At an AICPA seminar, the SEC accounting staff dealt with issues of IFRS adoption and the reform of the audit process. A question was asked whether the SEC would allow issuers the optional use of IFRS. In an earlier letter to the SEC, the AICPA recommended that U.S. public companies be allowed the option of using IFRS as the Commission weighs a possible future framework for incorporating IFRS into the U.S. financial reporting system. The AICPA said that an adoption option would provide a level of consistency in the treatment of U.S. companies and foreign private issuers that report under IFRS and would facilitate the comparison of U.S. companies that elect IFRS with their non-U.S. competitors that use IFRS.
According to SEC Chief Accountant James Kroeker, allowing such an option would be a difficult policy call because it would create a two-tier system and move away from a high level of commitment to a global set of high quality accounting standards. It is hard to see how allowing an IFRS option helps get to a single set of global accounting standards. But he allowed that the optional use of IFRS would cut favorably on internal costs for global companies already reporting in IFRS in some jurisdictions.
A question was asked about the recommendation on clarifying guidance on accounting judgments by the SEC Advisory Committee on Improvements to Financial Reporting. The SEC staff noted that there are currently no plans to provide additional guidance on accounting judgments. The staff observed that the major accounting firms have developed their own guidance frameworks. The staff noted that an accounting judgment would not prevail over a clear accounting standard. But the staff added that if the accounting firm conducts a diligent good faith analysis, looks at the accounting literature, reasoned by analogy, and thinks about the judgment, then the SEC staff is likely to concur in the judgment.
In discussing the recent SEC staff papers on IFRS, The Chief Accountant said that the staff talked to six or more of the accounting firms about how they drive consistency of applications. The staff also examined the actual use of IFRS by 200 companies. Standards are only one factor in consistency, said the Chief Accountant, other factors are the global auditing process, global enforcement and the consistency and rigor with which the standards are applied.
The SEC staff supports the PCAOB as it explores a wide range of ideas on audit reform, including auditor rotation. But the staff has not taken a position on any of these ideas. The SEC staff noted that the European Commission has just proposed audit reform, including mandatory rotation of the audit firm after six years. The staff is carefully studying the EC proposals.