Independence in Accounting Standard Setting

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    Julie Smith David
    SEC "Roadmap" for U.S. Issuers. Archived.
    article posted January 31, 2011 by Julie Smith David, last edited February 10, 2012 
    864 Views, 1 Comment

    SEC "Roadmap" for U.S. Issuers. Archived.



    • Robert E Jensen

      "SEC releases reports on IFRS in practice and US GAAP-IFRS differences," IAS Plus, November 17, 2011 ---

      The staff of the United States Securities and Exchange Commission (SEC) have released two additional Staff Papers as part of the SEC's work plan for the consideration of incorporating IFRSs into the Financial Reporting System for U.S. Issuers.

      Analysis of IFRS in Practice

      The first paper, An analysis of IFRS in Practice, presents the Staff's observations regarding the application of IFRS in practice, based on an analysis of the most recent annual consolidated financial statements of 183 companies across 36 industries which prepare financial statements in accordance with IFRSs. The companies were selected from the Fortune Global 500 (the top 500 companies by revenue) and represented all those which prepared financial statements in accordance with IFRS in English. The 183 companies were domiciled in 22 countries, with the majority (approx 80%) being domiciled in the European Union, but with China and Australia also being represented with more than five companies.

      The Staff Paper summarises the research as follows:

      The Staff found that company financial statements generally appeared to comply with IFRS requirements. This observation, however, should be considered in light of the following two themes that emerged from the Staff’s analysis:

      • First, across topical areas, the transparency and clarity of the financial statements in the sample could be enhanced. For example, some companies did not provide accounting policy disclosures in certain areas that appeared to be relevant to them. Also, many companies did not appear to provide sufficient detail or clarity in their accounting policy disclosures to support an investor’s understanding of the financial statements, including in areas they determined as having the most significant impact on the amounts recognized in the financial statements... In some cases, the disclosures (or lack thereof) also raised questions as to whether the company’s accounting complied with IFRS....
      • Second, diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries. This diversity can be attributed to a variety of factors. In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS... While country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level.


      IFRS - U.S. GAAP comparison

      A second paper, A Comparison of U.S. GAAP and IFRS, to provide an assessment of whether there is "sufficient development and application of IFRS for the U.S. domestic reporting system" by inventorying areas in which IFRS does not provide guidance or where it provides less guidance than U.S. GAAP. The Staff reviewed U.S. GAAP accounting requirements and compared those requirements to equivalent or corresponding IFRS requirements, as applicable. The Staff omitted from its review any U.S. GAAP requirements and the IFRS equivalents that are subject to the ongoing joint standard-setting efforts either through the Memorandum of Understanding (MoU) joint standard-setting projects of the FASB and the IASB, or other areas where the FASB and IASB had agreed to work together.

      Continued in article

      Click for:

      Bob Jensen's threads on accounting standard setting controversies ---

      Comparisons of IFRS with Domestic Standards of Many Nations

      More Detailed Differences (Comparisons) between FASB and IASB Accounting Standards

      2011 Update

      "IFRS and US GAAP: Similarities and Differences" according to PwC (2011 Edition)
      Note the Download button!
      Note that warnings are given throughout the document that the similarities and differences mentioned in the booklet are not comprehensive of all similarities and differences. The document is, however, a valuable addition to students of FASB versus IASB standard differences and similarities.

      It's not easy keeping track of what's changing and how, but this publication can help. Changes for 2011 include:

      • Revised introduction reflecting the current status, likely next steps, and what companies should be doing now
        (see page 2);
      • Updated convergence timeline, including current proposed timing of exposure drafts, deliberations, comment periods, and final standards
        (see page 7)
      • More current analysis of the differences between IFRS and US GAAP -- including an assessment of the impact embodied within the differences
        (starting on page 17)
        ; and
      • Details incorporating authoritative standards and interpretive guidance issued through July 31, 2011

      This continues to be one of PwC's most-read publications, and we are confident the 2011 edition will further your understanding of these issues and potential next steps.

      For further exploration of the similarities and differences between IFRS and US GAAP, please also visit our IFRS Video Learning Center.

      To request a hard copy of this publication, please contact your PwC engagement team or contact us.

      Jensen Comment
      My favorite comparison topics (Derivatives and Hedging) begin on Page 158
      The booklet does a good job listing differences but, in my opinion, overly downplays the importance of these differences. It may well be that IFRS is more restrictive in some areas and less restrictive in other areas to a fault. This is one topical area where IFRS becomes much too subjective such that comparisons of derivatives and hedging activities under IFRS can defeat the main purpose of "standards." The main purpose of an "accounting standard" is to lead to greater comparability of inter-company financial statements. Boo on IFRS in this topical area, especially when it comes to testing hedge effectiveness!

      One key quotation is on Page 165

      IFRS does not specifically discuss the methodology of applying a critical-terms match in the level of detail included within U.S. GAAP.
      Then it goes yatta, yatta, yatta.

      Jensen Comment
      This is so typical of when IFRS fails to present the "same level of detail" and more importantly fails to provide "implementation guidance" comparable with the FASB's DIG implementation topics and illustrations.

      I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

      I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

      I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

      Bob Jensen's threads on accounting standards setting controversies ---


      "Canadian regulator decides against allowing early adoption of recent IFRSs by certain entities," IAS Plus, November 1, 2011 ---

      . . .

      In making its decision, the OSFI considered a number of factors such as industry consistency, OSFI policy positions on accounting and capital, operational capacity and resource constraints of Federally Regulated Entities (FREs), the ability to benefit from improved standards arising from the financial crisis and the notion of a level playing field with other Canadian and international financial institutions. OSFI concluded that FREs should not early adopt the following new or amended IFRSs, but instead should adhere to their mandatory effective dates:



      Jensen Comment
      The clients, auditors, and the AICPA clamoring that U.S. firms should be able to voluntarily choose IFRS instead of U.S. GAAP even before it has not been decided that IFRS will ever replace FASB standards seem to ignore the problems that voluntary choice of IFRS might cause for investors and analysts. The above reasoning by the OSFI makes sense to me.

      But then outfits like the AICPA have a self-serving interest in earning millions of dollars selling IFRS training courses and materials.

      November 2, 2011 reply from Patricia Walters

      Does that mean you oppose options to early adopt standards in general, not just IFRSs?



      November 2, 2011 reply from Bob Jensen

      Hi Pat,

      It's hard to say regarding early adoption of a particular national or international standard, because there can be unique circumstances. For example, FAS 123R simply altered how to make disclosures rather than alter the disclosures themselves since employee option expenses had to be disclosed before the FAS 123R adoption date. But even here early adoption of FAS 123R by Company A versus late adoption by Company B made simple comparisons of eps and P/E ratios between these companies less easy.

      There's a huge difference between early adoption of a particular standard and early adoption of an entire system of standards like switching from FASB accounting standards to IFRS.

      I think the Canadian position of early adoption of IFRS is probably correct because of the mess early adoption of IFRS makes with comparisons of companies using different accounting standards and the added costs of regulation of more than one set of standards. Also think of the added burden placed upon the courts to adjudicate disputes when differing sets of standards are being used.

      Even though we allow IFRS for SEC registered foreign companies, I think it would be a total mess for the SEC, the PCAOB, investors, analysts, educators, trainers, auditing, and even the IRS (where tax and reporting treatments must sometimes be reconciled) if our domestic corporations could choose between FASB versus IASB standards.

      There are hundreds of differences between FASB and IASB standards. Allowing companies domestic companies to cherry pick which system they choose before it is even known if there will ever be official replacement of FASB standards by IASB standards would be very, very confusing. What if there never is a decision to replace FASB standards? Do want to simply allow companies to choose to bypass FASB standards at their own discretion?

      Of course, if information were costless it might be ideal to require financial reporting where FASB and IASB outcomes are reconciled. But clients and auditors generally contend that the cost of doing this greatly exceeds benefits. And teaching financial accounting would become exceedingly complicated if we had to teach two sets of standards on an equal basis.

      I would certainly hate to face a CPA examination that had nearly equal coverage of both FASB and IASB standards simultaneously. I say this especially after viewing the hundreds of pages of complicated differences between the two standards systems.

      Bob Jensen

      Bob Jensen's threads on accounting standard setting controversies ---