Mr Hoogervost began his speech by stressing the importance to investors of transparency and comparability. In a global economy, investors need a global accounting language and IFRSs are the only candidate. This concept underpins the approach advocated by the FAF in their comment letter that calls for the gradual introduction of IFRSs. That is why it is appropriate for the SEC to be asking, as it now is, whether the system in the United States should evolve to reflect the new dynamics of capital markets.
Many other countries have asked the same question. Almost all have concluded that adoption of IFRSs is in their domestic interests and the best way to protect investors. It has taken less than 10 years for IFRSs to be required or permitted for use by companies in more than 100 countries, including the majority of the G20.
For emerging markets, IFRS has become the de facto financial reporting standard. These markets are attracting vast amounts of inward investment from US fund managers looking to spice-up their investment portfolios.
Much of the letter* is consistent with the SEC staff paper published earlier this year (SEC Staff Paper: Exploring a possible method of incorporation of IFRS, May 2011). Indeed, as suggested before, he thinks that an endorsement approach makes sense.
There should be a clear timeline for the completion of the initial ‘endorsement process’. There should also be a presumption that - given full due process and extensive involvement of the national standard-setter - non-endorsement would be very rare indeed. Once the initial process of endorsement is completed, US companies should be able to assert compliance with both US GAAP and IFRSs.
Finally, as his own festive season request, he hopes that the SEC gives serious consideration to the merits of an early adoption option to use IFRS for a number of US companies. Some companies have been leading the way in terms of consolidating and coordinating their international financial reporting. Mr Hoogervost thinks providing a limited number of such US companies with the option to use IFRSs for their US consolidated financial reporting would offer a good test of IFRSs. There are inevitable concerns about having two GAAPs in the US marketplace. However, if the major competitors of such companies are using IFRSs, comparability will actually increase. Comparability could be further assured if those competitors were foreign private issuers in the US, already subject to SEC review.
From a global perspective, such a limited and early option to use IFRSs would provide a clear signal of a US commitment to IFRSs. It is important for investor protection in the US and internationally that the SEC remains at the forefront of determining financial reporting policy. This cannot be done from afar.
* FAF Comment letter regarding the SEC Staff Paper: Exploring a possible method of incorporation, November 2011
Full speech
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