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Pensions Accounting: Working together

The out-going chairwoman of the US Securities & Exchange Commission, Mary Jo White, wants her successor to do what competing priorities left her unable to do: keep interest in global accounting standards alive. The end game is a possible shift by US domestic companies to International Financial Reporting Standards (IFRS). 

Her intervention – in a public statement delivered at the end of her tenure on 5 January – merely underscores the point that no matter how hard the US pledges to monitor developments internationally, or play an active role, it can never quite manage to commit to flicking the switch and moving wholesale to IFRS.

A month earlier, the SEC’s newly appointed chief accountant Wesley R Bricker gave the clearest hint yet that IFRS in the US was off the agenda for a good few years.

“On the question of possible further use of IFRS for domestic issuers,” he told the American Institute of Certified Public Accountants (AICPA) conference, “I believe that for at least the foreseeable future, the FASB’s independent standard-setting process and US GAAP will continue to best serve the needs of investors and other users who rely on financial reporting by US issuers.”

Chiming with White’s later intervention, he “strongly” encourages the International Accounting Standards Board (IASB) and its US counterpart, the Financial Accounting Standards Board, to continue to work together.

IFRS certainly has a foothold in the US. As of 16 September last year, roughly 525 foreign registrants with, between them, a market capitalisation of about $7.3trn (€6.9trn) filed IFRS-compliant financial statements with the SEC – without the need to reconcile them to US generally accepted accounting principles (GAAP). In addition, many US companies, especially those with foreign operations, have a stake in the quality of the IASB’s standards. For a multinational business such as General Electric, for example, there are substantial efficiency and cost savings to be had from its subsidiaries around the world reporting under a common accounting language. 

But despite this and other realities, the US is as far from adopting IFRS as it was a decade ago. In 2007, the SEC issued a rule change that eliminated the requirement for IFRS-compliant issuers to file a reconciliation of certain accounting items – among them pensions – to US GAAP.

In 2008, the then SEC chairman, Christopher Cox, proposed setting the US on a path that could have ended with domestic issuers using IFRS by 2014. It seemed not even the 2008 crash could derail IFRS, with the G20 keeping the focus firmly on convergence by June 2011 and a decision on US adoption thereafter. 

But the process of convergence eventually killed it, as the FASB became aware of the realities of working with the IASB. The two boards struggled to agree on a number of issues. Their joint work on balance-sheet offsetting left a foul taste on the American side, but it was the failure to reach an agreed position on impairment that dealt a body blow to IFRS in the US. 

It is often overlooked that away from the interests of multinationals and the major audit firms, the case for IFRS among domestic issuers with access to a liquid market in the US is less than clear. 

Meanwhile, a SEC report in 2012 questioned both the funding of the IASB’s parent body, the IFRS Foundation, and the responsiveness of the IFRS Interpretations Committee. SEC staff also noted the cost to US preparers of IFRS adoption. 

Without actually naming the EU, the report raised the spectre of political interference in the IASB’s affairs. It remains to be seen how Brexit and the dilution of British influence on accounting matters in Europe will play out were the EU to demand a greater ‘European’ flavour to IFRS. 

Last June, the one-time IFRS cheerleader-in-chief, Christopher Cox, former SEC chairman, announced at the annual SEC and Financial Reporting Institute Conference that he had come not to praise IFRS but “to bury it”.

What is certain is that talk of IFRS – if not action – means the question of US adoption will never quite go away, even if the US only ever commits itself to more detailed consideration of  adoption of IFRS by domestic filers – at some point in the distant future, naturally.

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