Monday, January 26, 2009

SEC Chair Schapiro Cautions on IFRS Roadmap

SEC Chair Mary Schapiro said the Commission would proceed to implement IFRS with great caution in order to avoid a race to the standard setting bottom. At her confirmation hearing before the Senate Banking Committee, the new SEC Chair said that she does not feel bound by the existing roadmap that the Commission put out for comment last year. She intends to ``take a big deep breath’’ and carefully examine this entire area again.

While she applauds a single set of global accounting standards as a very beneficial thing, allowing investors to compare companies around the world, she has concerns with the roadmap that has been published by the SEC. A main concern is about the IFRS standards generally. They are not as detailed as US GAAP standards, she noted, with a lot left to interpretation. Moreover, even if they are adopted, there will still be a lack of consistency around the world in how they are implemented and how they are enforced.

In addition, the cost to switch from US GAAP to IFRS is going to be extraordinary, she noted, with some estimates ranging as high as $30 million for each US company. This is a time, she said, when regulators must think carefully about whether it makes sense to impose those sorts of costs on US industry.

But perhaps her greatest concern is the independence of the International Accounting Standards Board and the ability to have oversight of the Board’s process for setting standards and the amount of rigor that exists in that process today.

Sensitive to such criticism, the oversight trustees of the International Accounting Standards Board has proposed a Monitoring Group composed of the SEC and other securities authorities. The SEC welcomed the creation of the Monitoring Group as a way of providing organized interaction between the IASB and national securities regulators responsible for the adoption or recognition of accounting standards for listed companies.

The Monitoring Group will be composed of the SEC Chair, the European Commissioner for Internal Market, the IMF managing director, two IOSCO senior officials, the Commissioner of the Japanese Financial Services Agency, and the President of the World Bank. At the same time, CESR’s bid for a seat on the Monitoring Group appears to have failed and banking regulators have been excluded.