SEC Considering New Approach to IFRS Convergence: Condorsement

On May 26, 2011, the Securities and Exchange Commission (SEC) published a staff paper in which they offered up for public comment a new mechanism for possible convergence of U.S. Generally Accepted Accounting Principals (GAAP) with International Financial Reporting Standards (IFRS). The approach is being coined "condorsement," and suggests that, should the US adopt IFRS entirely, the Financial Accounting Standards Board (FASB) would act as an advocate representing the U.S. perspective to the International Accounting Standards Board (IASB) in the formation of new IFRSs. The staff paper repeatedly emphasizes that, by putting forth this new approach for consideration, the SEC is not declaring their intent to adopt IFRS. They eagerly state that this is merely one of many options for which they are requesting public comment. The staff paper also notes that the SEC has already thoroughly discussed and received comments on more commonly understood approaches, such as full adoption of IFRS on a specified date, full adoption over a transitional period of several years, and an option for U.S. issuers to apply IFRS or retain U.S. GAAP.

The approach is called condorsement because it fuses elements of a full endorsement method with those of convergence. According to the staff paper, "the framework would retain a U.S. standard setter and would facilitate the transition process by incorporating IFRSs into U.S. GAAP over some defined period of time (e.g., five to seven years). At the end of this period, the objective would be that a U.S. issuer compliant with U.S. GAAP should also be able to represent that it is compliant with IFRS as issued by the IASB. Incorporation of IFRS through the framework would have the objective of achieving the goal of having a single set of high-quality, globally accepted accounting standards, while doing so in a practical manner that could minimize both the cost and effort needed to incorporate IFRS into the financial reporting system for U.S. issuers. It also would align the United States with other jurisdictions by retaining the national standard setter’s authority to establish accounting standards in the United States."

While this is just one of many possible means of moving toward adoption of global accounting standards, the thing I appreciate most in this approach is the emphasis on practicality in minimizing the cost and effort of US issuers to incorporate IFRS. Rather than having a gradual adoption, or a revised U.S. GAAP that minimizes the differences compared to IFRS but still stands apart, this method would enable financial reporting by U.S. issuers to be fully compliant under U.S. GAAP and IFRS. This would make IFRS a truly global set of accounting standards. The concept of condorsement would also have the U.S. playing a collaborative role in the setting of global accounting standards, rather than fighting to stand alone.

We are still a long way off from the SEC's final decision as to if and when they may require U.S. issuers to adopt IFRS in some manner, but the recent staff paper suggests that they are beginning to think outside the box and consider all reasonable options.