International Accounting Standards Board chairman Sir David Tweedie said that other countries are running out of patience waiting for the Securities and Exchange Commission to decide on whether to approve a roadmap for transitioning to International Financial Reporting Standards and that the U.S. would need to commit by 2011.
Speaking at the American Accounting Associations annual meeting, Tweedie described how he and FASB Chairman Bob Herz had worked closely together over the years on converging IFRS with U.S. GAAP, and how the U.S. had been involved from the outset in creating IFRS. However, after the SEC issued its roadmap last October, and there was a change of administration in Washington, SEC Commissioner Mary Schapiro has not yet approved the proposed roadmap.
This is a very interesting moment for us, a once-in-a-lifetime moment. Where is the USA? asked Tweedie. That is a question I am asked all around the world. The convergence program is designed to reduce the cost of transition. FASB is riding two horses: U.S. GAAP and trying to converge at the same time, but so are we. We get a lot of criticism over the favored-nation status toward the United States. The European Federation of Accountancy Bodies has just talked about how the point has been reached where there have been diminishing returns from convergence with U.S. GAAP, particularly as more and more countries, including major economies such as Japan and India, move toward direct adoption of full IFRS, and the IASB should change its strategy and concentrate exclusively on major improvements and simplifications of IFRS for the short term. We think thats wrong. If youre going to have global standards, we need the U.S., but it cant go on indefinitely. Weve been converging for seven years. We have a timetable to finish in 2011. Its designed to fit these major economies Korea, Canada, Japan, India who are converging that year. We have to finish this year.
The timetable in the proposed roadmap envisions a vote by the SEC in 2011 on whether or not to go ahead with IFRS adoption, depending on whether certain milestones have been reached, such as funding for the IASB. However, Tweedie said that he has heard concerns about the U.S. not making a commitment by that time.
What people resent are four American board members, Mary Schapiro, and the five-man monitoring board, five out of 22 trustees, three joint meetings a year, he said. They want us to stop it. My view is we must keep going. But to be blunt, if the U.S. turns down IFRS, or doesnt even put a date certain it doesnt matter when it is to be, 2017, who cares, if they dont commit, I think it will be impossible to continue this after 2011.
Tweedie acknowledged that there were problems in moving the U.S. to principles-based standards and in going from 17,000 pages of U.S. GAAP in the new FASB Codification to 2,500 in IFRS. He said that firms were worried about lawsuits and joked that lawyers were more plentiful than mice in the U.S. However, he argued that it would be easier to defend professional judgment and principles-based standards in court. If you ask U.S. litigation attorneys if this sort of system will actually increase litigation, the answer is no, said Tweedie. Which would you rather defend? I can defend a principle. Miss something on page 1,793, youre finished. Thats a big difference.
Tweedie acknowledged that the U.S. would lose some sovereignty and run into political interference, but he pledged that FASB would continue to be a major player working with the IASB on research projects and giving its views as they worked to develop new standards. My view is the U.S. needs to commit by 2011 one way or the other, or else it is impossible to hold this together again, he said. It would be almost impossible to sign another memorandum of understanding again at that stage. There are now 117 countries that have signed up to adopt IFRS, and Tweedie expects there to be 150 by 2011. He plans to concentrate on getting more countries in Africa involved in adopting the standards now.
Asked about what kinds of concerns he had heard from Schapiro and other members of the SEC, he responded, They didnt really talk so much about their concerns, he said. Theyre obviously concerned about the U.S. environment here. They clearly want to do what is right for the United States. Is the cost too much at the present moment? It is in the middle of a recession, but then youre not being asked to change right now. There is the option, or actually requirement, of going back to U.S. GAAP if you dont do IFRS. I think [the SEC is] watching what happens. Theyre taking peoples views very seriously, and theyll make a reasoned judgment in due course.
