Herz Makes Another Push for IFRS in N.Y.

Says Looming Board Shifts at IASB Could Stall Progress

By MELISSA HOFFMANN LAJARA
Trusted Professional Staff

Facing a group of CPAs and press at the 9th Annual Financial Reporting Conference in New York City, Financial Accounting Standards Board (FASB) Chairman Robert H. Herz chose a Winston Churchill quote to drive home his International Financial Reporting Standards (IFRS) message: “There is nothing wrong with change, if it is in the right direction.”

But whether a change to IFRS accounting is the right direction for the United States’ economic system is exactly the question being posed right now to Herz and members of the International Accounting Standards Committee Foundation (IASCF). The IASCF was founded in 2001 to develop a single set of high-quality international standards and bring about their convergence with national accounting standards. It is the oversight body for the International Accounting Standards Board (IASB), the IASCF’s standards-setting body.

Joined by Securities and Exchange Commission (SEC) Chief Accountant James L. Kroeker in the conference’s opening session, Herz spent 30 minutes at the mic making a hard sell for IFRS, a topic that stole the show at the conference, which was held on April 29 at Baruch College and sponsored by the Robert Zicklin Center for Corporate Integrity.

Herz has lately been on tour for the IFRS push, also appearing with IASB Chair Sir David Tweedie on April 8 at the Japan Society in New York City, an event reported in the NYSSCPA’s E-zine and The Trusted Professional.

But at the Financial Reporting Conference, a new potential pothole on the road to convergence was discussed: a major changing of the guard at the IASB. In June 2011, Tweedie’s and two other board members’ terms come to an end. Board member James J. Leisenring’s term ends this June.

“All have been there since the beginning,” Herz said. “It’s another reason to get the memorandum of understanding projects done. Turnover can significantly delay or change a project.”

Kroeker also called “undue political pressure [a] great concern.”

External influences have had an impact previously. Former SEC Chairman Christopher Cox’s administration came up with an IFRS road map, only to see the financial crisis and a new administration stall its progress. SEC Chairwoman Mary Schapiro’s reaffirmation of the commission’s commitment to IFRS is a signal that convergence is again moving forward.

“The original goal has remained the same,” noted Kroeker, “a common, improved, objective-oriented set of standards.”

Meeting the Deadline

At the Japan Society event, Herz declined to say if he believed that the June 2011 date to decide whether to move to IFRS was still realistic—even though the SEC had recently reaffirmed its commitment to eventually adopt a single set of accounting standards.

At the Baruch conference later the same month, Herz seemed more confident, but admitted that the weight of work required to meet the June 2011 deadline will necessarily result in the release of 10 or more new exposure drafts and nine to 10 new standards this year. “Output is essential,” he said.

He admitted that one of his fears is “burnout” as the IFRS monitoring board and the two standards-setting bodies sprint to the finish line.

Already, he said, “virtually round-theclock international standard-setting activities” are underway at the FASB and IASB. “We’ll have to be doing this for a while still,” he said.

But, Herz said, it’s to be expected, as “we are on the cusp of potentially major changes in accounting standards in a number of areas” that would represent “a dramatic change in the reporting system.”

In effect, he said, “we will have rewritten large chunks of U.S. GAAP [generally accepted accounting principles].”

Herz said the focus for his agency is to “minimize the cost and interruption to the reporting system and financial markets” as this is undertaken.

The SEC’s Take

Kroeker spoke to concerns about the SEC’s commitment to convergence. “Let me be clear,” he said. “The commission, when it issued its statement, reaffirmed a commitment to a single set of high-quality standards.” IFRS, he said, is a means to that end. But he also said the reaffirmation is “the beginning of a discussion, not the end.

“Ultimately,” he said, “we must be satisfied that any change to the United States’ financial reporting system must benefit U.S. investors and U.S. capital markets.”

Of course, Kroeker said, there are still a host of issues that need to be resolved.

One such issue is related to funding for the IASCF. The IASCF is a private-sector nonprofit organization, with its governance and oversight handled by trustees, “who are also responsible for safeguarding the independence of the IASB and ensuring the financing of the [organization],” according to the IASCF website. The trustees, the foundation said, are accountable to a monitoring board of public authorities.

Kroeker said the IASCF needs independent funding, “because funding that comes with strings attached can weaken the promise.”

The final model for IFRS, he said, must be sustainable and comprehensive. And, he noted, at this time, IFRS and U.S. GAAP “are not converged in a number of key areas.”

Kroeker said he personally is in support of the shift, but “conversion without due process… will not serve us well in the long run.”

For those who believe the United States isn’t really committed to a single set of standards at all, he says, “I respectfully disagree.”

Herz noted that a memorandum of understanding between the FASB and the IASB was drafted in 2006, then renewed by the agencies in November 2009. Contained within it are a number of projects considered necessary to move forward.

However, “while successfully accomplishing those projects would bring GAAP and IFRS into closer alignment … some differences would remain,” Kroeker commented.

An evaluation of those differences will “feed the U.S. decision” whether or not to adopt IFRS, he said.

SEC to ‘Spotlight’ IFRS

More IFRS developments came via SEC Deputy Chief Accountant Paul A. Beswick. He said that the commission will soon announce a new “spotlight” page on its website devoted to the IFRS convergence process. Though Beswick said it was going to be announced within a day of the conference, it was not yet available as of press time.

In addition to updates on the SEC’s IFRS work plan, the page will be used “to request comment in specific areas,” Beswick said. It will also include a feature that will allow users to pass along any comments that would be of interest to SEC staff, he said. mlajara@nysscpa.org Herz Makes Another Push for IFRS in N.Y.