Friday, August 5, 2011

Guest Blogger: IFRS 'Condorsement'

Note: VSCPA Board of Directors member Jamie Wohlert, CPA, recorded a VSCPA Video Update on the Accounting and Auditing Advisory Committee's decision to support the Securities and Exchange Commission's (SEC) "condorsement" approach to the transition to International Financial Reporting Standards (IFRS). She also prepared an explanatory post going into more detail on "condorsement."

By Jamie Wohlert, CPA
Navigant Consulting, Inc.

SEC Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers - Exploring a Possible Method of Incorporation

On May 26th, the SEC issued a Staff Paper describing a possible framework for the incorporation of IFRS. This approach has been colloquially referred to as "condorsement" since the concept was first introduced in an SEC Staff speech in December 2010. The SEC has previously sought comments on other possible means of incorporating IFRS including (a) full adoption of IFRS on a specified date without any endorsement mechanism, (b) full adoption of IFRS following a multi-year staged transition, and (c) allowing an option for U.S. issuers to apply IFRS.

The "condorsement" approach discussed in this Staff Paper is a combination of the terms convergence and endorsement. During the proposed transitional period, the framework would have aspects of the convergence approach. FASB would remain active as differences between IFRS and U.S. GAAP would continue to be addressed and IFRS would be incorporated into U.S. GAAP over an approximate five to seven year period. At the end of this period, the goal would be for U.S. issuers to be compliant with IFRS. Going forward, the FASB would then incorporate new and revised IFRS into U.S. GAAP through a method called endorsement. Under endorsement, the FASB would retain the authority to modify or add to the requirements of IFRSs incorporated into U.S. GAAP although such modifications would be subject to an established protocol and the expectation is that modifications would be rare and generally avoidable.
Decisions excluded from the scope of this Staff Paper include the following:
  1. whether to incorporate IFRS and the timing thereof,
  2. whether an early-adoption option will be permitted for U.S. issuers to apply IFRS, and
  3. whether and to what extent there should be modifications to FASB's standards for privately-held companies.
The VSCPA's Accounting and Auditing Advisory Committee has decided to express support for this SEC Work Plan, primarily because it would reduce the cost burden of converting to IFRS and would permit time for U.S. CPA's to educate themselves on changes to accounting standards over the transition period.

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