whether they would be ready to report under IFRS beginning with 2014 filings if the Commission does not reach a decision on mandating IFRS until 2011. In addition to not having reached a decision on whether to require IFRS for all U.S. issuers, the Commission has not reached a conclusion on the optimal interaction between timing of any such decision and the transition dates for issuers. I would encourage you to provide input now to the many considerations raised in the proposed Roadmap. Any final Roadmap the Commission may publish and any future recommendation by the staff regarding the role of IFRS for U.S. issuers would be enhanced by an expanded understanding of the perspectives of those closest to the inner workings of the financial reporting process and of investors as the primary audience of financial information.


Thank you for your attention. I appreciate that perspectives on the Roadmap are varied and many, and look forward to reading and learning from the comment letters that we receive on this important policy question.




Modified: 12/08/2008