The Bottom Line, July 2011

The U. S. Securities and Exchange Commission’s O f f i c e o f t h e C h i e f
Accountant has put forward one
possible approach for incorpor-
ating international financial
reporting standards into the U.S.
financial reporting system, if the
SEC were to decide that to do so
would be “in the best interest of
U.S. investors.”
Asking people to comment on
the potential usefulness of what
it calls the “condorsement”
approach, the SEC stresses that it
has not yet made any decision on
whether it will actually decide to
convert to IFRS. That decision is
expected to be made later this
year.

The SEC is preparing a series of staff papers intended to spark a dialogue on the use of IFRS in the U.S. The papers will ultimately offer a potential framework for the adoption of the international standards, as well as a rundown of the differences between those standards and U.S. GAAP.

Canada’s Accounting Stan-
dards Board supports U.S. efforts
to become part of the “IFRS
family,” says Peter Martin, dir-
ector of accounting standards at
the Canadian Institute of Char-
tered Accountants. “Any serious
proposal for getting them there is
helpful.”
The SEC has already asked
for public comments on several
other possible approaches for
moving toward a single set of
globally accepted accounting and
financial reporting standards,
including: full adoption of IFRS
on a specified date, without any
endorsement mechanism; full
adoption of IFRS following a
staged transition over several
years; and an option for U.S.
issuers to adopt IFRS early and
completely, as described in the
SEC’s 2008 Roadmap for the
Potential Use of Financial State-
ments Prepared in Accordance
with International Financial
Reporting Standards by U.S.
Issuers.

The framework explored in the May paper would, however, see U.S. GAAP retained, and the Financial Accounting Standards Board incorporating IFRS into U.S. GAAP over a defined period of time, with a focus on minimizing transition costs, particularly for smaller issuers. The FASB would then incorporate newly issued or amended IFRSs into U.S. GAAP through an endorsement protocol.

This approach, says the paper, would require changing how the FASB currently operates. Similar to other jurisdictions, the endorsement protocol would give the SEC and the FASB the ability to modify or supplement IFRS when in the public interest, and necessary for the protection of investors.

“The new framework would
share many key features of other
major jurisdictions’ processes
for incorporating IFRS into their
respective national financial
reporting frameworks. However,
whereas many countries chose to
align existing accounting stan-
dards with IFRS through a first-
time adoption of IFRS and there-
after keep pace with new or
amended IFRSs through
endorsement procedures, the
framework explored in this staff
paper would include a transi-
tional period during which
existing differences between
IFRS and U.S. GAAP would be
eliminated through ongoing
FASB standard-setting efforts.”
The framework would retain a
U.S. standard setter and would
facilitate the transition process
by incorporating IFRSs into U.S.
GAAP over, say, five to seven
years, the paper notes. “At the
end of this period, the objective
would be that a U.S. issuer com-
pliant with U.S. GAAP should
also be able to represent that it is
compliant with IFRS as issued
by the IASB.”
According to Martin, “the
SEC paper is intended to stimu-
late discussion and reactions on a
number of important transitional
issues. The AcSB considered
them all in the Canadian context
several years ago and came to
conclusions that have shaped our
adoption of IFRS. However, the
U.S. context is different.”
The path laid out in the paper
seems to be viable, Martin says,
“But would take the U.S. down a
different path than ours. The
principal issue would be whether
U.S. stakeholders want a ‘big
bang’ or the ‘death of a thousand
cuts’ approach to IFRS — both
terms being negative and gross
exaggerations, but they make the
point.

REGISTRATION NOW OPEN

In-depth Brokers and Investment Dealers Course

Presented in co-operation with:

SEPTEMBER 7-9, 2011

ST. ANDREW’S CLUB & CONFERENCE CENTRE TORONTO, ON

The definitive training program for Chartered Accountants and other professionals who provide audit and other services for, or work directly in, the investment industry.

This course is designed with the objective of providing participants with an intermediate level of knowledge of the Canadian securities industry, and the operations and function of brokers and investment dealers, including regulatory requirements.

The course is designed to provide:

n knowledge, to help CAs and other professionals better understand the securities business; n knowledge of financial and operational regulations that affect brokers and dealers; n guidance in meeting responsibilities when appointed as auditors of investment dealers; n impact of new accounting, auditing and IIROC rules on the audit process; and n high quality training for both new and experienced staff.

A comprehensive curriculum that’s unequalled in the marketplace.

Careful examination and analysis of regulatory policy and audit requirements and techniques, combined with a problem-solving approach, provides valuable professional enhancement to help you deal effectively with client demands, and to respond to the organizational pressures of a complex business environment. You’ll come away with a sound knowledge base on which to build.