IFRS Developments in the USA and EU, and Some Implications for Australia

In the 1990s, the IASC was pointing towards the day when, after the endorsement of its core International Accounting Standards (IAS) by the International Organization of Securities Commissions (IOSCO), the SEC would drop its Form 20-F reconciliation requirement for foreign registrants using IAS. In May 2000, IOSCO announced its endorsement, yet the SEC declined to act. Fortunately, in June 2000 the European Commission (EC) announced that it would propose that all listed companies in the EU adopt IAS in their consolidated statements from 2005 onwards. This bold action by the EC assured a large customer base, some 7000 companies, for the newly constituted IASB, which succeeded the IASC in 2001. It should be mentioned that, since the 1990s, the SEC has allowed foreign registrants to use IAS, albeit with a requirement to reconcile to US Generally Accepted Accounting Principles (GAAP). After repeated urgings from two successive EU Commissioners responsible for the internal market, the SEC finally began to fulfil expectations. In April 2005, the SEC’s Chief Accountant proposed a ‘roadmap’ towards eventual acceptance of IFRS in the financial statements of foreign registrants without reconciliation to US GAAP.1 Nonetheless, many were sceptical that this roadmap would produce a tangible result. The SEC had excited hopes on more than one occasion since the early 1990s that significant progress by the IASC would lead to a withdrawal of the reconciliation requirement for foreign registrants adopting IAS. In July 2007, the SEC issued a proposed rule release to waive the reconciliation requirement in such circumstances, and on 15 November 2007, despite being apprised of numerous views to the contrary (including dissent expressed by a former SEC Chairman and a former SEC Chief Accountant), the SEC adopted the rule, effective immediately. Everyone was surprised that the SEC would approve the rule with immediate effect. There was speculation that pressure from the Department of the Treasury had hastened the SEC’s decision, mainly, one supposes, to accommodate There have been several developments recently, both in the United States (US) and the European Union (EU), which will have consequences in Australia. The two major developments in the US are the decision by the Securities and Exchange Commission (SEC) to drop the reconciliation requirement for foreign registrants that adopt International Financial Reporting Standards (IFRS) and the serious consideration that the SEC is currently giving to allow US publicly traded companies to adopt IFRS. The developments in the EU involve its ever-lengthening endorsement process and the increasing pressure being brought on the International Accounting Standards Board (IASB) and its oversight body, the International Accounting Standards Committee Foundation (IASCF) trustees, to alter their composition and the character of their operations. At the same time, there has been the FASB’s appeal to the EU to accept IFRS without any endorsement process. The developments in the US have been lauded by the IASB and in Europe. They represent an impressive vote of confidence in the IASB and in the efforts being made by national standard setters and securities market regulators around the world. The US has already taken a long stride towards joining the more than 110 countries and other jurisdictions that have committed themselves to allow or require the use of IFRS for some or all reporting entities.