Status of Adopting International Standards Should We Or Shouldn t We? Leslie Seidman

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1 Status of Adopting International Standards Should We Or Shouldn t We? Mark Bielstein Mark LaMonte Jim Kroeker Bob Laux Leslie Seidman 1

2 Background FASB and IASB have been working together for many years (including convergence projects) Goal one set of high quality accounting standards for the world! Today over 100 countries follow IASB standards but not the US, Japan, or India Thinking several years ago US should adopt IASB standards perhaps in one Big Bang! What happened to that idea? 2

3 SEC Initiative (the latest idea) SEC staff paper May 2011 (many responses) A possible method of incorporating IASB standards in the US An endorsement (or condorsement) approach do any other countries do this? How would it work? 3

4 The Possible New Method (Under consideration) Retain US GAAP and the FASB IFRS issues its standards (with FASB involvement) FASB endorses the new IASB standard in most cases and issues it as an FASB Standard FASB generally stops issuing its own standards Overtime, FASB endorses many of the old IASB standards Are there any other choices? 4

5 Other Alternatives (any better?) Four other choices: -Full adoption of IFRS on a specific date (big bang!) -Continued convergence (is this realistic?) -Optional adoption of IFRS (give US companies a choice) -Retain US GAAP, considering developments in IFRS (but not through a formal, joint process) Do any of these make more sense? 5

6 Endorsement (if we move in this direction) Incorporate IFRS into US GAAP say 5-10 years FASB continues to assist in developing standards to ensure that US interests are suitably addressed FASB would endorse new IASB standards but could modify or add to these standards FASB could also issue supplemental or interpretative guidance 6

7 Benefits of Possible New Approach It actually is very practical (FASB- still our standard setter) Narrow differences (full convergence seems impossible but we could get a lot closer than today!) Mechanism to ensure that new standards would be in best interest of US investors Minimize costs and disruption (e.g., loan agreements that require GAAP, other contracts it will still be GAAP)) FASB (and SEC) would still have a significant role 7

8 Concerns with Possible New Approach Will there be enough due process? Does IASB provide enough time to respond? Will there be field tests to catch those unintended consequences? Enough implementation guidance vs. principles only? What about all our industry guidance? Adequacy of funding IASB without conflicts Avoiding government interference Will the IASB remain independent? 8

9 The FASB s Framework to Endorse What would the criteria be to decide? Would there be a written protocol? Departures from IASB standards - rare and unavoidable or should it just be based on our best interests and would not be so rare? Possible reasons for departures - US laws or tax considerations vs. FASB just disagrees with the answer? 9

10 What Might FASB be Doing? Be proactive in the standard setting process providing input to the IASB and continue to promulgate US GAAP under the framework Adding the US perspective to the deliberations Help identify implementation and interpretation issues and in developing guidance 10

11 Regulatory Issues Will SEC have any oversight over IASB to protect US investors and maintain orderly capital markets? What kind of oversight exists elsewhere in the world and would there be consistent enforcement? Would SEC work with other country regulators? Would SEC still provide guidance in US (e.g., SAB s)? SEC oversight of the FASB endorsement decisions? 11

12 IASB Standards How would transition to this approach work? Old IASC standards (41 of them) IFRS s (13 of them vs. 168 FASB s + ASU s) IFRIC The IASB s EITF Would FASB adopt most of these over time, say five to ten years (e.g., no more LIFO)? (Lot s of changes) Retrospective or prospective adoption? (Costs vs. benefits?) 12

13 What would Differences between FASB and IASB Mean to US Companies? A principles vs. rules based debate Are both Board s in agreement these days? What about fair value - does IASB lean more to historical cost than the FASB does? Our EITF provides more guidance than the IFRS Interpretation Committee would there be less interpretative guidance? Will there be an EITF? Would US companies still respond to proposals? 13

14 What About Nonpublic Companies? Many nonpublic companies (and smaller public companies) have no foreign operations what s in it for them? What about the proposal to form a Private Company Standards Improvement Council? Would this still be relevant under the new approach, if adopted? 14

15 The IASB s Reaction? Has the IASB been patient while US makes its decision? What if US decides to continue the status quo? Would the US be able to keep its representatives on the IASB? Does the IASB support the endorsement approach along with active FASB ongoing participation? 15

16 When? Should the SEC decide to go forward with this new approach: -What would the process be? A proposal? -Will FASB actively participate? - Might Congress want to get involved? -Possible timing? 16

17 Reactions to Endorsement? Should we or shouldn t we? - Preparer s response Auditor s response User s response Our Audience? 17

ALI-ABA Course of Study Accountants' Liability: Litigation and Issues in the Wake of the Financial Crisis September 15-16, 2011 Washington, D.C.

251 ALI-ABA Course of Study Accountants' Liability: Litigation and Issues in the Wake of the Financial Crisis September 15-16, 2011 Washington, D.C. GAAP v. IFRS; Public v. Private Company Accounting;