FASB Chair Calls for Moving All US Public Companies to IFRS

In a very significant event, FASB Chair Robert Herz told a Senate subcommittee that a blueprint is needed to transition US companies to IFRS. His testimony before the Securities Subcommittee was echoed by IASB Chair David Tweedie, who noted that the widespread global acceptance of IFRS has changed the public equation with GAAP. He noted that IFRS now extends well beyond Europe’s borders to108 countries, which require or permit the use of IFRSs. And the IASB expects this number to rise substantially within a relatively short time.

Moving all U.S. public companies to an improved version of IFRS will be a complex process, warned the FASB chair, and will need buy in from all major stakeholders. The blueprint should identify the most orderly and least costly approach to transitioning to an improved version of IFRS and should set a target date for U.S. companies to move to IFRS that allows adequate time for making the many necessary changes.

The blueprint should identify the changes considered necessary both in the U.S. and internationally to reach the goal of a single set of common, high-quality standards. Specifically, the blueprint should address a range of institutional issues, including examining the post-issuance endorsement processes currently in place in many jurisdictions to reduce or eliminate the different flavors of as-adopted versions of IFRS, which are inconsistent with the goal of a single set of standards. The blueprint should also address strengthen the IASB as an independent, global standard setter by ensuring the sufficiency and stability of its funding and staffing.

Regarding the U.S., continued Mr. Herz, the blueprint should establish timetables to
accomplish changes to the financial reporting infrastructure necessary to support the move to IFRS, including training auditors and educating investors and other users of financial statements about IFRS. There must also be an examination of how a transition to IFRS will affect audit firms and audit standards. Similarly, the move to IFRS could change regulatory policies and legal requirements currently based on U.S. GAAP financial reports.

Similarly, the blueprint should enumerate the steps U.S. public companies would need to implement significant changes to align to IFRS, including training and internal control changes, and various contractual matters. FASB expects that the myriad changes to the U.S. financial reporting infrastructure would take a number of years to complete.

During that time, the FASB and IASB will continue their cooperative efforts to develop common, high-quality standards in key areas where neither existing U.S. GAAP nor IFRS provides relevant information for investors. Those common standards, issued by both the Boards would be adopted by both US and international companies when issued. In other areas that are not the subject of those joint improvement projects, FASB envisions that U.S. public companies would adopt the IFRS standards “as is” over a period of years.