SEC Moving Closer to International Financial Reporting Standards (IFRS)

SEC Chairman Christopher Cox, though planning to leave before President-elect Obama is sworn in on January 20, is still pretty busy. One of his recent priorities has been moving towards allowing all US public companies to use “international financial reporting standards” (IFRS) if they choose, and possibly to mandate it by as soon as 2014.

One challenge faced when a foreign company seeks to go public in the US is, in most circumstances, the company must reconcile its audited financial statements to United States generally accepted accounting principles (GAAP). This can be time-consuming and costly, and sometimes create strange results, especially in deals involving Chinese companies.

Cox’s goal is to move all US companies to the international standards that would be adopted by virtually all countries. Then the audit can be done once even if the company is going public in the US.

Towards that goal, last month the SEC issued a release called “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers” (Release Nos. 33-8982; 34-58960; File No. S7-27-08). The release proposes several milestones to be reached before IFRS could be available to all or mandated. These include improvement in accounting standards, education and training and other items.

Comments to the SEC proposal are due by February 2009.

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