The condorsement framework for the adoption of IFRS advanced by the SEC staff demonstrates U.S. support for the ongoing development of global accounting standards and adopts the very practical approach of retaining the label “U.S. GAAP,” said FASB Chair Leslie Seidman. Regardless of the way IFRS is brought into the U.S., reasoned the FASB Chair, it is easier on the system if it is called U.S. GAAP for federal and state legislative and regulatory purposes and contractual covenants.
The framework suggested by the SEC staff envisions the gradual implementation of IFRS into the US financial reporting system, blending the existing onvergence and endorsement approaches into what the staff calls ``condorsement.’’ The transition to IFRS under the framework would occur on a staggered basis over a number of years and be coordinated with the ongoing standard-setting activities of the IASB.
In remarks to the Nat’l Assoc. of State Boards of Accountancy, the FASB Chair noted that condorsement calls for some level of U.S. involvement in the establishment of any new standards. After reviewing the comment letters that have come into the SEC, the Chair concluded that most people feel very strongly that they want to continue to have active participation in the process themselves, as stakeholders, but also believe that the FASB should continue to have a strong role in influencing what goes on the international agenda, the process by which these issues are analyzed, the level of implementation guidance provided, and the outreach that is conducted in the U.S.
This is an acknowledgment that to have a global standard that the U.S. follows, she added, it has to work in the US environment. Chairman Seidman believes that there are other countries around the world that also would seek substantive roles for their national standard setter in the process, such as Japan. There is a way to leverage the national processes and resources that exist, she noted, and with proper coordination bring them to the development of international standards.
Condorsement also recognizes that there should be a gradual approach to dealing with the remaining differences between U.S. GAAP and IFRS. The US is in a very different position than a lot of other countries that have gone through this endeavor, observed the FASB chief, and there is a need to go through a thoughtful exercise to look at those differences and determine the best course of action for the U.S.
For example, sometimes, FASB has a standard and the IASB does not. Rate regulation is one important example. In the FASB Chair’s opinion, it would be preferable to keep U.S. GAAP in those cases until an appropriate international standard has been set.
There are other important remaining differences between U.S. GAAP and IFRS, but they are not all of the same nature or magnitude For example, the difference between U.S. GAAP and IFRS on Research and Development is a core issue for some companies and their investors. This difference must be addressed, emphasized the Chair. Likewise on recycling amounts out of other comprehensive income to net income, U.S. GAAP does and IFRS usually does not. This is a very important issue to investors, said the FASB Chair. On impairment losses for hard assets, she continued, IFRS reverses if a recovery occurs; U.S. GAAP does not. This is an important difference that must be resolved.
Some other differences seem less important from a decision-making standpoint. For example, the Chair asks if it really affects an investment decision if the US depreciate things differently. If not, it might not be worth the systems costs of doing the conversion, at least not as a high priority item.