9494 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

1See Roadmap for the Potential Use of Financial 

Statements Prepared in Accordance with 

International Financial Reporting Standards by U.S. 

Issuers, Release No. 33–8982 (November 14, 2008) 

[73 FR 70816 (November 21, 2008)] (‘‘Proposed 

Roadmap’’). 

2The Work Plan is included as an appendix to 

this statement. A summary of the key areas of the 

Work Plan is provided in section IV of this 

statement. 

3See, e.g., Integrated Disclosure System for 

Foreign Private Issuers, Release No. 33–6360 

(November 20, 1981) [46 FR 58511 (December 2, 

1981)]. 

4See Regulation of the International Securities 

Markets, Release No. 33–6807 (November 14, 1988) 

[53 FR 46963 (November 21, 1988)]. 

5 Id. 

6See ‘‘Pursuant to Section 509(5) of the National 

Securities Markets Improvement Act of 1996 Report 

on Promoting Global Preeminence of American 

Securities Markets’’ (October 1997). 

7See International Accounting Standards, No. 

33–7801 (February 16, 2000) [65 FR 8896 (February 

23, 2000)] (‘‘2000 Concept Release’’). 

8The term ‘‘foreign private issuer’’ is defined in 

Exchange Act Rule 3b–4(c) [17 CFR 240.3b–4(c)]. A 

foreign private issuer means any foreign issuer 

other than a foreign government, except an issuer 

that meets the following conditions: (1) more than 

50 percent of the issuer’s outstanding voting 

securities are directly or indirectly held of record 

by residents of the United States; and (2) any of the 

following: (i) The majority of the executive officers 

or directors are United States citizens or residents; 

(ii) more than 50 percent of the assets of the issuer 

are located in the United States; or (iii) the business 

of the issuer is administered principally in the 

United States. 

9 In 2007, the Commission adopted rules 

permitting foreign private issuers to file financial 

statements using IFRS as issued by the IASB and 

to omit a reconciliation to U.S. GAAP. See 

Acceptance from Foreign Private Issuers of 

Financial Statements Prepared in Accordance with 

International Financial Reporting Standards 

without Reconciliation to U.S. GAAP, Release No. 

33–8879 (December 21, 2007) [73 FR 986 (January 

4, 2008)] (‘‘2007 Adopting Release’’). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release Nos. 33–9109; 34–61578] 

Commission Statement in Support of 

Convergence and Global Accounting 

Standards 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Commission statement. 

SUMMARY: The Securities and Exchange 

Commission (the ‘‘Commission’’) is 

publishing this statement to provide an 

update regarding its consideration of 

global accounting standards, including 

its continued support for the 

convergence of U.S. Generally Accepted 

Accounting Principles (‘‘U.S. GAAP’’) 

and International Financial Reporting 

Standards (‘‘IFRS’’) and the implications 

of convergence with respect to the 

Commission’s ongoing consideration of 

incorporating IFRS into the financial 

reporting system for U.S. issuers. 

FOR FURTHER INFORMATION CONTACT: 

Eloise Quarles Bavaria, Special Counsel, 

Office of International Corporate 

Finance, Division of Corporation 

Finance, at (202) 551–3450, Jeffrey S. 

Cohan, Senior Special Counsel, Office of 

the Chief Accountant, at (202) 551– 

5300, or Nili Shah, Associate Chief 

Accountant, Office of the Chief 

Accountant, at (202) 551–5300, U.S. 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549. 

SUPPLEMENTARY INFORMATION: 

The Commission continues to believe 

that a single set of high-quality globally 

accepted accounting standards will 

benefit U.S. investors and that this goal 

is consistent with our mission of 

protecting investors, maintaining fair, 

orderly, and efficient markets, and 

facilitating capital formation. As a step 

toward this goal, we continue to 

encourage the convergence of U.S. 

GAAP and IFRS and expect that the 

differences will become fewer and 

narrower, over time, as a result of the 

convergence project. 

The Commission last addressed this 

topic in November 2008 when it issued 

a proposed ‘‘Roadmap’’ for a possible 

path to a single set of globally accepted 

accounting standards.1 The Proposed 

Roadmap generated significant interest 

and thoughtful comment from investors, 

issuers, accounting firms, regulators, 

and others regarding factors that the 

Commission should consider as it 

moves forward in its evaluation of 

whether and how to incorporate IFRS 

into the financial reporting system for 

U.S. issuers. In addition to reaffirming 

the Commission’s strong commitment to 

a single set of global standards, the 

recognition that IFRS is best-positioned 

to be able to serve the role as that set 

of standards for the U.S. market, and the 

convergence process ongoing between 

the Financial Accounting Standards 

Board (‘‘FASB’’) and the International 

Accounting Standards Board (‘‘IASB’’), 

this statement outlines certain of these 

factors that are of particular importance 

to the Commission as it continues to 

evaluate IFRS through 2011. 

The Commission has directed its staff 

to develop and execute a work plan (the 

‘‘Work Plan’’) to enhance both 

understanding of the Commission’s 

purpose and public transparency in this 

area.2 Execution of the Work Plan, 

combined with the completion of the 

convergence projects of the FASB and 

the IASB according to their current 

work plan, will position the 

Commission in 2011 to make a 

determination regarding incorporating 

IFRS into the financial reporting system 

for U.S. issuers. 

I. Overview 

A. History of the Commission’s Steps To 

Foster a Single Set of High-Quality 

Globally Accepted Accounting 

Standards 

The Commission has long promoted a 

single set of high-quality globally 

accepted accounting standards.3 This 

position advances the dual goals of 

improving financial reporting within the 

United States and reducing country-bycountry disparity in financial reporting. 

This, in turn, would facilitate crossborder capital formation while also 

helping to provide investors with the 

comparable and material information 

they need to make informed decisions 

about investment opportunities. In 

1988, the Commission issued a policy 

statement supporting the establishment 

of mutually acceptable international 

accounting standards, provided that 

investor protections were not 

compromised.4 The Commission cited 

the establishment of such standards as 

a critical goal to reduce regulatory 

impediments to cross-border capital 

transactions that result from disparate 

national accounting standards.5

In a 1997 report to Congress, the 

Commission encouraged the efforts of 

the International Accounting Standards 

Committee to develop a core set of 

accounting standards that could serve as 

a framework for financial reporting in 

cross-border offerings. In that report, the 

Commission also expressed its intent to 

remain active in the development of 

those standards.6 These standards are 

now known as IFRS, and the 

International Accounting Standards 

Committee was succeeded by the IASB. 

In 2000, the Commission issued a 

concept release on international 

accounting standards, seeking comment 

on the requisite elements to encourage 

convergence toward a global financial 

reporting framework that would not 

diminish the quality of domestic 

financial reporting.7 The 2000 Concept 

Release discussed generally the 

circumstances under which the 

Commission would consider accepting 

financial statements from foreign private 

issuers 8 that are prepared using IFRS 

without a reconciliation to U.S. GAAP.9

In the 2000 Concept Release, the 

Commission set out some fundamental 

attributes for a high-quality set of 

accounting standards that continue to be 

important today. These attributes 

require that the standards (a) be of 

sufficiently high quality to support the 

Commission’s mission of protecting 

investors and facilitating capital 

formation, and (b) be supported by an 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9495 

10See Policy Statement: Reaffirming the Status of 

the FASB as a Designated Private-Sector Standard 

Setter, Release No. 33–8221 (April 25, 2003) [68 FR 

23333 (May 1, 2003)] (‘‘2003 Policy Statement’’). 

11See Section 19 of the Securities Act of 1933, 

as amended (15 U.S.C. 77a). 

12See ‘‘Study Pursuant to Section 108(d) of the 

Sarbanes-Oxley Act of 2002 on the Adoption by the 

United States Financial Reporting System of a 

Principles-Based Accounting System’’ (July 25, 

2003) (‘‘2003 Study’’). 

13 Id. 

14See ‘‘Memorandum of Understanding, ‘The 

Norwalk Agreement,’’’ (September 18, 2002). 

(available at: http://www.fasb.org/news/ 

memorandum.pdf) 

15See ‘‘Memorandum of Understanding between 

the FASB and the IASB’’ (February 27, 2006). 

(available at: http://www.fasb.org/cs/ContentServer?

c=Document_C&pagename=FASB%2FDocument_

C%2FDocumentPage&cid=1176156245558) 

16See ‘‘Completing the February 2006 

Memorandum of Understanding: A progress report 

and timetable for completion’’ (September 2008). 

(available at: http://www.fasb.org/intl/MOU_09-11- 

08.pdf) 

17See Allowing U.S. Issuers to Prepare Financial 

Statements in Accordance with International 

Financial Reporting Standards, Release No. 33– 

8831 (August 7, 2007) [72 FR 45600 (August 14, 

2007)] (‘‘2007 Concept Release’’). 

18See 2007 Adopting Release. 

19See ‘‘Leaders’ Statement from the Pittsburgh 

Summit’’ (September 24–25, 2009). (available at: 

https://www.g20.org/Documents/pittsburgh_

summit_leaders_statement_250909.pdf) 

20See ‘‘FASB and IASB Reaffirm Commitment to 

Memorandum of Understanding: A Joint Statement 

of the FASB and IASB’’ (November 5, 2009). 

(available at: http://www.iasb.org/NR/rdonlyres/

D56F53A2-1FFE-425B-824B-9092E8A2D545/0/

JointCommunique_October2009FINAL4.pdf) 

21See Speech by SEC Chairman Mary L. 

Schapiro: Remarks at IOSCO Technical Committee 

Conference (October 8, 2009). 

22See Proposed Roadmap. Unless otherwise 

noted, the phrase ‘‘IFRS’’ refers to ‘‘IFRS as issued 

by the IASB.’’ 

23The Proposed Roadmap did not address the 

method the Commission might use to mandate IFRS 

for U.S. issuers. See Id. 

24Comment letters in response to the Proposed 

Roadmap are available on the Commission’s Web 

site (at http://www.sec.gov/comments/s7-27-08/ 

s72708.shtml). Comments are also available for Web 

site viewing and printing in the Commission’s 

Public Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

25See, e.g., Abbott Inc. (‘‘Abbott’’), Air Products 

and Chemicals, Inc., California Public Employees’ 

Retirement System (‘‘CalPERS’’), CFA Institute 

(‘‘CFA’’), Council of Institutional Investors (‘‘CII’’), 

International Corporate Governance Network 

(‘‘ICGN’’), Institute of International Finance, 

Investors Technical Advisory Committee (‘‘ITAC’’), 

RiskMetrics Group, Inc. (‘‘RiskMetrics’’), and 

Standard & Poor’s Ratings Services (‘‘S&P’’). 

26See, e.g., AT&T Services, Inc., The Boeing 

Company (‘‘Boeing’’), and Chevron Corporation. 

infrastructure that ensures that the 

standards are established by 

independent standard setters, and are 

rigorously and consistently interpreted 

and applied. 

After enactment of the SarbanesOxley Act of 2002 (the ‘‘Act’’), the 

Commission reaffirmed its recognition 

of the financial accounting and 

reporting standards of the FASB as 

‘‘generally accepted’’ for purposes of the 

federal securities laws.10 One of the 

criteria that Congress required the 

Commission to consider, when 

recognizing an accounting standard 

setter, was whether that standard setter 

considers ‘‘international convergence on 

high-quality accounting standards as 

necessary or appropriate in the public 

interest and for the protection of 

investors.’’ 11

Also as required by Congress in the 

Act, in 2003, our staff issued a study on 

the adoption in the United States of a 

principles-based accounting system.12

That study stated that global accounting 

standardization through convergence 

would lead to the following benefits: 

• Greater comparability for investors 

across firms and industries on a global 

basis; 

• reduced listing costs for companies 

with multiple listings; 

• increased competition among 

exchanges; 

• better global resource allocation and 

capital formation; 

• lowered cost of capital; and 

• a higher global economic growth 

rate.13

Beginning in 2002, the FASB and the 

IASB began a formal process to converge 

U.S. GAAP and IFRS. In 2002, the FASB 

and the IASB announced the issuance of 

a memorandum of understanding to 

collaborate on the development of 

common, high-quality standards with 

the ultimate goal of a single set of highquality global accounting standards.14

In 2006, the FASB and the IASB issued 

an updated memorandum of 

understanding that set forth the scope of 

their joint work program to improve and 

promote convergence of their 

accounting standards.15 The 2006 

memorandum of understanding was 

updated in September 2008 to identify 

targets for completion of convergence 

projects that the FASB and the IASB 

believed were most critical.16

Throughout this process the 

Commission has monitored, and will 

continue to monitor, the activities of the 

FASB and the IASB and the progress in 

their efforts. 

In 2007, the Commission took two 

additional actions. First, it issued a 

concept release on whether U.S. issuers 

should be allowed to prepare financial 

statements in accordance with IFRS.17

Second, the Commission adopted rules 

that allow foreign private issuers to 

make filings with the Commission using 

financial statements prepared in 

accordance with IFRS, as issued by the 

IASB, and without reconciliation to U.S. 

GAAP.18

Recently, the leaders of the Group of 

Twenty nations (‘‘G–20’’) requested that 

international accounting bodies 

redouble their efforts to achieve a single 

set of high-quality, global accounting 

standards through their independent 

standard-setting processes and complete 

their convergence project in June 

2011.19 The FASB and IASB recently 

reaffirmed their commitment to 

improving and converging their 

respective accounting standards, and 

further committed to intensify their 

efforts to meet a 2011 timeline.20

Chairman Mary L. Schapiro also 

recently noted the Commission’s 

commitment ‘‘to the goal of a global set 

of high-quality accounting standards.’’ 21

B. The Proposed Roadmap 

In November 2008, the Commission 

proposed a path to evaluating the 

further role of IFRS in the U.S. capital 

markets.22 The Proposed Roadmap 

sought comment on a number of 

suggested ‘‘milestones’’ that the 

Commission might consider. 

The Proposed Roadmap contemplated 

that, subject to an assessment of the 

milestones and other considerations, 

and after consideration of public 

comment, the Commission could be in 

a position in 2011 to decide whether to 

require the use of IFRS by U.S. issuers 

beginning in 2014, potentially allowing 

earlier use by certain U.S. issuers 

beginning with filings for fiscal years 

ending on or after December 15, 2009.23

II. Public Feedback on the 

Commission’s Proposed Roadmap 

We received over 200 comment letters 

on the Proposed Roadmap from a wide 

variety of market participants, including 

those representing investors, regulators, 

issuers, accounting, legal, and other 

professions, academia, standard setters, 

and international organizations.24

Commenters generally expressed 

widespread support for the ultimate 

goal of having a single set of highquality globally accepted accounting 

standards.25 However, commenters 

differed in their views about the 

approach in the Proposed Roadmap to 

achieve further use of IFRS in the U.S. 

capital markets. Several commenters 

asserted that there are many transition 

questions and issues arising from the 

proposed approach that the Commission 

should consider further.26

A. Potential for High-Quality Globally 

Accepted Accounting Standards 

There was widespread support across 

all commenters for a single set of highWReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9496 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

27See, e.g., Accretive Solutions, Alcoa Inc. 

(‘‘Alcoa’’), CalPERS, Center for Audit Quality, Cleary 

Gottlieb Steen & Hamilton LLP, General Mills, Inc., 

Institute of Management Accountants, State of New 

York Banking Department, PricewaterhouseCoopers 

LLP (‘‘PwC’’), and RiskMetrics, 

28See, e.g., Liberty Global and Graybar Electric 

Company, Inc. (‘‘Graybar’’) comment letters for lists 

of potential benefits from the use of a single set of 

global standards. 

29See, e.g., American Institute of Certified Public 

Accountants (‘‘AICPA’’), Federation of European 

Accountants (‘‘FEE’’), and Institute of Chartered 

Accountants of Scotland. 

30See, e.g., Liberty Global, The Lubrizol 

Corporation (‘‘Lubrizol’’), National Association of 

State Boards of Accountancy (‘‘NASBA’’), and 

Reznick Group, P.C. 

31See, e.g., Boeing, FPL Group, Inc., and Kohl’s 

Corporation. 

32See, e.g., AICPA, Alcoa, Association of 

Chartered Certified Accountants, California Society 

of Certified Public Accountants, Center for Audit 

Quality, IBM Corporation, and The Ohio Society of 

CPAs. 

33See, e.g., Aerospace Industries Association and 

Committee of Annuity Insurers (‘‘CAI’’). 

34See, e.g., CalPERS, CII, ICGN, ITAC, and S&P. 

35See, e.g., American Insurance Association, CAI, 

Center for Capital Markets Competitiveness, 

Dominion Resources Services, Hot Topic Inc., 

McDonald’s Corporation (‘‘McDonald’s’’), and 

National Association of Real Estate Investment 

Trusts. 

36See, e.g., Darden Restaurant, Inc. (‘‘Darden’’), 

McDonald’s, and PPL Corporation (‘‘PPL’’). 

37See, e.g., CMS Energy Corporation and 

Consumers Energy Company, Darden, Lubrizol, and 

McDonald’s. 

38See, e.g., Darden, Intel Corporation (‘‘Intel’’), 

and MetLife, Inc. 

39See, e.g., CalPERS and S&P. 

40See, e.g., CFA, CII, JPMorgan Chase, and The 

New York State Society of Certified Public 

Accountants. 

41See, e.g., CalPERS, ICGN, Intel, ITAC, Northrop 

Grumman Corporation (‘‘Northrop Grumman’’), and 

S&P. 

quality globally accepted accounting 

standards.27 While commenters offered 

differing perspectives, some 

commenters identified the following 

potential benefits from a single set of 

global accounting standards: 

• Improved financial statement 

comparability among companies 

worldwide; 

• streamlined accounting processes 

for multinational companies; and 

• easier access to foreign capital and 

improved liquidity, leading to a reduced 

cost of capital.28

The potential benefits identified by 

commenters generally are consistent 

with the perceived benefits discussed in 

the staff’s 2003 Study. Improved 

comparability was the most frequently 

cited potential benefit from the use of a 

single set of global accounting 

standards.29 However, some 

commenters, while expressing support 

for the concept of a single set of global 

accounting standards, expressed 

reservations regarding whether the 

adoption of global accounting standards 

is a feasible objective.30 Some of these 

concerns are discussed below. 

B. The Proposed Roadmap 

Opinions regarding the approach 

outlined in the Proposed Roadmap 

diverged. The key areas of concern 

expressed by the commenters include 

the readiness of IFRS to serve as the set 

of accounting standards for U.S. issuers, 

the need for continued convergence of 

IFRS and U.S. GAAP, and the timeframe 

set for, and potential costs of, 

transitioning U.S. GAAP to IFRS.31

Opinions regarding the potential of 

IFRS, in its current state, to serve as the 

single set of global accounting standards 

varied broadly across and within 

categories of commenters. While larger, 

multinational firms and commenters 

from the accounting profession 

generally saw IFRS as best positioned 

for the role of the single set of global 

accounting standards,32 a number of 

other commenters expressed concerns 

regarding the capability of these 

standards, in their current state, to serve 

that role.33

Many investors and investor groups 

that addressed this issue expressed the 

view that it was too early to judge the 

potential of IFRS to serve as the single 

set of global accounting standards.34

Commenters who expressed this view 

noted that: 

• IFRS is not sufficiently developed 

or applied in practice to be adopted as 

a single set of global standards (e.g., 

either IFRS lacks guidance in certain 

significant areas, or the guidance it does 

contain appears to or may allow too 

much latitude to achieve more 

comparable financial reporting than 

U.S. GAAP); 

• jurisdictional variants in the 

application of IFRS pose a significant 

challenge to the adoption of IFRS as a 

truly global reporting model; and 

• the achievement of a genuine 

common global financial reporting 

model would require consistent 

application, auditing, and enforcement 

across countries.35

In addition, some commenters 

expressed concern that a ‘‘business case’’ 

has not been sufficiently demonstrated 

to support moving from existing U.S. 

GAAP directly to IFRS. These 

commenters contend that existing U.S. 

GAAP is already widely accepted 

worldwide and is seen as high-quality, 

and that not all U.S. companies compete 

for capital globally or issue securities 

outside the U.S. market, so the primary 

effect of the Proposed Roadmap would 

be increased costs in return for minimal 

and largely conceptual benefits.36

Others noted that significant challenges 

likely would arise in having an 

international organization as the 

ultimate body that would set standards 

for U.S. issuers.37 Commenters in this 

area questioned whether this would be 

a wise policy, given the Commission’s 

long-standing statutory role of setting 

and overseeing financial reporting 

standards for the United States.38

In contrast to the varying perspectives 

on the potential use of IFRS to serve as 

the common set of global accounting 

standards, commenters were more 

consistent with respect to their concerns 

on the approach and schedule outlined 

in the Proposed Roadmap. Many 

commenters, particularly investors, 

believed that the Commission should 

articulate how it intended to mandate 

the use of IFRS in the United States 

before they would be willing to support 

such a move.39 Also, many commenters 

believed the proposal either 

underestimated or did not adequately 

address the many critical issues and 

costs (both quantitative and qualitative) 

that would be involved in meeting the 

transition timing suggested in the 

Proposed Roadmap. For example, while 

many commenters believed the proposal 

identified in concept many of the factors 

to be considered in choosing a 

particular path forward for the U.S. 

capital markets, they also believed that 

it did not sufficiently articulate a plan 

for identifying and addressing the 

specific issues and the criteria against 

which they would be judged.40 As a 

result, several commenters 

recommended that the Commission 

further develop a plan to determine the 

appropriate path forward, including the 

affirmative actions and specific steps 

that need to be taken.41

III. Approach Forward for the U.S. 

Capital Markets 

We continue to support the objective 

of financial reporting in the global 

markets pursuant to a single set of highquality globally accepted accounting 

standards. As evidenced by the recent 

economic crisis, the activities and 

interests of investors, companies, and 

markets are increasingly global. This 

continued globalization of our markets 

reinforces the idea that the pursuit of 

this goal is consistent with our mission 

of protecting investors, maintaining fair, 

orderly, and efficient markets, and 

facilitating capital formation. 

Since the second half of 2007, the 

world economy has experienced 

economic conditions not seen since the 

Great Depression. What at one time was 

viewed by some as an isolated crisis in 

the subprime mortgage sector spread to 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9497 

42See ‘‘Report of the Financial Crisis Advisory 

Group’’ (July 28, 2009). (available at: http:// 

www.iasb.org/NR/rdonlyres/2D2862CC-BEFC-4A1E8DDC-F159B78C2AA6/0/FCAGReportJuly2009.pdf) 

43See ‘‘Leaders’ Statement from the Pittsburgh 

Summit’’ (September 24–25, 2009). (available at: 

http://www.g20.org/Documents/ 

pittsburgh_summit_leaders_statement_250909.pdf) 

44See 2003 Policy Statement. 

45See, e.g., Boeing, Northrop Grumman, PepsiCo, 

Inc., and tw telecom inc. 

46See 2000 Concept Release. 

47See 2000 Concept Release, at II.A. 

the global economy as a whole. The 

current environment has highlighted 

certain of the existing differences in the 

accounting standards used in the major 

capital markets. Some believe that these 

differences in accounting standards 

contributed to difficulty in the ability of 

investors and other stakeholders to 

assess the financial results of companies 

operating and competing in the global 

markets in determining how to allocate 

capital.42 As part of the G–20’s efforts to 

address the economic crisis, it 

specifically requested that accounting 

bodies redouble their efforts to achieve 

a single set of high-quality, global 

accounting standards through their 

independent standard-setting processes 

and complete their convergence project 

by 2011.43

The Commission’s statutory mandate 

with respect to determining the 

accounting standards to be used in the 

United States requires it to promote full, 

fair, and reliable disclosure for the 

protection of U.S. investors.44 The U.S. 

capital markets are among the largest 

and most liquid in the world. We 

believe that the acceptance, 

comprehensiveness, reliability, and 

enforceability of U.S. GAAP are 

important reasons for the pre-eminence 

of our capital markets. U.S. GAAP is a 

well-established basis for financial 

reporting that is applied by all U.S. 

issuers, many foreign companies and 

many U.S. private companies. Preparers 

and users of financial statements, such 

as investors and analysts, are familiar 

with U.S. GAAP. Thus, we acknowledge 

the magnitude of the task that would be 

involved to incorporate IFRS into our 

financial reporting environment for U.S. 

issuers. It is therefore important that, 

before we mandate any such change, 

careful consideration and deliberation, 

as well as a sufficient transition time for 

users and preparers of financial 

statements, occur to assure that such a 

change is in the best interest of U.S. 

investors and markets. 

We have considered carefully the 

input contained in the comment letters 

we received. We believe that a more 

comprehensive work plan is necessary 

to lay out transparently the work that 

must be done to support our decision on 

the appropriate course to incorporate 

IFRS into the U.S. financial reporting 

system for U.S. issuers, including the 

scope, timeframe, and methodology for 

any such transition. Toward this end, 

we have directed the staff of the Office 

of the Chief Accountant, with 

appropriate consultation with other 

Divisions and Offices of the 

Commission, to develop and carry out 

the Work Plan. The Work Plan 

accompanies this statement as an 

appendix. 

The Work Plan sets forth specific 

areas and factors for the staff to consider 

before potentially transitioning our 

current financial reporting system for 

U.S. issuers to a system incorporating 

IFRS. Specifically, the Work Plan 

addresses areas of concern that were 

highlighted by commenters, including: 

• Sufficient development and 

application of IFRS for the U.S. 

domestic reporting system; 

• The independence of standard 

setting for the benefit of investors; 

• Investor understanding and 

education regarding IFRS; 

• Examination of the U.S. regulatory 

environment that would be affected by 

a change in accounting standards; 

• The impact on issuers, both large 

and small, including changes to 

accounting systems, changes to 

contractual arrangements, corporate 

governance considerations, and 

litigation contingencies; and 

• Human capital readiness. 

The staff will provide public progress 

reports on the Work Plan beginning no 

later than October 2010 and frequently 

thereafter until the work is complete. 

The Work Plan is designed to provide 

the Commission the information it 

needs to evaluate the implications of 

incorporating IFRS into the U.S. 

domestic reporting system. Following 

successful completion of the Work Plan 

and the FASB–IASB convergence 

projects according to their current work 

plan, the Commission will be in a 

position in 2011 to determine whether 

to incorporate IFRS into the U.S. 

domestic reporting system. 

Commenters on the Proposed 

Roadmap expressed a view that U.S. 

issuers would need approximately four 

to five years to successfully implement 

a change in their financial reporting 

systems to incorporate IFRS.45

Therefore, assuming that the 

Commission determines in 2011 to 

incorporate IFRS into the U.S. domestic 

reporting system, we believe that the 

first time U.S. issuers would report 

under such a system would be 

approximately 2015 or 2016. We have 

asked the staff as part of the Work Plan 

to further evaluate this timeline. 

IV. Summary of the Key Areas of the 

Work Plan 

The Commission staff will analyze 

each of the six areas identified in its 

Work Plan, as discussed further below. 

The first two areas consider 

characteristics of IFRS and its standard 

setting that would be the most relevant 

to a future determination by the 

Commission regarding whether to 

incorporate IFRS into the financial 

reporting system for U.S. issuers. The 

remaining four areas relate to 

transitional considerations that will 

enable the Staff to better evaluate the 

scope of, timing of, and approach to 

changes that would be necessary to 

effectively incorporate IFRS into the 

financial reporting system for U.S. 

issuers, should the Commission 

determine in the future to do so. 

While an ultimate determination of 

any specific methods (e.g., convergence, 

standard-by-standard adoption, 

wholesale adoption) or dates for the 

possible incorporation of IFRS into the 

financial reporting system for U.S. 

issuers is beyond the scope of the Work 

Plan, the information obtained through 

the Work Plan will facilitate future 

Commission consideration of those 

matters. The Work Plan provides 

additional detail about the analysis that 

the staff will perform in each of these 

six areas. 

A. Sufficient Development and 

Application of IFRS for the U.S. 

Domestic Reporting System 

As described in the 2000 Concept 

Release, the Commission’s efforts to 

support a globally accepted high-quality 

financial reporting framework have been 

guided by its mission of protecting 

investors, maintaining fair, orderly, and 

efficient capital markets, and facilitating 

capital formation.46 A necessary 

element for a set of global accounting 

standards to meet these objectives is 

that they must be high quality, 

consisting of a ‘‘comprehensive set of 

neutral principles that require 

consistent, comparable, relevant and 

reliable information that is useful for 

investors, lenders and creditors, and 

others who make capital allocation 

decisions.’’ 47 The Commission 

continues to believe that high-quality 

global accounting standards ‘‘must be 

supported by an infrastructure that 

ensures that the standards are rigorously 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9498 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

48 Id. See also 2007 Concept Release. 49See 2007 Adopting Release. 50See Proposed Roadmap. 51 Id. 52 Id. 53 Id. 54 Id. 

55See, e.g., comment letters from Maverick 

Capital, CII, and CFA on the proposing release: 

Acceptance From Foreign Private Issuers of 

Financial Statements Prepared in Accordance with 

International Financial Reporting Standards 

without Reconciliation to U.S. GAAP, Release No. 

33–8818 (July 2, 2007) [72 FR 37962 (July 11, 

2007)]. 

56See, e.g., comment letters from CalPERS and 

CFA. 

57The IASB, an accounting standard-setting body 

based in London, was established to develop global 

standards for financial reporting. The IASB is 

overseen by the IFRS Foundation (formerly called 

the ‘‘IASC Foundation’’; this organization has been 

renamed as a result of recent amendments to its 

Constitution, effective March 1, 2010). The IFRS 

Foundation is responsible for the activities of the 

IASB. While national accounting standard setters 

traditionally have been accountable to a national 

securities regulator or other government authority, 

until 2009, the IFRS Foundation did not have a 

formal link with any national securities regulators. 

Recognizing that a relationship with national 

securities regulators would enhance the public 

accountability of the IFRS Foundation, its trustees 

agreed on amendments to its Constitution to 

establish a link between the IFRS Foundation and 

a Monitoring Board composed of public capital 

markets authorities, including the Commission, 

charged with the adoption or recognition of 

accounting standards used in their respective 

jurisdictions. For further information on the 

governance structure and operation of the IASB, see 

http://www.iasb.org. 

58See, e.g., AICPA, FEE, PPL, and TransCanada 

Corporation. 

interpreted and applied’’ 48 both within 

and outside the United States. 

The increasing acceptance and use of 

IFRS in major capital markets 

throughout the world over the past 

several years, and its anticipated use in 

other countries in the near future, 

demonstrate that IFRS has the greatest 

potential to provide a common platform 

for capital markets regulators. The IASB 

has made significant progress in 

developing high-quality accounting 

standards, as noted in the 2007 

Adopting Release.49 However, as the 

Commission noted in the Proposed 

Roadmap, there are areas where 

completion of the IASB’s standardsetting initiatives, including those 

included in its convergence agenda with 

the FASB, should improve and further 

develop IFRS.50 The successful 

completion of these efforts would be a 

significant accomplishment toward 

improving financial reporting for 

investors worldwide. In addition, the 

Commission in the Proposed Roadmap 

stated that, in further considering IFRS, 

it would ‘‘consider whether those 

accounting standards are of high quality 

and sufficiently comprehensive.’’ 51 As 

part of the staff’s efforts under the Work 

Plan, the staff will evaluate the IASB’s 

efforts to improve IFRS, including 

through those joint IASB–FASB projects 

scheduled to be completed in 2011. 

1. Comprehensiveness 

In the Proposed Roadmap, the 

Commission stated that ‘‘IFRS is not as 

developed as U.S. GAAP in certain 

areas.’’ 52 For example, IFRS does not 

provide broad guidance for certain 

topical areas, such as accounting for 

certain common control transactions, 

recapitalization transactions, 

reorganizations, and acquisitions of 

minority shares not resulting in a 

change of control and similar 

transactions.53 IFRS also lacks guidance 

for certain broad industries, including 

those the IASB is currently developing 

related to utilities, insurance, extractive 

activities, and investment companies.54

As part of the Work Plan, the staff will 

assess the overall level of 

comprehensiveness of IFRS. 

2. Auditability and Enforceability 

The Proposed Roadmap noted the 

challenges that can exist with IFRS’s 

less prescriptive guidance. Commenters 

on the Proposed Roadmap raised several 

concerns regarding the auditability and 

enforceability of IFRS, including the 

risk of opportunistic accounting; 

diminished comparability; and the 

potential for accounting conclusions of 

preparers to be unfairly criticized by 

auditors, regulators, and investors. 

The auditability and enforceability of 

a set of accounting standards are 

essential aspects of investor protection. 

Under the Work Plan, the staff will 

analyze factors that may influence the 

auditability and enforceability of 

financial statements prepared under 

IFRS. 

3. Consistent and High-Quality 

Application 

The Commission has based its 

continued strong support for a single set 

of high-quality globally accepted 

accounting standards, including the 

consideration of incorporating IFRS into 

its financial reporting system, on the 

premise that U.S. investors ultimately 

will benefit from the comparability of 

financial information from issuers on a 

worldwide basis. Consistent and highquality implementation is necessary for 

investors to benefit from a set of highquality global accounting standards.55

To assess the consistent and faithful 

application of IFRS, the staff will 

analyze the factors that may influence 

the degree of comparability of financial 

statements prepared under IFRS on a 

global basis and their consequences in 

practice. The staff also will assess the 

relative effect on comparability of 

financial reporting in the United States, 

if IFRS were incorporated into the 

financial reporting system for U.S. 

issuers. 

B. The Independence of Standard 

Setting for the Benefit of Investors 

Another important element for a set of 

high-quality global accounting 

standards is whether the accounting 

standard setter’s funding and 

governance structure support the 

independent development of accounting 

standards for the ultimate benefit of 

investors. This is an area of significant 

concern to the investors and investor 

groups that commented on the Proposed 

Roadmap.56 The Work Plan includes an 

ongoing review of the functioning of the 

IASB’s governance structure and 

developments to secure a stable, broadbased source of funding.57 This review 

will help the staff assess whether these 

factors promote standard setting that is 

accountable, independent, and free from 

undue influence that could affect the 

ability of U.S. investors to receive full, 

fair, and reliable disclosure. Full, fair, 

and reliable disclosure is essential to 

facilitate the meaningful comparison of 

financial information across national 

borders. 

C. Investor Understanding and 

Education Regarding IFRS 

The Commission’s Proposed Roadmap 

reflects its belief that U.S. investors 

would benefit from the use of a single 

set of high-quality accounting standards 

that are used consistently in the global 

capital markets. In the Proposed 

Roadmap, the Commission stated that a 

single set of global accounting standards 

could enhance the ability of investors to 

compare financial information of U.S. 

companies with that of non-U.S. 

companies. Improved comparability was 

the most commonly cited reason 

commenters believed that U.S. capital 

markets would benefit from the use of 

a single set of global accounting 

standards.58 Because the benefits of 

adopting a single set of high-quality 

globally accepted accounting standards 

would be realized only if investors 

understood and had confidence in the 

financial reporting system, the 

Commission believes that in order to 

assess incorporation of IFRS into the 

U.S. financial reporting system, further 

work is necessary to assess investor 

understanding and education regarding 

IFRS. The staff’s performance of the 

steps in the Work Plan should provide 

the staff with insight into investors’ 

understanding of IFRS and actions that 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9499 

59 Id. 

60 Id. For example, U.S. issuers often provide U.S. 

GAAP-based financial information to various 

federal and state regulators, including regulators of 

financial institutions, insurance companies and 

public utilities. Another example of the effect on 

reporting to others relates to federal and state 

income taxes. Existing U.S. GAAP is the 

predominant set of accounting standards used in 

the United States, and the Internal Revenue Code 

has developed over time in reliance on such 

accounting standards. 

61See, e.g., AICPA, Cymer, Inc., and Graybar. 

62See, e.g., Best Buy Co., Inc., Cisco Systems, 

Inc., and Fannie Mae. 

63See, e.g., CalPERS, CFA, CII, ICGN, and ITAC. 

64See, e.g., Ernst & Young LLP and PwC. 

65See, e.g., Abbott, AICPA, and S&P. 

66Accordingly, we are withdrawing the proposed 

rules for limited early use of IFRS by certain U.S. 

issuers. 

67See Statement of Policy on the Establishment 

and Improvement of Accounting Principles and 

Standards, Accounting Series Release No. 150 

(December 20, 1973) (expressing the Commission’s 

intent to continue to look to the private sector for 

leadership in establishing and improving 

Continued 

need to be taken to increase investors’ 

understanding. 

D. Examination of the U.S. Regulatory 

Environment That Would Be Affected by 

a Change in Accounting Standards 

The Commission acknowledges that 

the incorporation of IFRS into the 

financial reporting system for U.S. 

issuers could have far-reaching effects 

on financial reporting by U.S. issuers for 

other purposes. In addition to filing 

financial statements with the 

Commission, U.S. issuers commonly 

provide financial information to a wide 

variety of other parties for different 

purposes. While the federal securities 

laws provide the Commission with the 

authority to prescribe accounting 

principles and standards to be followed 

by public companies and other entities 

that provide financial information to the 

Commission and investors, the 

Commission does not directly prescribe 

the provision and content of 

information that U.S. issuers provide to 

parties other than it and investors.59

However, changes to the Commission’s 

accounting standards could affect 

issuers and the information they 

provide to regulatory authorities and 

others that rely on U.S. GAAP as a basis 

for their reporting regimes.60 In 

accordance with the Work Plan, the staff 

will study and consider other regulatory 

effects of mandating IFRS for U.S. 

issuers. 

E. The Impact on Issuers, Both Large 

and Small, Including Changes to 

Accounting Systems, Changes to 

Contractual Arrangements, Corporate 

Governance Considerations, and 

Litigation Contingencies 

In considering incorporation of IFRS 

into the U.S. financial reporting system, 

the Commission must assess the 

significant effects that such changes 

would have on the preparers of financial 

statements—the thousands of 

companies that file financial statements 

with the Commission under the federal 

securities laws. In addition to the 

significant effects that a transition 

would have on investors, the issuers of 

financial statements would incur costs, 

effort, and time as a result of a 

transition. Smaller companies and those 

without international operations will 

bear those costs and efforts differently 

than larger companies and those that 

compete globally. As part of the Work 

Plan, the staff will consider the impact 

of the logistical changes involved in 

incorporating IFRS into the U.S. 

financial reporting system. The extent of 

that impact may be decreased by 

ongoing convergence efforts between the 

IASB and the FASB. 

F. Human Capital Readiness 

As contemplated by the Proposed 

Roadmap, incorporation of IFRS would 

require consideration of the readiness of 

all parties involved in the financial 

reporting process, including investors, 

preparers, auditors, regulators, and 

educators. As a result, any change 

involving the incorporation of IFRS into 

the financial reporting system for U.S. 

issuers would require greater familiarity 

of IFRS for investors, preparers, 

auditors, regulators, academics, and 

many others. Under the Work Plan, the 

staff will review the effect of the 

incorporation of IFRS on the education 

and training of professionals involved in 

the financial reporting process as well 

as any impact on auditor capacity. 

V. Potential Transition Matters 

Many commenters on the Proposed 

Roadmap expressed concern about 

having appropriate transition time to 

plan for and implement any changes 

that would be needed in connection 

with a further move toward 

incorporation of IFRS in domestic 

financial reporting.61 Commenters also 

indicated that the Proposed Roadmap 

had created a significant amount of 

uncertainty for market participants 

about how any proposed changes would 

affect them and whether they should 

begin immediately to allocate resources 

to prepare for use of IFRS.62

We acknowledge that the changes to 

our current financial reporting system 

that would be necessary to transition to 

a single set of global accounting 

standards, including the incorporation 

of IFRS for U.S. issuers, could represent 

a fundamental change that would 

require significant transition time and 

effort for issuers, investors, and others. 

Several steps in the Work Plan, 

including progress toward completion 

of convergence, focus on providing the 

Commission with additional 

information about the magnitude of 

these changes and the logistics 

necessary for implementing them. This 

information will enable the Commission 

to consider the plans that would need 

to be implemented in a move to 

incorporate IFRS into the financial 

reporting system for U.S. issuers, 

including providing sufficient time to 

efficiently and effectively implement 

any changes in accounting standards. 

The Proposed Roadmap proposed to 

allow certain large U.S. issuers the 

option of preparing their financial 

statements using IFRS beginning with 

filings for fiscal years ending on or after 

December 15, 2009. A significant group 

of commenters disagreed with an early 

use option, generally because of the 

increased complexity, lack of 

comparability between U.S. issuers 

under a dual system, and the possibility 

of companies opportunistically selecting 

which system of accounting standards 

to apply.63 Alternative strategies 

proposed by this group varied widely, 

and included the optional use of IFRS 

during any contemplated transition 

period to a single set of global 

accounting standards.64 Some 

commenters suggested an open option 

for all issuers or, at least, a significantly 

expanded group of issuers.65

The Commission is not foreclosing the 

possibility in the future that issuers may 

be permitted to choose between IFRS 

and U.S. GAAP, nor is the Commission 

foreclosing the possibility of some 

manner of early use or adoption 

approach. The conditions for early 

adoption, however, would depend on 

the overall approach to incorporate IFRS 

into the U.S. financial reporting system 

for U.S. issuers. As that overall 

approach remains under evaluation, we 

are not actively pursuing rulemaking to 

provide for an early use option at this 

time.66

VI. Role of the FASB 

The FASB is the independent, 

private-sector accounting standardsetting body for the United States. Since 

1973, the Commission has recognized 

the FASB’s pronouncements 

establishing and amending accounting 

principles as ‘‘authoritative’’ and 

‘‘generally accepted’’ for purposes of the 

federal securities laws, absent any 

contrary determination by the 

Commission.67 After enactment of the 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9500 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

accounting principles and standards through the 

FASB) and the 2003 Policy Statement. 

68See 2003 Policy Statement. 

69NASBA and CalPERS expressed the view that 

the Commission should maintain a relationship 

with the FASB, whereas KPMG LLP expressed the 

view that the Commission should recognize the 

IASB as the single accounting standard setter. 

70See U.K. Financial Reporting Council. 

71For example, the European Union (‘‘EU’’), 

which required the use of IFRS as the accounting 

standards for companies incorporated in one of its 

Member States and whose securities are listed on 

an EU-regulated market beginning with their 2005 

financial year, uses the European Financial 

Reporting Advisory Group to provide technical 

advice to the European Commission in connection 

with the EU’s mechanism for endorsement of IFRS. 

Act, the Commission reaffirmed the 

recognition of the financial accounting 

and reporting standards of the FASB as 

‘‘generally accepted’’ for purposes of the 

federal securities laws.68

Some commenters believed the lack of 

clarity in the Proposed Roadmap 

regarding the future role of the FASB 

has created unnecessary uncertainty. 

Commenters offered divergent opinions 

about whether the Commission should 

maintain a relationship with the FASB 

as the U.S. national accounting standard 

setter in lieu of directly relying on the 

IASB.69

We believe the FASB will continue to 

play a critical and substantive role in 

achieving the goal of global accounting 

standards. The FASB is the accounting 

standard setter for the U.S. capital 

markets, and it should continue to work 

with the IASB to improve accounting 

standards. Moreover, that role would 

remain critical after adoption of global 

standards. In this regard, we have 

considered the role that other national 

standard setters have maintained in 

connection with their consideration of 

IFRS. In particular, one organization 

with national regulatory responsibilities 

noted in its comment letter on the 

Proposed Roadmap that the continued 

existence of a national standard setter 

allows for more effective working 

relationships with the IASB and helps 

the IASB have an effective dialogue 

with constituents in that country.70 We 

note many developed countries have 

maintained a national standard setter or 

other mechanisms in connection with 

the incorporation of IFRS into their 

capital markets.71

As part of the staff’s execution of the 

Work Plan, it will continue to analyze 

the nature of the appropriate and 

ongoing role of the FASB should IFRS 

be incorporated into the U.S. financial 

reporting system for U.S. issuers. 

VII. Regulatory Requirements 

This statement is not an agency rule 

requiring notice of proposed 

rulemaking, opportunities for public 

participation, and prior publication 

under the provisions of the 

Administrative Procedure Act (‘‘APA’’). 

Similarly, the provisions of the 

Regulatory Flexibility Act, which apply 

only when notice and comment are 

required by the APA or another statute, 

are not applicable. 

Dated; February 24, 2010. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

Work Plan for the Consideration of 

Incorporating International Financial 

Reporting Standards Into the Financial 

Reporting System for U.S. Issuers 

Office of the Chief Accountant United States 

Securities and Exchange Commission 

This is a report by the Staff of the U.S. 

Securities and Exchange Commission. The 

Commission has expressed no view regarding 

the analysis, findings, or conclusions 

contained herein. 

Table of Contents 

Background ....................................................................................................................................................................................................... ..........

I. Sufficient Development and Application of IFRS for the U.S. Domestic Reporting System ................................................................... ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Comprehensiveness of IFRS ................................................................................................................................................................. ..........

C. Auditability and Enforceability ........................................................................................................................................................... ..........

D. Comparability Within and Across Jurisdictions ................................................................................................................................. ..........

II. Independent Standard Setting for the Benefit of Investors ....................................................................................................................... ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Oversight of the IFRS Foundation ....................................................................................................................................................... ..........

C. Composition of the IFRS Foundation and the IASB .......................................................................................................................... ..........

D. Funding of the IFRS Foundation ......................................................................................................................................................... ..........

E. IASB Standard-Setting Process ............................................................................................................................................................ ..........

1. Pre-eminence of Investors .................................................................................................................................................................... ..........

2. Timeliness ............................................................................................................................................................................................. ..........

3. Objectivity ............................................................................................................................................................................................. ..........

III. Investor Understanding and Education Regarding IFRS .......................................................................................................................... ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Investor Understanding and Education ............................................................................................................................................... ..........

IV. Regulatory Environment ............................................................................................................................................................................ ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Manner in which the SEC Fulfills its Mission ................................................................................................................................... ..........

C. Industry Regulators ............................................................................................................................................................................... ..........

D. Federal and State Tax Impacts ............................................................................................................................................................ ..........

E. Statutory Dividend and Stock Repurchase Restrictions ..................................................................................................................... ..........

F. Audit Regulation and Standard Setting ............................................................................................................................................... ..........

G. Broker-Dealer and Investment Company Reporting ........................................................................................................................... ..........

H. Public versus Private Companies ........................................................................................................................................................ ..........

V. Impact on Issuers ......................................................................................................................................................................................... ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Accounting Systems, Controls, and Procedures ................................................................................................................................. ..........

C. Contractual Arrangements .................................................................................................................................................................... ..........

D. Corporate Governance .......................................................................................................................................................................... ..........

E. Accounting for Litigation Contingencies ............................................................................................................................................. ..........

F. Smaller Issuers versus Larger Issuers .................................................................................................................................................. ..........

VI. Human Capital Readiness .......................................................................................................................................................................... ..........

A. Introduction .......................................................................................................................................................................................... ..........

B. Education and Training ........................................................................................................................................................................ ..........

C. Auditor Capacity ................................................................................................................................................................................... ..........

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9501 

72See Commission Statement in Support of 

Convergence and Global Accounting Standards, 

Release No. 33–9109 (February 24, 2010) (‘‘2010 

Statement’’). 

73Hereafter, the term ‘‘IFRS’’ refers to ‘‘IFRS as 

issued by the International Accounting Standards 

Board (‘IASB’)’’ unless otherwise noted. 

74Release No. 33–8982 (November 14, 2008) [73 

FR 70816 (November 21, 2008)] (‘‘Proposed 

Roadmap’’). 

75See, e.g., The Boeing Company (‘‘Boeing’’), 

Northrop Grumman Corporation (‘‘Northrop 

Grumman’’), PepsiCo, Inc. (‘‘Pepsi’’), and tw telecom 

inc (‘‘tw telecom’’). Comment letters in response to 

the Proposed Roadmap are available on the 

Commission’s Web site (at http://www.sec.gov/ 

comments/s7-27-08/s72708.shtml). Comments are 

also available for Web site viewing and printing in 

the Commission’s Public Reference Room, 100 F 

Street, NE., Washington, DC 20549, on official 

business days between the hours of 10 a.m. and 3 

p.m. Unless otherwise noted, comment letters 

referenced in this Work Plan were submitted in 

response to the Proposed Roadmap and are cited by 

author. 

76 International Accounting Standards, Release 

No. 33–7801 (February 16, 2000) [65 FR 8896 

(February 23, 2000)] (‘‘2000 Concept Release’’). 

77 2000 Concept Release. 

Background 

In the 2010 Statement,72 the U.S. Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) directs the staff of the Office 

of the Chief Accountant of the SEC, with 

appropriate consultation with other Divisions 

and Offices of the Commission (collectively, 

the ‘‘Staff’’), to develop and execute a work 

plan (‘‘Work Plan’’). The purpose of the Work 

Plan is to consider specific areas and factors 

relevant to a Commission determination of 

whether, when, and how our current 

financial reporting system for U.S. issuers 

should be transitioned to a system 

incorporating International Financial 

Reporting Standards (‘‘IFRS’’).73 Specifically, 

the Work Plan addresses areas of concern 

that were highlighted by commenters on the 

Commission’s proposed Roadmap for the 

Potential Use of Financial Statements 

Prepared in Accordance with International 

Financial Reporting Standards by U.S. 

Issuers,74 including: 

1. Sufficient development and application 

of IFRS for the U.S. domestic reporting 

system; 

2. The independence of standard setting for 

the benefit of investors; 

3. Investor understanding and education 

regarding IFRS; 

4. Examination of the U.S. regulatory 

environment that would be affected by a 

change in accounting standards; 

5. The impact on issuers, both large and 

small, including changes to accounting 

systems, changes to contractual 

arrangements, corporate governance 

considerations, and litigation contingencies; 

and 

6. Human capital readiness. 

The first two areas above consider 

characteristics of IFRS and its standard 

setting that would be the most relevant to a 

future determination by the Commission 

regarding whether to incorporate IFRS into 

the financial reporting system for U.S. 

issuers. The remaining four areas above relate 

to transitional considerations that will enable 

the Staff to better evaluate the scope of, 

timing of, and approach to changes that 

would be necessary to effectively incorporate 

IFRS into the financial reporting system for 

U.S. issuers, should the Commission 

determine in the future to do so. 

In formulating this initial Work Plan, the 

Staff considered commenters’ views that U.S. 

issuers would need approximately four to 

five years to successfully implement a change 

in their financial reporting systems to 

incorporate IFRS.75 Therefore, assuming that 

the Commission determines in 2011 to 

incorporate IFRS into the U.S. financial 

reporting system, the first time U.S. issuers 

would report under such a system would be 

approximately 2015 or 2016. The Staff will 

further evaluate this timeline as a part of the 

Work Plan. 

While an ultimate determination of any 

specific methods (e.g., convergence, 

standard-by-standard adoption, wholesale 

adoption) or dates for the possible 

incorporation of IFRS into the financial 

reporting system for U.S. issuers is beyond 

the scope of the Work Plan, the information 

obtained through the Work Plan will 

facilitate future Commission consideration of 

those matters. Further, while the Work Plan 

focuses on the implications of incorporation 

of IFRS into the financial reporting system 

for U.S. issuers on U.S. constituents, the Staff 

also will consider the effects of its 

recommendations to the Commission on 

other jurisdictions that have incorporated or 

have committed to incorporate IFRS into 

their financial reporting systems. 

Each area is important to the Staff’s 

consideration of the most effective approach 

to advance the Commission’s objective of 

achieving a single set of high-quality globally 

accepted accounting standards. The Staff, 

however, did not develop the Work Plan with 

the intention that any one step is 

individually determinative of the optimal 

path forward. Further, for many of the steps, 

the Staff is seeking to assess the degree to 

which a particular attribute or condition 

exists for consideration of how the topic 

interacts with policy considerations. The 

Staff does not view the objective of its efforts 

as being to determine whether an attribute 

‘‘passes’’ or ‘‘fails’’ a pre-determined standard. 

The Staff has developed this Work Plan 

based on its understanding of the current 

environment. The Staff intends to 

continually re-assess this Work Plan and 

adjust it as new information is obtained or 

developments occur. Further, of necessity, 

the Staff will modify this Work Plan in 

response to constraints encountered, such as 

limited availability of information, with the 

intention of accomplishing each section’s 

stated objective to the maximum extent 

possible. 

In executing this Work Plan, the Staff will 

gather information using a variety of 

methods, including, but not limited to, 

performing its own research; seeking 

comment from, holding discussions with, 

and analyzing information from constituents, 

including investors, issuers, auditors, 

attorneys, other regulators, standard setters, 

and academics; considering academic 

research; and researching the experiences of 

other jurisdictions that have incorporated or 

have committed to incorporate IFRS into 

their financial reporting systems and foreign 

private issuers who currently report under 

IFRS. The Staff will provide public progress 

reports beginning no later than October 2010 

and frequently thereafter until the work is 

complete. 

I. Sufficient Development and Application of 

IFRS for the U.S. Domestic Reporting System 

A. Introduction 

The 2010 Statement notes that ‘‘[a] 

necessary element for a set of global 

accounting standards to meet [the agency’s 

mission] is that they must be high-quality 

* * *.’’ The Commission previously has 

described high-quality standards as 

consisting of a ‘‘comprehensive set of neutral 

principles that require consistent, 

comparable, relevant and reliable 

information that is useful for investors, 

lenders and creditors, and others who make 

capital allocation decisions.’’ 76 The 

Commission also has expressed its belief that 

high-quality accounting standards ‘‘must be 

supported by an infrastructure that ensures 

that the standards are rigorously interpreted 

and applied.’’ 77

In the Proposed Roadmap, the Commission 

stated that, in further considering IFRS, it 

would ‘‘consider whether those accounting 

standards are of high-quality and sufficiently 

comprehensive.’’ Accordingly, the Staff 

believes that an evaluation of whether IFRS 

is sufficiently developed and applied to be 

the single set of globally accepted accounting 

standards for U.S. issuers requires 

consideration of the following areas: 

• The comprehensiveness of IFRS; 

• The auditability and enforceability of 

IFRS; and 

• The comparability of IFRS financial 

statements within and across jurisdictions. 

As the Commission noted in the Proposed 

Roadmap, there are areas where completion 

of the IASB’s standard-setting initiatives, 

including those included in its convergence 

agenda with the Financial Accounting 

Standards Board (‘‘FASB’’), as discussed in 

the 2010 Statement, should improve and 

further develop IFRS. The Commission 

further notes in the 2010 Statement, ‘‘[t]he 

successful completion of these efforts would 

be a significant accomplishment toward 

improving financial reporting for investors 

worldwide.’’ As such, the Staff’s efforts in the 

above areas will include consideration of the 

IASB’s efforts to improve IFRS. 

B. Comprehensiveness of IFRS 

The Commission stated in the Proposed 

Roadmap that ‘‘IFRS is not as developed as 

[U.S. generally accepted accounting 

principles (‘U.S. GAAP’)] in certain areas.’’ 

This is due, in part, to IFRS’s relative youth, 

as articulated by one commenter: 

‘‘[W]e are concerned about quality and 

maturity of IFRS in comparison to * * * 

[U.S. GAAP]. U.S. GAAP has a long history 

and has been tested and refined through 

multiple and complex economic events and 

developments. Many of the standards in U.S. 

GAAP have emerged as a direct result of 

circumstances and events that demonstrated 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9502 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

78CMS Energy Corporation and Consumers 

Energy Company. See also, e.g., FedEx Corporation, 

Hess Corporation, Honeywell International 

(‘‘Honeywell’’), Northrop Grumman, and Andrea 

Psoras (‘‘Psoras’’). 

79See, e.g., Proposed Roadmap. See also, e.g., 

Financial Accounting Foundation (‘‘FAF’’), 

Investors Technical Advisory Committee (‘‘ITAC’’), 

Liberty Global, and Standard & Poor’s Ratings 

Services. The Staff acknowledges that in certain of 

these specified areas, these concerns are equally 

applicable to U.S. GAAP. 

80See, e.g., Proposed Roadmap. See also, e.g., 

Accretive Solutions, First Commonwealth Financial 

Corporation (‘‘First Commonwealth’’), and ITAC. 

For example, as the FASB staff discussed in 

‘‘Board Meeting Handout: Joint Revenue 

Recognition Project’’ (April 9, 2008) (available at: 

http://www.fasb.org/04-09-08_rev.pdf)), revenue 

recognition guidance under U.S. GAAP (prior to the 

FASB Codification) consisted of over 200 pieces of 

literature from various sources, whereas revenue 

recognition guidance under IFRS ‘‘lacks explicit 

measurement guidance. Although such 

measurement guidance exists in abundance in U.S. 

GAAP, IFRS suffers from the opposite extreme.’’ 

81See, e.g., Alcoa Inc. (‘‘Alcoa’’), The Bank of New 

York Mellon, Federation of European Accountants 

(‘‘FEE’’), Institute of Chartered Accountants in 

England and Wales (‘‘ICAEW’’), and Gregory 

Misiorek. 

82See, e.g., First Commonwealth, Fund of 

Stockowners Rights (‘‘Fund Stockowners Rights’’), 

State of New York Banking Department (‘‘NYBD’’), 

Psoras, Sanctuary Financial Group, Inc., and tw 

telecom. 

83Proposed Roadmap. 

84See, e.g., Fund Stockowners Rights, National 

Association of State Boards of Accountancy 

(‘‘NASBA’’), and Psoras. 

85American Accounting Association, Financial 

Accounting Standards Committee (‘‘AAA–FASC’’). 

86See, e.g., FPL Group, Inc. (‘‘FPL’’) and tw 

telecom. 

87 ‘‘Study Pursuant to Section 108(d) of the 

Sarbanes-Oxley Act of 2002 on the Adoption by the 

United States Financial Reporting System of a 

Principles-Based Accounting System’’ (July 25, 

2003) (‘‘Principles-Based Accounting System 

Study’’). 

88Principles-Based Accounting System Study. 

89See, e.g., Air Products and Chemicals, Inc. (‘‘Air 

Products’’), Community Health Systems, Inc. 

(‘‘Community Health’’), JPMorgan Chase (‘‘JP 

Morgan’’), The London Centre for International 

Corporate Governance Law (‘‘London Ctr Int’l Corp 

Gov Law’’), and Edward Randle. 

the need for better and more transparent 

financial reporting (for example, the rise of 

derivative instruments and recent financial 

scandals such as the collapse of Enron) 

* * *.’’ 78

The Commission and commenters have 

noted limited IFRS guidance in two respects. 

First, IFRS lacks broad guidance for: (1) 

Certain topical areas, such as accounting for 

certain common control transactions, 

recapitalization transactions, reorganizations, 

acquisitions of minority shares not resulting 

in a change of control and similar 

transactions, and the push down of a new 

accounting basis in an entity’s separate 

financial statements; (2) certain industries, 

such as those related to utilities, insurance, 

extractive activities, and investment 

companies; and (3) disclosures in order to 

provide better transparency regarding the 

application of accounting principles.79

Second, where IFRS provides broad 

guidance, the IASB, as a matter of operating 

practice, has elected to make guidance less 

detailed and prescriptive than U.S. GAAP.80

Commenters’ views were mixed as to 

whether the lesser degree of detailed 

guidance under IFRS, as compared to U.S. 

GAAP, is indicative of a higher quality set of 

accounting standards. Commenters who 

preferred IFRS’s approach asserted that it is 

less complex than U.S. GAAP and allows 

companies to capture the substance of 

transactions.81 On the other hand, 

commenters who preferred U.S. GAAP’s 

approach expressed that IFRS relies too 

much on management discretion, thereby 

increasing the potential for opportunistic 

accounting; creating challenges for auditors, 

as discussed in section I.C below; and 

reducing comparability, as discussed in 

section I.D below.82

Other commenters have argued, however, 

that this debate may not be relevant in the 

U.S. environment. For example, the FAF 

asserted in its comment letter that: 

‘‘[W]hile it is perceived that IFRS provides 

financial statement preparers more discretion 

in application than U.S. GAAP, such 

additional discretion may not result in major 

differences in the application of IFRS by U.S. 

companies because the U.S. institutional 

framework plays a major role in shaping how 

companies would apply the discretion.’’ 

The Staff will analyze for the 

Commission’s benefit the extent to which 

IFRS is comprehensive so as to support a 

Commission decision regarding whether to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Inventory areas in which IFRS does not 

provide guidance or where it provides less 

guidance than U.S. GAAP. 

• Analyze how issuers, auditors, and 

investors currently manage these situations 

in practice. 

• Identify areas in which issuers, auditors, 

and investors would most benefit from 

additional IFRS guidance. 

C. Auditability and Enforceability 

IFRS’s less detailed and prescriptive 

guidance may or may not create challenges 

in its auditability and enforceability. If it 

were to do so, IFRS may ‘‘[make] litigation or 

enforcement outcomes more difficult to 

predict.’’ 83 This outcome may be true not 

only within jurisdictions, but also across 

jurisdictions, as the existence of differing 

regulatory regimes and legal environments 

across jurisdictions may exacerbate the 

inconsistent interpretation and enforcement 

of IFRS. For example, the CFA Institute 

stated the following in its comment letter: 

‘‘Investors need greater assurance regarding 

the divergence of application within the 

principles-based standards of IFRS prior to 

adoption. Conversion to more principlesbased standards that are applied 

inconsistently in different regulatory 

environments, auditing regimes and cultures 

may not be beneficial to investors.’’ 

Commenters raised several concerns 

regarding the auditability and enforceability 

of IFRS, including the risk of opportunistic 

accounting; the potential for accounting 

conclusions of preparers to be unfairly 

criticized by auditors, regulators, and 

investors; and diminished comparability. 

First, regarding the risk of opportunistic 

accounting, some commenters expressed that 

IFRS allows for increased flexibility, as 

compared to U.S. GAAP, and may result in 

standards being less auditable and 

enforceable, which would not be in the 

public interest.84 For example, one 

commenter stated: 

‘‘The international standards (IFRS) are 

widely viewed as less specific and providing 

less prescriptive guidance than U.S. GAAP 

(i.e., IFRS are more principles based), as well 

as more subjective primarily due to more use 

of fair value measurements. The 

downgrading of verifiability as a key concept 

guiding accounting standard setting and the 

resulting focus on fair value measurement 

significantly impairs the ability of an auditor 

to limit opportunistic actions of management 

and improve financial reporting.’’ 85

Second, regarding the potential for 

accounting conclusions of preparers to be 

unfairly criticized by auditors, regulators, 

and investors, some commenters have 

expressed concerns that IFRS’s less detailed 

and prescriptive guidance could expose 

companies to increased claims by 

shareholders and others seeking to challenge 

its application, given the perceived litigious 

environment in the United States.86 The Staff 

has acknowledged similar concerns in the 

context of an objectives-oriented system, 

noting: 

‘‘We believe that the existence of a strong 

and consistently applied enforcement 

mechanism is a necessary component to the 

success of an objectives-oriented system. 

Preparers and auditors have expressed 

concern that those charged with enforcement 

in a principles-based environment will 

question reasonable judgments made in good 

faith (footnote omitted). In fact, some have 

asked whether the Commission staff would 

be willing to accept reasonable views and 

interpretations by preparers and auditors in 

the application of accounting principles 

(citation omitted).’’ 87

However, the Staff also stated: 

‘‘We believe * * * that the concern over 

litigation uncertainty is sometimes overstated 

* * *. If preparers and auditors maintain 

contemporaneous documentation that 

demonstrates that they properly determined 

the substance of a covered transaction or 

event, applied the proper body of literature 

to it, had a sound basis for their conclusionsparticularly those involving the exercise of 

judgment-and ensured through disclosure 

that their method was transparent, their 

exposure to litigation may be reduced.’’ 88

Some commenters stated that the U.S. legal 

system, which relies, to a larger extent, on 

guidance, rules, and bright lines, ultimately 

will drive IFRS to evolve, similar to U.S. 

GAAP, into a rules-based set of standards.89

Accordingly, commenters advocated 

addressing the causes of rules-based 

standards, such as through changes to the 

U.S. legal and regulatory environment, and 

development of an accounting and auditing 

judgment framework to reassure issuers that 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9503 

90See, e.g., American Institute of Certified Public 

Accountants (‘‘AICPA’’), California Society of 

Certified Public Accountants (‘‘CA CPAs’’), Center 

for Audit Quality (‘‘CAQ’’), Deloitte & Touche LLP 

(‘‘Deloitte’’), McGladrey & Pullen LLP 

(‘‘McGladrey’’), Morgan Stanley, NYBD, and The 

Ohio Society of CPAs (‘‘Ohio CPAs’’). 

91See Principles-Based Accounting System 

Study. 

92See, e.g., Community Health, Eli Lilly and 

Company (‘‘Eli Lilly’’), and Marriott International, 

Inc. (‘‘Marriott’’). 

93 In Concept Release on Allowing U.S. Issuers to 

Prepare Financial Statements in Accordance with 

International Financial Reporting Standards, 

Release No. 33–8831 (August 7, 2007) [72 FR 45600 

(August 14, 2007)] (‘‘2007 Concept Release’’), the 

Commission stated, ‘‘for the U.S. firms that are 

members of global audit networks, systems of 

quality control need to foster the high quality and 

consistent application of IFRS across national 

borders.’’ 

94See, e.g., London Ctr Int’l Corp Gov Law. 

95See, e.g., California Public Employees’ 

Retirement System (‘‘CalPERS’’), Cleary Gottlieb 

Steen & Hamilton LLP, Group of North American 

Insurance Enterprises, and International Corporate 

Governance Network (‘‘ICGN’’). 

96See 2007 Concept Release. 

97See Id. 

98See Id. 

99See Proposed Roadmap. 

100See, e.g., Deloitte Touche Tohmatsu, ‘‘Use of 

IFRSs by Jurisdiction.’’ (available at: http:// 

www.iasplus.com/country/useias.htm) 

101See, e.g., Corporate Roundtable on 

International Financial Reporting (‘‘CRIFR’’), The 

Davey Tree Expert Company (‘‘Davey Tree’’), 

Institute of Chartered Accountants of Scotland 

(‘‘ICAS’’), KPMG LLP (‘‘KPMG’’), The Lubrizol 

Corporation, McDonald’s Corporation 

(‘‘McDonald’s’’), Mead Westvaco Corporation 

(‘‘Mead Westvaco’’), NASBA, The Travelers 

Companies, Inc. (‘‘Travelers’’), and Tuesday 

Morning Corporation (‘‘Tuesday Morning’’). 

102Proposed Roadmap. 

103 ‘‘Final Report of the Advisory Committee on 

Improvements to Financial Reporting to the United 

States Securities and Exchange Commission’’ 

(August 1, 2008) (‘‘CIFiR Final Report’’), page 50. 

(available at: http://www.sec.gov/about/offices/oca/ 

acifr/acifr-finalreport.pdf) 

104See, e.g., CFA Institute (‘‘CFA’’) and ITAC. 

105 tw telecom. 

they will not be penalized for the use of 

reasonable judgment in the application of 

IFRS.90

The Staff also observed that the exercise of 

professional judgment in an objectivesoriented regime would require certain 

cultural changes, including: (1) A reduction 

in the tendency to ask questions like ‘‘where 

does the literature say I cannot do this,’’ (2) 

a reduction in an audit checklist mentality, 

(3) an improvement in accounting 

professionals’ understanding of the economic 

substance of a transaction, and (4) an 

improvement in the transparency of 

disclosures.91

Finally, IFRS’s less detailed and 

prescriptive guidance, coupled with any 

diversity of perspectives amongst issuers, 

auditors, and regulators on a global basis may 

affect the comparability of financial 

statements prepared under IFRS. For 

example, in the auditing context, 

commenters raised concerns regarding the 

possibility that each audit firm will develop 

its own interpretations of IFRS,92 resulting in 

reduced comparability across companies 

using different auditors. Some commenters 

went further by echoing concerns raised in 

the 2007 Concept Release 93 that IFRS also 

may contribute to reduced comparability 

within audit firms, due to the lack of 

internationally integrated accounting firms 

with a single global accounting perspective.94

Similarly, commenters expressed concern 

that differing regulation and enforcement 

structures and practice on a global basis may 

undermine the comparability of financial 

statements prepared under IFRS.95 The 

Commission has noted that securities 

regulators have developed and continue to 

improve infrastructure to foster the 

consistent and faithful application and 

enforcement of IFRS around the world.96 For 

example, in January 2007, an International 

Organization of Securities Commissions 

(‘‘IOSCO’’) database for cataloguing and 

sharing securities regulators’ experiences on 

IFRS application around the world became 

operational.97 Further, the Commission and 

the Committee of European Securities 

Regulators (‘‘CESR’’) published a work plan in 

August 2006, covering information sharing in 

regular meetings and the confidential 

exchange of issuer-specific information.98 In 

addition to the coordination with 

organizations of securities regulators and 

under the CESR work plan, the Commission 

also has developed bilateral dialogues with 

particular securities regulators to discuss 

accounting and enforcement matters. 

These recent developments were noted by 

the CFA Institute in its comment letter: 

‘‘[T]his coordinated effort and related 

processes [by members of IOSCO] are still 

being developed and the overall effectiveness 

of their regulatory oversight has not been 

fully demonstrated (i.e., that the 

interpretation and enforcement of IFRS is 

consistent). The SEC should focus on how 

IFRS is being applied and ensure that studies 

about this are undertaken and widely 

circulated to all interested parties.’’ 

The Staff believes that the auditability and 

enforceability of financial statements 

prepared under IFRS is a key component in 

considering whether to incorporate IFRS into 

the financial reporting system for U.S. 

issuers. Accordingly, the Staff intends to 

gather data to inform the Commission in this 

regard. Specifically, the Staff will: 

• Analyze factors that may influence the 

auditability of financial statements prepared 

under, and the enforceability of, IFRS. 

• Evaluate factors that may influence the 

consistent audit of financial statements 

prepared under, and the enforcement of, 

IFRS. 

• Identify potential changes to improve the 

auditability and enforceability of financial 

statements prepared under IFRS and to 

facilitate their consistent audit and 

enforcement. 

D. Comparability Within and Across 

Jurisdictions 

One of the primary benefits of a single set 

of global accounting standards is increased 

comparability of financial statements. 

However, as the Proposed Roadmap stated: 

‘‘The advantages to U.S. investors of 

increased comparability across investment 

alternatives, as contemplated under this 

Roadmap, are dependent upon financial 

reporting under IFRS that is, in fact, 

consistent across companies, industries and 

countries.’’ 

A number of factors may undermine the 

comparability of IFRS financial statements. 

As discussed above, the lesser degree of 

comprehensiveness and the challenges of 

consistent audit and enforcement of IFRS 

financial statements may affect their 

comparability. In addition, jurisdictional 

variations in the application of IFRS, the 

optionality within IFRS, and inconsistencies 

arising from differences in the translation of 

IFRS also may reduce the benefits of IFRS as 

a single set of global accounting standards.99

Some sources indicate that more than 100 

countries ‘‘require or allow the use’’ of 

IFRS.100 At the same time, there is the real 

possibility of jurisdictional variations, which 

could undermine comparability. 

Jurisdictional variations may arise from both 

authoritative and informal application 

guidance, changes made to the standards for 

purposes of use within a jurisdiction, and 

variations in the times it may take separate 

jurisdictions to complete their respective 

processes to enact into law or otherwise 

adopt new or amended standards. Historical 

approaches and cultural differences also may 

give rise to jurisdictional variations. 

Commenters frequently cited concerns 

regarding the existence of and future 

potential for jurisdictional variations of 

IFRS.101 Similarly, the Commission noted 

that ‘‘the extent to which IFRS is adopted and 

applied globally, and whether IFRS is 

adopted and applied in foreign jurisdictions 

as issued by the IASB or as jurisdictional 

variations of IFRS’’ ‘‘may influence the degree 

to which comparability may be achieved 

through widespread adoption of IFRS.’’ 102

Regarding optionality, the SEC’s Advisory 

Committee on Improvements to Financial 

Reporting (‘‘CIFiR’’) and others have asserted 

that IFRS’s permitted alternative accounting 

treatments in a number of areas ‘‘contribute 

to avoidable complexity by making financial 

reports less comparable.’’ 103

In the Proposed Roadmap, the Commission 

expressed that: 

‘‘IFRS * * * in certain areas permits a 

greater amount of options than in U.S. GAAP 

* * * [This] greater optionality in IFRS 

could reduce comparability of reported 

financial information, as different issuers 

may account or provide disclosure for similar 

transactions or events in different ways[,] but 

this flexibility also allows a financial 

statement that may more closely reflect the 

economics of transactions.’’ 

To counter any diminished comparability, 

commenters expressed the need for greater 

transparency around divergence in 

application.104 However, as one commenter 

noted, extensive footnote disclosures 

explaining how management has applied its 

discretion ‘‘will place the burden upon the 

user of the financial statements to understand 

and interpret the differences between 

companies * * *.’’ 105

In light of the these concerns, the Staff will 

analyze for the Commission’s benefit the 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9504 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

106 In January 2010, the IFRS Foundation Trustees 

(‘‘Trustees’’) agreed to a number of changes to their 

Constitution, including changes to the names of 

several bodies within the organization, effective 

March 1, 2010. This Work Plan uses the revised 

names, except when citing a document issued 

under the predecessor name. See IASC Foundation, 

Trustees Announce Further Governance 

Enhancements (February 15, 2010). (available at: 

http://www.iasb.org/News/Press+Releases/ 

further+governance+enhancements.htm) 

107For more information on the structure and 

operation of the IASB, see www.iasb.org. 

108See Proposed Roadmap. 

109See Id. 

110See Id.; Acceptance From Foreign Private 

Issuers of Financial Statements Prepared in 

Accordance With International Financial Reporting 

Standards Without Reconciliation to U.S. GAAP, 

Release No. 33–8879 (December 21, 2007) [73 FR 

986 (January 4, 2008)] (‘‘2007 FPI Adopting 

Release’’); 2007 Concept Release; and 2000 Concept 

Release. 

111For more information on the mission, duties, 

structure, and operation of the Monitoring Board, 

see ‘‘Charter of the IASCF Monitoring Board’’ 

(available at: http://www.iasb.org/NR/rdonlyres/ 

28B9BB17–79C8–4623–B043–B15F8D7A774D/0/ 

Monitoring_Board_Charter.pdf) and Memorandum 

of Understanding To Strengthen the Institutional 

Framework of the International Accounting 

Standards Committee Foundation (April 2009) 

(available at: http://www.iasb.org/NR/rdonlyres/ 

67B0EE51–56B8–4183–9958–CDAC52BC505C/0/ 

MGMou060409.pdf). 

112See, e.g., Alcoa, Ernst & Young LLP (‘‘EY’’), 

FEE, U.K. Financial Reporting Council (‘‘FRC’’), 

Potash Corporation of Saskatchewan Inc. (‘‘Potash’’), 

and Securities Industry and Financial Markets 

Association (‘‘SIFMA’’). 

113See, e.g., Council of Institutional Investors 

(‘‘CII’’) (suggested, for example, that the Monitoring 

Board duties include: (1) explicit responsibility for 

protecting and defending the independence of the 

IASB and (2) focus primarily on educating and 

communicating with the representatives of public 

authorities about the benefits of independent 

private-sector standard setting), Institut der 

Wirtschaftspru ̈fer in Deutschland (Institute of 

Public Auditors in Germany) (‘‘IDW’’) (suggested the 

Monitoring Board participate in the appointment 

process and approve the appointment of Trustees, 

but not assume responsibility for Trustee 

appointment directly, so as to avoid overstepping 

the fine line between oversight and control of the 

IFRS Foundation). 

114See, e.g., CalPERS, CII, FRC (expressed the 

view that in due course the IFRS Foundation 

Monitoring Board should be extended to encompass 

official global organizations with a wider range of 

responsibilities, notably those with financial 

stability, banking, and insurance mandates, 

provided that the primary aim of accounting 

standards to improve information to providers of 

capital is respected), ICGN, and Nicholas Ve ́ron 

(observed that the current Monitoring Board is 

badly designed as it excludes important 

stakeholders. This commenter suggested that the 

Commission should promote the transformation of 

the Monitoring Board into a broader body that 

represents all the stakeholders, especially investor 

groups). 

115See, e.g., AICPA, Alcoa, Deloitte, Deutsche 

Bank AG (‘‘Deutsche Bank’’), FAF, FEE, FRC, IBM 

Corporation, ICAEW, IDW, Potash, tw telecom, and 

XenoPort, Inc. (‘‘XenoPort’’). 

116Six of the Trustees must be selected from the 

Asia/Oceania region, six from Europe, six from 

North America, one from Africa, one from South 

America, and two from any region, subject to 

maintaining overall geographical balance. 

117As a result of changes to the IFRS 

Foundation’s Constitution in January 2010, second 

terms will be limited to three years for IASB 

members not serving as the chair or vice chair. See 

Trustees Announce Further Governance 

Enhancements (February 15, 2010). (available at: 

http://www.iasb.org/News/Press+Releases/ 

further+governance+enhancements.htm) 

118As of February 2010. 

extent to which financial statements 

prepared under IFRS are comparable within 

and across jurisdictions so as to support a 

Commission decision regarding whether to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Analyze factors that may influence the 

degree of comparability of financial 

statements prepared under IFRS on a global 

basis. 

• Assess the extent to which financial 

statements prepared under IFRS may not be 

comparable in practice and how investors 

manage these situations. 

• Identify ways to improve the 

comparability of financial statements 

prepared under IFRS on a cross-border basis 

to provide the most benefit for investors. 

II. Independent Standard Setting for the 

Benefit of Investors 

A. Introduction 

The 2010 Statement notes that ‘‘[a]nother 

important element for a set of high-quality 

global accounting standards is whether the 

accounting standard setter’s funding and 

governance structure support the 

independent development of accounting 

standards for the ultimate benefit of 

investors.’’ To provide the Commission with 

the information necessary to determine 

whether the IASB is sufficiently independent 

for IFRS to be the single set of high-quality 

globally accepted accounting standards for 

U.S. issuers, the Staff will analyze four areas 

in particular: 

• Oversight of the IFRS Foundation 

(formerly called the ‘‘International 

Accounting Standards Committee (‘IASC’) 

Foundation’’); 106

• Composition of the IFRS Foundation and 

the IASB; 

• Funding of the IFRS Foundation; and 

• IASB standard-setting process. 

B. Oversight of the IFRS Foundation 

The IASB was established to develop 

global standards for financial reporting.107

The IASB is overseen by the IFRS 

Foundation, which is responsible for the 

activities of the IASB and other work that 

centers on IFRS, such as initiatives related to 

translation of IFRS from the English 

language, education about IFRS, and the 

development of interactive data taxonomies 

for IFRS.108

National accounting standard setters 

traditionally have been accountable to a 

national securities regulator or other 

government authority. In the United States, 

the FASB is overseen by the Commission. 

Until 2009, the IFRS Foundation did not 

have a similar link with any national 

securities regulators and public capital 

market authorities.109

The Commission has long supported 

enhanced governance of the IFRS Foundation 

(and its predecessor, the IASC), which 

includes independent oversight representing 

the public interest.110

Recognizing that a relationship with public 

capital market authorities would enhance the 

public accountability of the IFRS 

Foundation, the Trustees amended the IFRS 

Foundation’s Constitution to establish a 

connection between the IFRS Foundation 

and a Monitoring Board 111 composed of 

public capital market authorities charged 

with the adoption or recognition of 

accounting standards used in their respective 

jurisdictions. 

Commenters noted that recent events have 

demonstrated the significant pressure that 

can be exerted on a standard setter and 

acknowledged that the establishment of the 

Monitoring Board was an important step in 

improving the public accountability of the 

IFRS Foundation.112 However, some 

commenters suggested improvements to the 

Monitoring Board 113 and urged that the 

Monitoring Board should include 

representatives from the investment 

community, analysts, auditors, and 

preparers, as well as national and regional 

regulators.114 A number of commenters noted 

that additional time is needed to determine 

the effect that the Monitoring Board will have 

on the public accountability of the IFRS 

Foundation and the IASB.115

The Staff believes that effective oversight is 

critical to any decision to incorporate IFRS 

into the financial reporting system for U.S. 

issuers. The Staff will analyze for the 

Commission’s benefit the extent to which the 

Monitoring Board is functioning as designed 

so as to support a Commission decision 

regarding whether to incorporate IFRS into 

the financial reporting system for U.S. 

issuers. Specifically, the Staff will analyze 

the operations of the Monitoring Board and 

assess any areas for improvement. 

C. Composition of the IFRS Foundation and 

the IASB 

The IFRS Foundation is governed by 22 

trustees with geographically diverse 

backgrounds.116 Trustees are appointed for a 

term of three years that is renewable once. 

The IASB is currently composed of 15 fulltime members who serve five-year terms 

subject to one re-appointment.117 Full-time 

members are required to sever all 

employment relationships and positions that 

may give rise to economic incentives that 

might compromise a member’s independent 

judgment in setting accounting standards. 

The IASB members come from ten 

countries 118 and have a variety of 

backgrounds (e.g., auditors, investors, and 

preparers). In selecting IASB members, the 

Trustees must seek an appropriate mix, such 

that the IASB is not dominated by any 

particular constituency. 

In response to feedback received through 

its current Constitution review, the IFRS 

Foundation has approved amendments to its 

Constitution, which: 

• Emphasize the organization’s 

commitment to developing standards for 

investors. 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9505 

119See footnote 45, above. 

120Membership of the IASB will be four members 

drawn from each of the Asia/Oceania region, 

Europe, and North America; one member from 

South America; one member from Africa; and two 

members from any area, subject to overall 

geographical balance. 

121The Trustees concluded that the expansion of 

the IASB to 16 members would enable the IASB to 

discharge its increasing liaison functions in an 

improved manner, while not negatively affecting 

the efficiency of the IASB’s deliberative processes. 

122See, e.g., CII and ICGN. 

123The Trustees determined that characteristics 

of the new plan for 2008 would be broad-based, 

compelling, open-ended, and country-specific. See 

IASC Foundation, Annual Report 2006. (available 

at: http://www.iasb.org/NR/rdonlyres/D95B6BF3– 

A12A–4C6C–BDA1–BDC98B4F2A45/0/ 

IASCFoundationAnnualReportFinal.pdf) 

124See the list of long-term funding commitments 

on the IASB’s Web site. (available at: http:// 

www.iasb.org/The+organisation/

Governance+and+accountability/Financing/Longterm+funding+commitments.htm) 

125See Proposed Roadmap and 2007 FPI 

Adopting Release. See also ‘‘Report of the Financial 

Crisis Advisory Group’’ (July 28, 2009) (‘‘FCAG 

Final Report’’). (available at: http://www.fasb.org/cs/ 

ContentServer?

c=Document_C&pagename=FASB%2FDocument_

C%2FDocumentPage&cid=1176156365880). The 

Financial Crisis Advisory Group (‘‘FCAG’’) was 

formed to advise the FASB and the IASB 

(collectively, the ‘‘Boards’’) about the standardsetting implications of the financial crisis and 

potential changes in the global regulatory 

environment. The members of the FCAG are senior 

leaders with broad international experience in the 

financial markets, observed by key global banking, 

insurance and securities regulators. 

126See, e.g., Association of Chartered Certified 

Accountants (‘‘ACCA’’), Alcoa, BEP, CAQ, Grant 

Thornton LLP (‘‘GT’’), McGladrey, PPL Corporation 

(‘‘PPL’’), PricewaterhouseCoopers LLP (‘‘PwC’’), UBS 

AG (‘‘UBS’’), United Technologies Corporation 

(‘‘UTC’’), and WellPoint, Inc. 

127See, e.g., American Accounting Association, 

Financial Reporting Standing Committee; CalPERS; 

CRIFR; and Institute of Management Accountants 

(‘‘IMA’’). 

128See, e.g., CalPERS and IMA. 

129 In 2009, 33 companies based in the United 

States were expected to provide voluntary 

contributions, ranging widely in amount. See IASC 

Foundation, Information for Observers: IASCF 

Meeting with Monitoring Board (April 1, 2009). 

(available at: http://www.iasb.org/NR/rdonlyres/

B0B1770C–F414–4DCA–968D–505D521D1839/0/ 

APMB2CFundingreport.pdf) 

130See IASC Foundation, Due Process Handbook 

for the IASB (October 2008) (‘‘Handbook’’). 

(available at: http://www.iasb.org/NR/rdonlyres/

1E8D75B7–927F–495B–BE4A–04C9BE967097/0/ 

DueProcess09.pdf) 

131See Id. 

132The effect of international convergence on the 

quality of IFRS will be evaluated in section I. 

Accordingly, in this section, this component of the 

standard-setting process will focus on accounting 

standards for the public interest and the protection 

of investors. 

• Provide for enhanced guidelines 

regarding the Trustees’ geographical 

diversity.119

• Provide additional guidelines regarding 

geographical diversity of the IASB members 

to help ensure that membership of the IASB 

represents a broad international basis.120

• Increase the maximum number of 

members of the IASB to 16 by July 2012, with 

up to three positions being permitted for 

part-time members (There are no part-time 

members currently).121

Some commenters argued that all IASB 

members should be full time—for example, 

in order to avoid potential conflicts of 

interest with their outside employers.122

Further, these commenters expressed the 

view that the IASB should include greater 

representation from investors, as the primary 

consumers of financial reports. 

The Staff believes the composition of the 

IFRS Foundation and the IASB affects the 

independence of the IASB’s standard-setting 

process. The Staff will analyze for the 

Commission’s benefit the extent to which the 

composition of the IFRS Foundation and the 

IASB promotes the independent 

development of accounting standards for the 

ultimate benefit of investors so as to support 

a Commission decision regarding whether to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will analyze the changes to the composition 

of the IFRS Foundation and the IASB and 

their effect on the IASB’s ability to 

independently develop accounting standards 

for the ultimate benefit of investors. 

D. Funding of the IFRS Foundation 

Until 2008, the IFRS Foundation financed 

IASB operations largely through voluntary 

contributions from a wide range of market 

participants from across the world’s capital 

markets, including from a number of firms in 

the accounting profession, companies, 

international organizations, central banks, 

and governments. Funding commitments 

were made for the period 2001–2005 and 

then were extended for an additional two 

years through 2007. In June 2006, the 

Trustees agreed on four characteristics 123

that should govern the establishment of a 

funding approach designed to enable the 

IFRS Foundation to remain a private-sector 

organization with the necessary resources to 

conduct its work in a timely fashion. The 

IFRS Foundation has no authority to impose 

funding regimes on countries, but the 

Trustees have worked closely with regulatory 

and other public authorities and key 

stakeholder groups on the creation of 

national regimes. Since 2008, efforts to 

change the financing basis of the IFRS 

Foundation have continued. Most funds are 

now obtained on a national basis from 

national standard setters and national capital 

market authorities.124 The number of 

narrowly-based voluntary regimes is 

decreasing. Contributions from the major 

accounting firms also are decreasing. 

The Commission previously has expressed 

concern that the IASB may be subject to a 

perceived or, potentially, an actual 

connection between the availability of 

funding and the outcome of its standardsetting process.125 Similarly, the FCAG Final 

Report stated that in order for the IASB to 

protect its independence from undue 

influence, ‘‘the IASB must have a permanent 

funding structure under which sufficient 

funds are provided to it on an equitable and 

mandatory basis.’’ In the Proposed Roadmap, 

the Commission expressed the view that its 

‘‘future determination regarding the required 

use of IFRS for all U.S. issuers should only 

occur after the IFRS Foundation reaches its 

goal of securing a stable funding mechanism 

that supports the independent functioning of 

the IASB.’’ 

Similarly, many comment letters raised 

concerns about the independence and 

stability of the IASB’s funding.126 A number 

of commenters were concerned that the 

current voluntary nature of the contributions, 

as well as the source, might impact the 

apparent, or actual independence of the 

IASB.127 Commenters expressed the view 

that establishing a stable, transparent funding 

framework for the IFRS Foundation would 

significantly reduce the concern that 

financial pressure could compromise the 

independence of the IASB’s decisionmaking.128

The Staff recognizes that the United States 

has a significant interest in the stable funding 

of the IFRS Foundation 129 and is committed 

to exploring strategies to address this issue. 

Accordingly, the Staff will analyze for the 

Commission’s benefit: (1) The extent to 

which the IFRS Foundation’s sources of 

funding promote the independence of the 

IASB, and (2) possible funding mechanisms 

to provide the U.S.-based contribution to the 

IFRS Foundation. Specifically, the Staff will: 

• Evaluate whether the Trustees’ four 

characteristics governing the establishment of 

a funding approach are appropriate. 

• Monitor the IFRS Foundation’s funding 

arrangements to determine whether 

voluntary funding from individual 

organizations continues to be reduced and a 

stable, independent funding platform is 

secured. 

• Explore alternatives for funding 

mechanisms in the United States. 

E. IASB Standard-Setting Process 

The IASB conducts projects necessary to 

develop high-quality standards. The Due 

Process Handbook for the IASB details 

procedures to be followed when setting 

standards, with an emphasis on how each 

stage of the process must address 

transparency and accessibility, extensive 

consultation and responsiveness, and 

accountability.130

The IASB solicits views and seeks input 

from the public throughout the standardsetting process, starting with selecting items 

for its agenda and including developing and 

publishing a discussion paper and/or 

exposure draft and issuing a final standard. 

Input is received from discussions at its 

project working group and roundtable 

meetings as well as written submissions from 

constituents.131

In the 2003 Policy Statement, the 

Commission stressed the importance of three 

components in the standard-setting process, 

as follows: 

• Consideration of international 

convergence on high-quality accounting 

standards for the public interest and for the 

protection of investors;132

• Timeliness in completing projects, while 

satisfying appropriate public notice and 

comment requirements; and 

• Objectivity in decision-making and 

careful consideration of the views of 

constituents and the expected benefits and 

perceived costs of each standard. 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9506 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

133See CIFiR Final Report, page 57. 

134See, e.g., ICGN. 

135See CFA. 

136See ‘‘Two leading US analysts appointed to the 

IASB,’’ IASB press release (May 21, 2009). (available 

at: http://www.iasb.org/NR/rdonlyres/2BA72D82– 

ACFD–4899–89D9–4DB8151B44F2/0/PRTwoleading

USanalystsappointedtotheIASB210509.pdf) 

137The IFRS Advisory Council supports the IASB 

and provides a forum where the IASB consults 

individuals and representatives of organizations 

affected by its work that are committed to the 

development of high-quality IFRS. 

138A list of members is available at: http:// 

www.iasb.org/NR/rdonlyres/A0D53C88–8988–

4B3F–8B0A–07B01DCBF975/0/

MembershipSAC.pdf. 

139See FRC. 

140Statement of the Monitoring Board for the 

International Accounting Standards Committee 

Foundation on Principles for Accounting Standards 

and Standard Setting (September 22, 2009). 

(available at: http://www.iosco.org/ 

monitoring_board/pdf/Monitoring_Board

_of_IASCF_Statement_22092009.pdf) 

141See, e.g., BEP, CFA, and ITAC. 

142See MetLife, Inc. (‘‘MetLife’’). 

143See FCAG Final Report. 

144See the IASB’s Web site at http://www.iasb.org 

for more information on IASB process. 

145The IFRS Interpretations Committee interprets 

IFRS and reviews accounting issues that are likely 

to receive divergent or unacceptable treatment in 

the absence of authoritative guidance, with a view 

to reaching consensus on the appropriate 

accounting treatment. The IFRS Interpretations 

Committee is comprised of fourteen voting 

members, appointed by the IFRS Foundation 

Trustees for renewable terms of three years, and two 

observers (IOSCO and the European Commission). 

Interpretations by the IFRS Interpretations 

Committee are ratified by the IASB prior to 

becoming effective. 

146 In 2008, the Trustees agreed to change the 

membership structure of the SAC, so that members 

would serve primarily as representatives of 

organizations. The Trustees believe that this 

adaptation of the IFRS Advisory Council will 

enable the IASB to receive views reflecting a wider 

range of interested parties and would give greater 

authority to views received. The Commission also 

participates as an observer of the IFRS Advisory 

Council. 

147For additional information, see IASB, 

Statement of Best Practice: Working Relationships 

between the IASB and other Accounting StandardSetters (February 2006). (available at: http:// 

www.iasb.org/NR/rdonlyres/8F20428C-BC3C-4CFEA194-4386174C949D/0/SOBP

February2006final.pdf) 

The following discussion will consider 

each of these components in the context of 

the IASB’s standard-setting process. 

1. Pre-eminence of Investors 

In its final report, CIFiR asserted that: 

Investor perspectives are critical to 

effective standards-setting, as investors are 

the primary consumers of financial reports. 

Only when investor perspectives are properly 

considered by all parties does financial 

reporting meet the needs of those it is 

primarily intended to serve. Therefore, 

investor perspectives should be given preeminence by all parties involved in 

standards-setting.’’ 133

Several commenters, including investor 

groups, expressed the view that greater 

investor representation on the IASB (and 

FASB) and related oversight groups would 

assist in meeting the primary objective of 

general purpose financial reporting (i.e., 

providing useful information to investors in 

making business and economic decisions).134

One commenter expressed the view that the 

lack of investor representation may expose 

those charged with governance to pressure 

from special interest groups to act in a 

manner that may not be compatible with the 

best interests of investors.135

The Staff notes the IFRS Foundation’s 

recent efforts involving investor groups. 

Recently, two new members from the U.S. 

investor community have been appointed to 

the IASB.136 In addition, the IASB has an 

advisory council—the IFRS Advisory Council 

(formerly called the ‘‘Standards Advisory 

Council’’) 137—that is composed of 

approximately 40 individuals 138 drawn from 

geographically-diverse countries, some of 

which use IFRS and others that do not. The 

IFRS Advisory Council has an investor subgroup representing major investment 

organizations in the U.S. and internationally 

to allow for better engagement of the IASB 

and its staff with investor representatives. 

The Staff intends to explore the extent to 

which the IASB promotes the pre-eminence 

of investor views. For example, the Staff will 

review the IASB’s practices, as compared to 

the requirements detailed in the Constitution, 

Handbook, and other relevant IFRS 

Foundation and IASB documents and 

constituent expectations, to assess the IASB’s 

focus on the pre-eminence of investor views. 

2. Timeliness 

The IASB normally allows a period of 120 

days for comment on a discussion paper and 

exposure draft. For major projects (which are 

those projects involving pervasive or difficult 

conceptual or practical issues), the IASB 

normally will allow a period of more than 

120 days for comments. 

A commenter noted that the IASB’s 

standard-setting process could be improved 

through prompt consideration to keep 

standards current and reflect emerging 

accounting issues and changing business 

practices. The commenter also noted that in 

rare circumstances, the IASB may need to 

shorten its due process period in order to 

achieve a timely solution.139

The Handbook allows for the IASB to have 

a shorter period of consultation, if required, 

of 30 days. Effective March 1, 2010, the 

Trustees revised their Constitution to include 

a provision to allow them, in exceptional 

circumstances, to authorize a shorter due 

process period. Authority would be given 

only with the approval of 75 percent of the 

Trustees after the IASB had made a formal 

request. The due process periods could be 

reduced but never dispensed with 

completely. 

Recently, the FCAG addressed situations in 

which it may be appropriate for the Boards 

to expedite due process. The FCAG Final 

Report urged the Boards to adequately define 

the circumstances under which it is 

appropriate to act on the basis of expedited 

due process and develop procedures to 

ensure that, in such circumstances, the 

maximum consultation practicable is 

obtained. 

The Staff believes that the standard-setting 

process requires a careful balance between 

timely resolution of emerging issues and 

sufficient due process. The Staff will analyze 

for the Commission’s benefit the extent to 

which the IASB balances timely resolution of 

emerging issues and due process so as to 

support a Commission decision regarding 

whether to incorporate IFRS into the 

financial reporting system for U.S. issuers. 

Specifically, the Staff will review the IASB’s 

practices, as compared to the requirements 

detailed in relevant IFRS Foundation and 

IASB documents and constituent 

expectations, to assess the IASB’s ability to 

resolve emerging issues in a timely and 

effective manner without compromising due 

process. 

3. Objectivity 

The Monitoring Board, of which the SEC 

Chairman is a member, recently stated that 

‘‘[c]onfidence in the quality and integrity of 

the standards depends upon independence 

and transparency in the standard setter’s due 

process.’’ 140 The Monitoring Board statement 

expressed the view that robust participation 

by all interested parties is an essential 

element of due process. 

Commenters expressed concerns regarding 

whether the independence of the IASB 

recently has been compromised.141 A 

commenter further questioned whether the 

IFRS Foundation and the IASB have the 

ability and infrastructure to confront political 

pressure from governments around the 

world.142

Similarly, the FCAG observed that: 

‘‘[T]o develop standards that are high 

quality and unbiased, accounting standard 

setters must enjoy a high degree of 

independence from undue commercial and 

political pressures, but they must also have 

a high degree of accountability through 

appropriate due process, including wide 

engagement with stakeholders and oversight 

conducted in the public interest.143

The IASB relies on a number of practices 

and other factors to ensure that it considers 

a diversity of views, including: 

• The IASB’s meetings are open to public 

observers and broadcast over the internet. 

• Meeting materials, comment letters 

received, and staff summaries of comment 

letters on discussion papers and exposure 

drafts are publicly available on the IASB Web 

site.144

• The IASB is assisted on IFRS interpretive 

matters by its IFRS Interpretations Committee 

(formerly called the ‘‘International Financial 

Reporting Interpretations Committee,’’ or 

‘‘IFRIC’’).145

• The IASB consults with the IFRS 

Advisory Council on single projects with a 

particular emphasis on practical application 

and implementation issues.146

• The IASB cooperates with national 

accounting standard setters and other official 

bodies concerned with standard setting in 

order to promote the convergence in 

accounting standards around the world.147

• The due process of the IASB is subject 

to the active oversight of the Trustee Due 

Process Oversight Committee. 

The Staff will analyze for the 

Commission’s benefit the extent to which the 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9507 

148See EY. 

149See Proposed Roadmap. 

150See, e.g., American Bar Association Business 

Law Section (‘‘ABA Committee’’). 

IASB’s standard-setting process is 

independent and objective. Specifically, in 

conjunction with the other steps in this 

section related to the oversight, composition, 

and funding of the IFRS Foundation and the 

IASB, the Staff will review the IASB’s 

practices, as compared to the requirements 

detailed in relevant IFRS Foundation and 

IASB documents and constituent 

expectations, to assess the adequacy of the 

IASB’s independence and objectivity during 

recent standard-setting efforts. 

III. Investor Understanding and Education 

Regarding IFRS 

A. Introduction 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers requires 

consideration of the impact on investors. 

This consideration includes focus on the 

extent to which the accounting standards and 

the standard-setting process promote the 

reporting of transparent and useful financial 

information to support investors in their 

investment decision-making process. In 

addition, this consideration requires an 

assessment of investor understanding and 

education regarding IFRS, as the main 

benefits to investors of a single set of highquality globally accepted accounting 

standards would be realized only if investors 

understand and have confidence in the basis 

for the reported results. 

Investor considerations regarding IFRS and 

investor confidence in IFRS and its standard 

setting are discussed in more detail in 

sections I and II, respectively. This section 

focuses on investor understanding and 

education regarding IFRS. In particular, 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers, transitional 

considerations related to investor 

understanding and education regarding IFRS 

require evaluation to assess the scope of, 

timing of, and approach to changes that 

would be necessary for effective 

incorporation. 

B. Investor Understanding and Education 

IFRS currently differs from U.S. GAAP in 

a number of areas; consequently, 

incorporation of IFRS into the financial 

reporting system for U.S. issuers may require 

significant investor education regarding 

IFRS. However, as noted by one commenter, 

many U.S. investors already possess some 

understanding of IFRS due to global industry 

focus, cross-border investment decisions, and 

investments in foreign private issuers.148

Moreover, through the convergence process 

undertaken by the Boards, we expect the 

differences between the two sets of standards 

should become fewer and narrower. As part 

of this Work Plan, the Staff will consider U.S. 

investors’ current familiarity with IFRS and 

how they currently become educated about 

changes to accounting standards, in order to 

better assess the extent of investor 

educational effort necessary to effectively 

incorporate IFRS into the financial reporting 

system for U.S. issuers. 

Because standard setters are continually 

improving accounting standards, 

mechanisms already exist for investors to 

become educated about the effects of changes 

to the accounting standards. By considering 

the general education process currently used 

by investors in understanding changes to 

U.S. GAAP, the Staff will evaluate how this 

process could apply to investor education 

with respect to IFRS in preparation for its 

potential incorporation into the financial 

reporting system for U.S. issuers. In addition, 

the staff will consider whether additional 

educational efforts are needed. 

Existing mechanisms to educate investors 

traditionally are considered in the context of 

education after a standard has been 

developed. Also important, however, is 

investor education during the standardsetting process, which may occur in two 

ways. First, active investor outreach by the 

standard setters may increase both the extent 

and quality of understanding of new 

standards. In the past, both Boards have used 

a number of tools to facilitate investor, issuer, 

and auditor education about new standards, 

including education sessions, roundtables, 

and Web casts. Second, the Boards’ 

convergence projects will be completed in 

accordance with their due process 

procedures, providing investors with time to 

become familiar with the new converged 

standards as they are developed. The Staff 

believes the effectiveness of these two areas 

in educating investors during the standardsetting process needs to be evaluated. 

The Staff will analyze for the 

Commission’s benefit how to promote 

investor understanding of IFRS, as well as 

the existing mechanisms to educate investors 

about changes in the accounting standards, 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers. 

Specifically, the Staff will: 

• Conduct research aimed at 

understanding U.S. investors’ current 

knowledge of IFRS and preparedness for 

incorporation of IFRS into the financial 

reporting system for U.S. issuers. 

• Gather input from various investor 

groups to understand how investors educate 

themselves on changes in accounting 

standards and the timeliness of such 

education. 

• Consider the extent of, logistics for, and 

estimated time necessary to undertake 

changes to improve investor understanding 

of IFRS and the related education process to 

ensure investors have a sufficient 

understanding of IFRS prior to potential 

incorporation. 

IV. Regulatory Environment 

A. Introduction 

In addition to filing financial statements 

with the Commission, U.S. issuers commonly 

provide financial information to a wide 

variety of other parties for different purposes. 

While the federal securities laws provide the 

Commission with the authority to prescribe 

accounting principles and standards to be 

followed by public companies and other 

regulated entities that file financial 

statements with the Commission, the 

provision and content of information to other 

regulators generally is not determined by the 

Commission.149 However, these other 

regulators frequently rely on U.S. GAAP as a 

basis for their regulatory reporting regimes. 

Therefore, should the Commission 

determine in the future to incorporate IFRS 

into the financial reporting system for U.S. 

issuers, transitional considerations related to 

the role of financial reporting in various 

regulatory regimes and how such 

incorporation would affect issuers, investors, 

and others in those contexts, require 

evaluation to assess the magnitude and 

logistics of changes that would be necessary 

for effective incorporation. 

Accordingly, this section explores 

considerations related to the following: 

• Manner in which the SEC fulfills its 

mission; 

• Industry regulators; 

• Federal and state tax impacts; 

• Statutory dividend and stock repurchase 

restrictions; 

• Audit regulation and standard setting; 

• Broker-dealer and investment company 

reporting; and 

• Public versus private companies. 

B. Manner in Which the SEC Fulfills its 

Mission 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers may affect 

the manner in which the Commission fulfills 

its mission in two ways. First, the 

Commission must consider how to 

incorporate IFRS into its rules and 

regulations and Staff application guidance, to 

the extent they refer to accounting standards 

and requirements. Second, as stated in the 

Commission’s 2003 Policy Statement: 

‘‘The federal securities laws set forth the 

Commission’s broad authority and 

responsibility to prescribe the methods to be 

followed in the preparation of accounts and 

the form and content of financial statements 

to be filed under those laws (citations 

omitted), as well as its responsibility to 

ensure that investors are furnished with other 

information necessary for investment 

decisions. To assist it in meeting this 

responsibility, the Commission historically 

has looked to private-sector standard-setting 

bodies designated by the accounting 

profession to develop accounting principles 

and standards.’’ 

Commenters questioned how a move to 

IFRS would affect the Commission’s 

relationship with the standard setter. For 

example, some questioned whether, under 

securities law, as amended by the SarbanesOxley Act, the SEC has the ability to 

designate the IASB as the U.S. standard 

setter.150 If the IASB were designated as the 

U.S. standard setter, commenters observed 

that the Proposed Roadmap is unclear as to 

how the Commission would exercise 

oversight of the IASB. Accordingly, 

commenters urged the Commission to 

determine how it would react in a crisis 

situation and how the Commission would 

protect U.S. investors if the IASB did not 

address U.S.-specific issues in a timely 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9508 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

151See, e.g., Darden Restaurant, Inc. (‘‘Darden’’) 

and Intel Corporation (‘‘Intel’’). 

152See, e.g., ABA Committee and Travelers. 

153See section I.D for further discussion regarding 

jurisdictional variations of IFRS. 

154PPL. See also, e.g., Cisco Systems, Inc. 

(‘‘Cisco’’) and Liberty Global. 

155See, e.g., Office of the Comptroller of the 

Currency, Board of Governors of the Federal 

Reserve System, Federal Deposit Insurance 

Corporation, National Credit Union Administration, 

and Office of Thrift Supervision (collectively, 

‘‘BankReg’’), Committee of Annuity Insurers, 

Dominion Resources Services (‘‘Dominion’’), First 

Data Corporation (‘‘First Data’’), and National 

Association of Regulatory Utility Commissioners 

(‘‘NARUC’’). 

156See, e.g., Boeing and Honeywell. 

157 26 U.S.C. 1 et seq. [1986.] 

158See Section 472 of the Internal Revenue Code 

(26 U.S.C. 472). 

159See, e.g., Allergan, Inc. and tw telecom. 

160See, e.g., KPMG, The LIFO Coalition (‘‘LIFO’’), 

and National Association of WholesalerDistributors. 

161See KPMG. 

manner.151 For example, some commenters 

indicated the Commission should retain the 

authority to interpret IFRS.152

At the same time, other commenters have 

cautioned against a ‘‘U.S. version of IFRS,’’ 153

as follows: 

‘‘We do not believe the Commission should 

supplement any missing accounting or 

disclosure requirements or the financial 

statements would not be considered to be 

prepared in accordance with IFRS as issued 

by the IASB. We believe any additional 

disclosures the Commission would consider 

requiring should be included outside of the 

audited financial statements.’’ 154

In response to these concerns, the 2010 

Statement states: 

‘‘[The Commission] believe[s] the FASB 

will continue to play a critical and 

substantive role in achieving the goal of 

global accounting standards. The FASB is the 

accounting standard setter for the U.S. capital 

markets, and it should continue to work with 

the IASB to improve accounting standards. 

Moreover, that role would remain critical 

after adoption of global standards.’’ 

The Staff will analyze for the 

Commission’s benefit the impact on 

Commission rules and procedures and 

potential approaches for the ongoing role of 

the FASB in accounting standard setting and 

interpretation, should the Commission 

determine in the future to incorporate IFRS 

into the financial reporting system for U.S. 

issuers. Specifically, the Staff will: 

• Analyze references to accounting 

standards and requirements in existing 

Commission rules and interpretations and 

Staff application guidance to identify the 

extent of, logistics for, and estimated time 

necessary to implement any changes prior to 

such incorporation. 

• Consider how, if at all, such 

incorporation would affect the nature, 

manner, or frequency in which the 

Commission and its Staff provide 

interpretative accounting guidance and 

enforce accounting standards, and the extent 

of, logistics for, and estimated time necessary 

to implement any changes. 

• Analyze approaches to the FASB’s 

ongoing role in accounting standards used in 

the United States, and the extent of, logistics 

for, and estimated time necessary to 

undertake these approaches. 

C. Industry Regulators 

In the Proposed Roadmap, the Commission 

observed: 

‘‘Various federal and state regulators, 

including regulators of financial institutions, 

insurance companies and public utilities, are 

provided with periodic financial information 

on an on-going basis. For example, U.S. 

GAAP financial statements frequently are 

used as the basis for determining capital 

requirements for financial institutions.’’ 

Due to the prevalence of financial 

information provided to different U.S. 

regulators, incorporation of IFRS into the 

financial reporting system for U.S. issuers 

may significantly affect different regulators 

and issuers subject to those regulators’ 

compliance requirements. As such, it is 

important to identify the full range of 

regulatory regimes that rely on information 

developed for financial reporting purposes. 

A number of commenters suggested that 

the Commission determine the extent to 

which industry regulators would continue to 

accept financial statements prepared for SEC 

reporting purposes as a starting point for 

regulatory filings.155 Otherwise, commenters 

cautioned that a move to IFRS for financial 

reporting purposes risks creating costly dualreporting requirements for issuers.156

Further, if regulators continue to accept 

reporting prepared for SEC purposes, any 

changes in the reporting as a result of 

incorporating IFRS could have regulatory 

impacts. The Staff recognizes that acceptance 

of IFRS-based financial statements by 

industry regulators may have consequences 

on issuers and others that require analysis. 

The Staff will analyze for the 

Commission’s benefit the effects on issuer 

compliance with industry regulatory 

requirements, should the Commission 

determine in the future to incorporate IFRS 

into the financial reporting system for U.S. 

issuers. Specifically, the Staff will: 

• Analyze the effects on issuer compliance 

with industry regulatory requirements. 

• Consider the impact of a change in SEC 

reporting on industry regulators. 

• Analyze constituent concerns associated 

with any potential changes, or lack thereof, 

to regulatory regimes. 

D. Federal and State Tax Impacts 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers also could 

affect federal and state tax regulations (e.g., 

Internal Revenue Code).157 As explained in 

the Proposed Roadmap: 

‘‘As the Internal Revenue Code has 

developed over an extended period of time 

with existing U.S. GAAP as the predominant 

set of accounting standards used in the 

United States, certain interactions exist 

between certain provisions of U.S. GAAP and 

income tax requirements. For example, the 

Internal Revenue Code has conformity 

provisions related to the method of 

accounting for inventory for tax reporting 

purposes and the method used for reporting 

to shareholders (and other owners or 

beneficiaries) or for credit purposes.158 IFRS 

does not allow for the use of last-in, first-out, 

or LIFO, method of accounting for inventory. 

As a result, a company that reports in 

accordance with IFRS would be required to 

use a method of accounting for inventory that 

is acceptable under IFRS, for example the 

first-in, first-out, or FIFO, method. U.S. 

issuers changing to FIFO for financial 

reporting purposes may experience a change 

in taxable income based on the difference 

between inventory valued on a LIFO basis 

and on a FIFO basis.’’ 

If federal and state tax regulators 

maintained their current tax codes, 

companies may experience a significant 

increase in the number of book-tax 

differences they would be required to track 

upon incorporation of IFRS into the financial 

reporting system for U.S. issuers. Several 

commenters expressed that because of the 

high cost that otherwise would be incurred 

in maintaining two sets of records, the U.S. 

Internal Revenue Code, as well as state and 

local tax codes and related regulations, 

would need to be modified.159

Alternatively, if federal and state tax 

regulators continued to align their tax codes 

with reporting for SEC purposes, companies 

may experience significant changes to their 

expected tax liabilities. Commenters 

expressed that the SEC should work with the 

Internal Revenue Service and other tax 

authorities to mitigate the LIFO transitional 

issue,160 as well as address the transfer 

pricing arrangements and franchise tax 

considerations that may be affected in the 

transition.161

The Staff will analyze for the 

Commission’s benefit the effects on federal 

and state tax regulations, as well as issuers 

subject to such regulations, should the 

Commission determine in the future to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Analyze the effects on federal and state 

tax regulations, as well as issuers subject to 

such regulations. 

• Consider the impact of a change in SEC 

reporting on federal and state tax regulators. 

• Analyze constituent concerns associated 

with any potential changes, or lack thereof, 

to federal and state tax regulation. 

E. Statutory Dividend and Stock Repurchase 

Restrictions 

Certain legal standards may be tied to 

amounts determined for financial reporting 

purposes. For example, companies may 

declare dividends to or repurchase stock 

from shareholders. While the amount, timing, 

and manner of payment of dividend 

distributions and stock repurchases are 

typically determined by the companies’ 

boards of directors, the amount available may 

be restricted by state statute. For example, 

some jurisdictions provide that dividends 

may only be paid from retained earnings or 

may be paid from current earnings despite an 

accumulated deficit. 

To the extent that jurisdictions base legal 

standards on amounts determined for 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9509 

162See Section 101 of the Sarbanes-Oxley Act (15 

U.S.C. 7211). 

163See, e.g., CalPERS and FEE. 

164See AAA–FASC. 

165See, e.g., KPMG. 

166As further discussed in the Proposed 

Roadmap: 

Some believe that changes to the American Bar 

Association Statement of Policy Regarding Lawyers’ 

Responses to Auditors’ Requests for Information 

may be necessary. See AU section 337C. The 

Statement of Policy, commonly referred to as the 

‘‘Treaty,’’ recognizes the professional 

responsibilities of attorneys and auditors and seeks 

to preserve confidentiality while providing the 

necessary level of assurance for the audit. The 

Treaty recognizes that the confidentiality of 

communications between an attorney and a client 

may be impaired by the disclosure of the substance 

of such communications to third parties, including 

auditors. By describing thresholds for disclosure 

and limitations on responses, the Treaty sets the 

scope of the attorney’s responses to audit requests 

for information on legal matters. Some believe that 

the thresholds and limitations described in the 

Treaty are inconsistent with certain provisions 

within IFRS. 

See also, e.g., ABA Committee (echoed the 

Commission’s statements in the Proposed Roadmap 

regarding the audit of legal contingencies). 

167See, e.g., CAQ (stated that the U.S. auditing 

profession stands ready to support the use of IFRS 

by all U.S. issuers, including early adopters under 

an option), J.H. Cohn LLP (confirmed its readiness 

to prepare for audits of IFRS financial statements 

once the SEC reaches a decision), and PwC. 

168See, e.g., BDO Seidman, LLP (‘‘BDO’’), CAQ, 

and Verizon Communications, Inc. 

169See, e.g., EY. 

170See, e.g., AICPA and Investment Company 

Institute (who expressed that convergence in 

accounting standards as applied to investment 

companies and resolution of conflicts between IFRS 

and Article 6 of Regulation S–X should be 

prerequisites to a move to IFRS). 

171 GT. 

172See, e.g., Private Equity Council. 

financial reporting purposes, incorporation of 

IFRS into the financial reporting system for 

U.S. issuers could affect a company’s ability 

to undertake certain actions and an investor’s 

expectations in that regard. In addition, to 

the extent that legal standards do not change 

based on changes in SEC reporting, 

companies would need to maintain two sets 

of records. Accordingly, the Staff will 

analyze for the Commission’s benefit the 

effects on such legal standards, should the 

Commission determine in the future to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Analyze the effect of such incorporation 

on legal standards, such as a company’s 

ability to pay dividends or repurchase stock, 

on issuers and investors. 

• Consider the impact of a change in SEC 

reporting on state statutes in this regard. 

• Analyze constituent concerns associated 

with any potential changes, or lack thereof, 

to such state statutes. 

F. Audit Regulation and Standard Setting 

Another regulatory body that may be 

affected by incorporation of IFRS into the 

financial reporting system for U.S. issuers is 

the Public Company Accounting Oversight 

Board (‘‘PCAOB’’), which is responsible for 

overseeing public company audit firms and 

establishing audit, quality control, ethics, 

and independence standards used by those 

firms.162 The Proposed Roadmap and 

commenters raised two primary 

considerations related to the PCAOB. First, 

commenters questioned whether a move to 

global accounting standards should be 

coupled with a move to global auditing 

standards in the United States, for example, 

through convergence of PCAOB standards 

with or adoption of auditing standards issued 

by the International Accounting and 

Assurances Standards Board.163 Second, 

commenters noted that PCAOB auditing 

standards may require better alignment with 

IFRS. For example, one commenter expressed 

a general concern that there would be a 

mismatch between the less prescriptive 

standards in IFRS and U.S. auditing 

standards.164 In addition, the Proposed 

Roadmap identified a general need for 

conforming amendments to PCAOB 

standards where they refer to current U.S. 

GAAP literature. 

Commenters also provided specific 

examples of PCAOB auditing standards that 

may require better alignment with IFRS. For 

example, commenters suggested that the 

PCAOB issue additional guidance for 

auditors engaged in auditing market risk 

information included in the audited financial 

statements pursuant to IFRS 7 (currently U.S. 

issuers provide similar information outside 

the financial statements pursuant to Item 305 

of Regulation S–K).165

Further, the Proposed Roadmap discussed 

the audit of legal contingencies as follows: 

‘‘One of the conditions under IFRS for 

recognizing a provision for a legal 

contingency is that it is more likely than not 

that an obligation exists (footnote omitted). 

This recognition threshold is lower than the 

current recognition threshold in U.S. GAAP, 

resulting in the potential for an earlier 

income statement recognition of costs 

associated with litigation (footnote omitted). 

Concerns have been raised about an auditor’s 

ability to corroborate the information 

furnished by management related to 

litigation, claims, and assessments by 

obtaining an audit inquiry letter from a 

client’s attorney.’’ 166

Notwithstanding the above examples of 

areas where PCAOB auditing standards may 

require better alignment with IFRS, most 

auditors that responded to the Proposed 

Roadmap did not have concerns regarding 

their ability to opine on financial statements 

prepared under IFRS.167

The Staff will analyze for the 

Commission’s benefit the effects on audit 

standard setting and auditor requirements, 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers. 

Specifically, the Staff will: 

• Consider the impact of such 

incorporation on PCAOB standards. 

• Consider the extent of, logistics for, and 

estimated time necessary to undertake any 

changes to the auditing standards. 

G. Broker-Dealer and Investment Company 

Reporting 

The Proposed Roadmap excluded 

investment companies registered under the 

Investment Company Act of 1940 and certain 

other regulated entities that are required to 

file or furnish certain types of financial 

reports (e.g., broker-dealers). 

Some commenters expressed that no 

issuers should be exempt from the scope of 

the Proposed Roadmap 168 and that the final 

Roadmap should include a plan so that all 

filings with the SEC are based on IFRS and 

allow adequate time for the IASB and SEC to 

consider the appropriate financial reporting 

model for these entities.169

Alternatively, some commenters supported 

the exclusion of investment companies from 

the rule proposal.170 Another commenter 

expressed the view that the Commission has 

not sufficiently articulated its rationale for 

excluding investment companies and other 

regulated entities from the scope of the 

Proposed Roadmap and would agree with 

excluding these issuers ‘‘only if there are 

unique considerations surrounding these 

entities that could delay the Commission’s 

decision making process.’’171

Finally, commenters also expressed 

concerns regarding costs imposed by the 

reduced comparability introduced by the 

continued use of another basis of accounting 

(e.g., for private companies (see below), and/ 

or Investment Company Act registrants).172

As another example, excluding broker-dealer 

reporting could result in a broker-dealer 

subsidiary being required to report to the 

Commission under one set of standards with 

the public holding company that 

consolidates that subsidiary required to 

report under another. Also, to the extent 

reporting results changed if IFRS were to be 

incorporated for these entities, such a change 

could impact compliance with financial 

responsibility rules, such as net capital 

requirements. 

In light of the different views noted above, 

the Staff will analyze for the Commission’s 

benefit possible approaches for financial 

reporting requirements for broker-dealers and 

investment companies, should the 

Commission determine in the future to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Assess the effects of such incorporation 

on broker-dealers, investment companies, 

and investors, including whether IFRS 

includes sufficient standards, and the extent 

of, logistics for, and estimated time necessary 

to undertake any changes, should brokerdealers and investment companies be 

included in the scope any potential 

Commission decision. 

• Evaluate the effect on investors of 

excluding broker-dealers and investment 

companies from the scope of any potential 

Commission decision. 

H. Public Versus Private Companies 

The Proposed Roadmap focused only on 

companies that file with the Commission. 

However, existing U.S. GAAP also is used by 

private companies. 

Commenters expressed concern over the 

impact a move to IFRS would have on U.S. 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9510 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

173See, e.g., The New York State Society of 

Certified Public Accountants (‘‘NY CPAs’’) and Ohio 

CPAs. 

174See, e.g., ABA Committee, Center for Capital 

Markets Competitiveness (‘‘CCMC’’), Davey Tree, 

First Data, and ITAC. 

175See, e.g., CA CPAs and CIGNA Corporation. 

176 ‘‘IASB publishes IFRS for SMEs,’’ IASB press 

release (July 9, 2009). (available at: http:// 

www.iasb.org/News/Press+Releases/ 

IASB+publishes+IFRS+for+SMEs.htm) 

177See, e.g., Phil Ameen (‘‘Ameen’’), Chevron 

Corporation, Eli Lilly, Shawn S. Fahrer, Hot Topic 

Inc. (‘‘Hot Topic’’), Intel, Graduating Seniors— 

Jacksonville University (Georgia), Kohl’s 

Department Stores, Inc. (‘‘Kohl’s’’), Molson Coors 

Brewing Company, NARUC, PPL, Psoras, Mark A. 

Supin, SIFMA, U.S. Congressman Lee Terry, 

Tuesday Morning; and U.S. Congressman Zach 

Wamp. 

178See, e.g., Davey Tree, Exxon Mobil 

Corporation (‘‘Exxon Mobil’’), Marriott, McDonald’s, 

Pfizer Inc. (‘‘Pfizer’’), Plantronics, Inc. 

(‘‘Plantronics’’), Regions Financial Corp., and tw 

telecom. 

179See, e.g., ABA Committee, American 

Insurance Association (‘‘AIA’’), AICPA, BankReg, 

Best Buy Co., Inc., CAQ, Cisco, Cymer Inc., Deloitte, 

EY, Fannie Mae, Graybar Electric Company, Inc., 

ICAEW, IMA, KPMG, National Association of Real 

Estate Investment Trusts, NARUC, Progress Energy, 

Inc., PwC, Reznick Group, P.C., TransCanada 

Corporation, and XenoPort. 

180See, e.g., Association of the Bar of the City of 

New York, Community Health, CSX Corporation, 

and Plantronics. 

181The human resource impact on issuers is 

discussed separately in section VI. 

182See, e.g., Ameen. 

183See, e.g., Air Products, Community Health, 

Darden, and Mead Westvaco. 

184See, e.g., Ameen. 

185UTC. 

186See, e.g., Eli Lilly, Exxon Mobil, EY, and 

SIFMA. 

187See ICAEW. 

188See, e.g., Mead Westvaco, Plum Creek Timber 

Company, Inc., Potlatch Corporation, and Rayonier 

Inc. (who expressed concerns regarding the costs of 

complying with the requirement in International 

private companies.173 One concern raised in 

the Proposed Roadmap and echoed by 

commenters was that, to the extent two sets 

of standards existed, a requirement to file 

different financial statements with the 

Commission would increase costs of capital 

for private companies considering an initial 

public offering.174 It could also impact the 

evaluation of business combinations between 

public and private companies. Some 

commenters acknowledged that private 

company reporting is largely outside of the 

mandate of the Commission, but stated that 

the Commission should assess the 

consequences its decision on IFRS would 

have to this large and important part of the 

U.S. economy. Specifically, certain of these 

commenters believed that if a ‘‘dual-GAAP’’ 

system emerged for private versus public 

companies, this could adversely affect the 

efficiency of the U.S. capital markets.175 Even 

if U.S. private companies were to report 

under IFRS, a ‘‘dual-GAAP’’ system may 

evolve, if private companies followed IFRS 

for small- and medium-sized entities 

(‘‘SMEs’’), which: 

‘‘[I]s a self-contained standard of about 230 

pages tailored for the needs and capabilities 

of smaller [private] businesses. Many of the 

principles in full IFRSs for recognising and 

measuring assets, liabilities, income and 

expenses have been simplified, topics not 

relevant to SMEs have been omitted, and the 

number of required disclosures has been 

significantly reduced. To further reduce the 

reporting burden for SMEs revisions to the 

IFRS will be limited to once every three 

years.’’ 176

The Staff will analyze for the 

Commission’s benefit the effects on U.S. 

private companies, should the Commission 

determine in the future to incorporate IFRS 

into the financial reporting system for U.S. 

issuers. Specifically, the Staff will: 

• Analyze the effects of such incorporation 

for U.S. issuers on private companies, 

auditors, and investors. 

• Assess the extent of, logistics for, and 

estimated time necessary to undertake 

changes to accommodate any resulting 

implications on private companies. 

V. Impact on Issuers 

A. Introduction 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers would 

significantly affect preparers of financial 

statements—the several thousand issuers that 

file reports with the Commission. Numerous 

commenters expressed the view that the 

costs, effort, and time involved with a move 

to IFRS would be considerable,177 with many 

asserting that the benefits of such a move 

may not outweigh those costs.178 A number 

of commenters further asserted that the 

transition time articulated in the Proposed 

Roadmap was not sufficient 179 and may 

cause confusion, thereby damaging investor 

confidence.180

Accordingly, this aspect of the Work Plan 

explores the magnitude and logistics of 

changes that issuers would need to undertake 

to effectively incorporate IFRS into the 

financial reporting system for U.S. issuers, 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers in the 

following areas:181

• Accounting systems, controls, and 

procedures; 

• Contractual arrangements; and 

• Corporate governance. 

The Work Plan will also consider the effect 

of such incorporation on the following: 

• Accounting for litigation contingencies; 

and 

• Smaller issuers versus larger issuers. 

B. Accounting Systems, Controls, and 

Procedures 

U.S. issuers may be required to 

significantly modify their accounting 

systems, controls, and procedures, if the 

Commission incorporates IFRS into the 

financial reporting system. As stated in the 

Proposed Roadmap: 

‘‘Use of any new accounting standards 

requires changes to financial reporting 

systems and procedures to identify, collect, 

analyze and report financial information and 

the corresponding controls. Changing 

numerous accounting standards at the same 

time, regardless of the starting point, would 

require numerous changes in a company’s 

policies and procedures and system of 

internal controls.’’ 

For example, commenters expressed the 

need for: 

• A complete survey of accounting policies 

as a first step because IFRS explicitly 

requires that all similar transactions in the 

enterprise (including affiliates) be accounted 

for similarly;182

• More detailed company policies, as IFRS 

is viewed as less developed than U.S. 

GAAP;183 and 

• Changes to systems, including ledgers 

and related internal controls, and related 

testing of such changes,184 particularly to 

ensure effectiveness for reporting purposes 

under section 404 of the Sarbanes-Oxley Act. 

Commenters noted that the burden of 

changes to accounting systems, controls, and 

procedures would be exacerbated in a 

number of ways. First, issuers may be 

required to maintain dual-accounting 

systems for a period of time (e.g., (1) for 

periods reported under existing U.S. GAAP 

after the opening balance sheet date under 

IFRS 1, First-time Adoption of International 

Financial Reporting Standards, but before the 

initial filing under a system incorporating 

IFRS, (2) if the SEC were to require 

supplemental U.S. GAAP information for a 

period of time to aid in transition, (3) if such 

incorporation were effective in the financial 

statements of consolidated entities prior to 

those of the consolidated entities’ standalone subsidiaries, and (4) if other regulators 

continued to require reporting based on U.S. 

GAAP). One commenter stated: 

‘‘Maintaining dual reporting presents U.S. 

issuers with a significant burden since all of 

the processes, controls, and checks must 

occur twice for each transaction. Indeed, it is 

likely that the Sarbanes Oxley control testing 

requirements could nearly double during the 

period of parallel reporting.’’ 185

Second, changes to accounting systems, 

controls, and procedures require sufficient 

lead time. However, if IFRS continues to 

change at a rapid pace during this lead time, 

U.S. issuers will experience additional 

challenges in planning for incorporation of 

IFRS into the financial reporting system. As 

such, some commenters expressed the need 

for a ‘‘stable platform’’ for a period of time 

during which accounting standards do not 

change.186 However, a ‘‘stable platform’’ may 

constrain the standard setters’ ability to 

address emerging issues. 

Third, some commenters asserted that 

certain industries would be 

disproportionately impacted by 

incorporation of IFRS into the financial 

reporting system for U.S. issuers because of 

differences between existing U.S. GAAP and 

IFRS that are specific to their circumstances. 

One commenter stated that financial 

institutions will need sufficient time to 

prepare for conversion to IFRS, given the 

extent of systems changes and 

communications that will need to occur.187

Other commenters expressed concerns about 

specific differences between U.S. GAAP and 

IFRS for which they believed the accounting 

under IFRS would be onerous.188

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9511 

Accounting Standard 41, Agriculture, to fair value 

timberlands). See also, e.g., Hot Topic, J.C. Penney 

Company, Inc., Kohl’s, and Tuesday Morning (who 

expressed concerns about the IFRS disallowance of 

the retail inventory method). 

189See, e.g., AIA, CCMC, Hot Topic, JP Morgan, 

Psoras, and Tuesday Morning. 

190See Disclosure Required by Sections 406 and 

407 of the Sarbanes-Oxley Act of 2002, Release No. 

33–8177 (January 23, 2003) [68 FR 5110 (January 

31, 2003)]. 

191Metlife. 192 Dominion. See also, e.g., FPL and Pfizer. The 

Staff notes that the FASB is in the process of redeliberating loss contingency disclosure 

requirements. See also section IV.E regarding 

concerns related to the auditing of loss 

contingencies accounted for under IFRS. 

193FAF. See also, e.g., Biotechnology Industry 

Organization, Business Roundtable, CCMC, CRIFR, 

and IMA. 

194 Xenoport. 

The Staff will analyze for the 

Commission’s benefit the effects on U.S. 

issuers’ accounting systems, controls, and 

procedures, should the Commission 

determine in the future to incorporate IFRS 

into the financial reporting system for U.S. 

issuers. Specifically, the Staff will: 

• Determine the extent of, logistics for, and 

estimated time necessary to undertake 

changes to issuer accounting systems, 

controls, and procedures to facilitate such 

incorporation. 

• Consider the implications of a ‘‘stable 

platform,’’ including the length of time and 

means of addressing emerging issues. 

C. Contractual Arrangements 

The Proposed Roadmap also noted that 

companies’ contracts often, either explicitly 

or implicitly, require the use of U.S. GAAP 

or are based off of current U.S. GAAP 

reporting. For example, companies may have 

issued debt instruments which include 

financial covenants based on U.S. GAAP or 

require periodic reporting of financial 

statements prepared under U.S. GAAP. 

Similarly, lease contracts and employee 

compensation plans may be based on metrics 

computed using U.S. GAAP financial 

information. 

Commenters indicated that a move to IFRS 

for U.S. issuers may require contract 

renegotiation or the preparation of two sets 

of financial statements, depending on how 

IFRS is incorporated in the U.S. capital 

markets.189 In addition, performance under 

the existing agreements could be affected if 

the reported information changes. 

Accordingly, the Staff will analyze for the 

Commission’s benefit the effects on 

contractual arrangements, should the 

Commission determine in the future to 

incorporate IFRS into the financial reporting 

system for U.S. issuers. Specifically, the Staff 

will: 

• Assess the types and pervasiveness of 

contractual arrangements that would be 

affected by such incorporation and the 

manner in which they would be affected. 

• Determine the costs, ability, plans, and 

estimated time required to address concerns 

regarding affected contractual arrangements. 

D. Corporate Governance 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers may affect 

an issuer’s compliance with corporate 

governance requirements. For example, in 

2003, as required by the Sarbanes-Oxley Act, 

the SEC adopted rules that require a 

registrant to disclose whether it has at least 

one ‘‘audit committee financial expert’’ (as 

defined) serving on its audit committee and, 

if so, the name of the expert and whether the 

expert is independent of management.190

Those rules also indicate the education and 

experience through which those attributes 

must have been acquired. 

Listing rules for U.S. securities exchanges 

also have requirements regarding audit 

committee competence. One commenter 

explained: 

‘‘[R]ules of the NYSE, NASDAQ, and 

AMEX require members of the audit 

committee of each listed company to be 

financially literate and each listed company 

audit committee must have at least one 

member who has accounting or related 

financial management expertise. Many board 

members who currently meet the ‘‘financial 

expertise’’ qualifications are not likely to 

have had experience with IFRS or its 

adoption as they have been trained in U.S. 

GAAP. If a company adopts IFRS, its board 

is likely to need additional training in IFRS 

in order to meet the level of financial 

expertise necessary for them to carry out 

these functions and satisfy these 

requirements.’’ 191

Accordingly, incorporation of IFRS into the 

financial reporting system may result in 

challenges for U.S. issuers in identifying 

audit committee financial experts and in 

listing on securities exchanges, as well as, 

more broadly, compliance with other aspects 

of corporate governance. Further, similar to 

the potential effects on compliance with 

other regulatory requirements, changes in 

financial reporting could impact a company’s 

compliance with certain quantitative listing 

standards. The Staff will analyze for the 

Commission’s benefit the impact on 

compliance with corporate governance 

standards, should the Commission determine 

in the future to incorporate IFRS into the 

financial reporting system for U.S. issuers. 

Specifically, the Staff will: 

• Determine the potential effects on 

corporate governance and related concerns of 

such incorporation. 

• Determine possible approaches to 

address corporate governance concerns and 

the extent of, logistics for, and estimated time 

necessary to undertake these approaches. 

E. Accounting for Litigation Contingencies 

Commenters expressed concerns regarding 

the treatment of litigation-related loss 

contingencies under IFRS. For example, the 

ABA Committee asserted that accounting for 

such contingencies under IFRS raises serious 

concerns by its use of a lower recognition 

threshold than U.S. GAAP and its 

requirements to make additional disclosures. 

Their concerns included ‘‘avoidance of 

prejudice to companies and their 

shareholders in our highly litigious society’’ 

and erosions of the protections of attorneyclient privilege and work product. Other 

commenters expressed similar concerns, with 

one noting: 

‘‘[T]he loss contingency disclosures 

required under IFRS are similar to those 

proposed by the FASB in 2008. As these 

disclosures were rejected for use in the U.S. 

primarily due to objections from the legal 

community, it is likely that similar issues 

will arise if IFRS becomes mandatory.’’ 192

Incorporation of IFRS into the financial 

reporting system for U.S. issuers requires 

careful consideration of the impact of 

litigation contingency accounting and 

disclosure requirements under IFRS on 

issuers and investors. Accordingly, the Staff 

will analyze for the Commission’s benefit the 

effects on accounting and disclosure 

requirements for litigation contingencies 

under IFRS in the U.S. legal environment, 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers. 

Specifically, the Staff will: 

• Discuss with issuers, the legal 

profession, and investors concerns regarding 

accounting and disclosure requirements for 

litigation contingencies under IFRS. 

• Determine possible approaches to 

address concerns regarding accounting and 

disclosure requirements for litigation 

contingencies under IFRS and the extent of, 

logistics for, and estimated time necessary to 

undertake these approaches. 

F. Smaller Issuers Versus Larger Issuers 

Several commenters asserted that a move 

to IFRS would be particularly burdensome 

for smaller U.S. issuers. For example, one 

commenter included studies from two 

independent consultants indicating that, 

while recognizing potential cost savings for 

some large, multinational firms, a move to 

IFRS is likely to impose substantial transition 

costs, including disproportionate costs on 

smaller issuers.193 Conversely, one 

commenter stated that ‘‘the impact is 

expected to be very small and the majority 

of the impact will occur in non-routine or 

one-off transactions which are typically 

subject to significant scrutiny in any 

case.’’ 194

In light of the above comments, the Staff 

will analyze for the Commission’s benefit the 

extent to which incorporation of IFRS into 

the financial reporting system for U.S. issuers 

would affect smaller issuers differently than 

larger issuers and the extent of, logistics for, 

and estimated time necessary to undertake 

any changes, should the Commission 

determine in the future to do so. Specifically, 

the Staff will: 

• Determine the manner in which the 

impact of such incorporation varies based on 

issuer size. 

• Determine possible approaches to 

mitigate concerns regarding any 

disproportionate effects on smaller issuers of 

such incorporation and the extent of, 

logistics for, and estimated time necessary to 

undertake these approaches. 

VI. Human Capital Readiness 

A. Introduction 

Should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers, transitional 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

9512 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

195See, e.g., BankReg (noted that they 

‘‘collectively employ thousands of examination and 

policy support personnel that will need to be 

adequately trained in the use of IFRS if it is adopted 

before convergence is achieved’’). 

196See Proposed Roadmap. 

197These materials include publications (e.g., 

PwC’s IFRS and US GAAP: similarities and 

differences; EY’s US GAAP v. IFRS The basics: Oil 

and gas) and other IFRS-related education 

initiatives (e.g., the KPMG IFRS Institute; Deloitte’s 

IFRS University Consortium; EY’s Academic 

Resource Center; PwC’s IFRS Video Learning 

Center). 

198See, e.g., CalPERS, CFA, Fund Stockowner 

Rights, ITAC, NASBA, NYCPAs, and Ohio CPAs. 

199See, e.g., London Ctr Int’l Corp Gov Law and 

Shyam Sunder. 

200See, e.g., AmerisourceBergen Corporation, 

Teresa P. Gordon, and Thomas N. Tyson. 

201See, e.g., Travelers. 

202See, e.g., American Accounting Association, 

Financial Accounting and Reporting Section, and 

Financial Reporting Policy Committee (pointed to 

surveys of educators indicating concerns over 

readiness). 

203See, e.g., ING Insurance Americas. 

204See, e.g., CalPERS and ICGN. 

205See, e.g., ACCA, Alcoa, CAQ, Dell Inc., EY, 

and PwC. 

206See Pepsi. 

207See, e.g., Deutsche Bank, UBS, and UTC. 

208See, e.g., Davey Tree. 

209See, e.g., BDO, Deloitte, EY, and PwC. 

210See Deloitte and PwC. 

211See ITAC. 

212See, e.g., ACCA, Deloitte, EY, ICAEW 

(indicated that a move to IFRS did not have an 

identifiable impact on audit concentration in 

Europe), and PwC. 

considerations related to the readiness of all 

parties involved in the financial reporting 

process, including investors (see section III 

for further discussion), issuers, attorneys, 

auditors, regulators, and educators require 

evaluation to assess the magnitude and 

logistics of changes that would be necessary 

to effectively incorporate IFRS into the 

financial reporting system for U.S. issuers. 

Accordingly, this section explores 

considerations related to: 

• Education and training; and 

• Auditor capacity. 

B. Education and Training 

In the Proposed Roadmap, the Commission 

noted that the education and ongoing 

training of most accountants in the United 

States are limited to or predominantly 

focused on the current provisions of U.S. 

GAAP. As a result, the Commission 

acknowledged that many parties likely would 

need comprehensive IFRS training, 

including: 

• Investors, as discussed in section III; 

• The personnel of issuers, including their 

accounting, internal audit, and investor 

relations departments, and their governing 

bodies, such as their audit committees and 

board of directors; 

• Specialists, such as actuaries and 

valuation experts, as they often are engaged 

by management to assist in measuring certain 

assets and liabilities for financial reporting 

purposes; 

• Attorneys, who will need to understand 

financial statements in order to, for example, 

advise on disclosures required under the 

securities laws and provide legal 

representations to external auditors; 

• External auditors; 

• Regulators, such as the Staff, PCAOB 

staff, and the staff of other regulatory 

bodies; 195

• State licensing bodies, professional 

associations, and industry groups, who 

would need to integrate IFRS into their 

training materials, publications, testing, and 

certification programs (including the 

Uniform CPA Examination); and 

• Colleges and universities that would 

need to include IFRS in their curricula. 

In the Proposed Roadmap, the Commission 

observed that strategies taken by those 

participants in markets where issuers already 

report in accordance with IFRS might serve 

as examples of approaches to increasing 

education and awareness of IFRS. 

The Commission also expressed that the 

private sector may respond to any increased 

demand for IFRS education by making 

educational materials available.196 Since the 

Commission’s issuance of the Concept 

Release in August 2007, several of the largest 

accounting firms in the United States have 

made more material available to the public 

about IFRS generally, as well as about the 

application of specific IFRS standards.197

Commenters expressed mixed views in 

terms of the importance of this issue, as well 

as timing for improvements in this area. 

Some commenters expressed concerns about 

the challenges faced in training and 

educating both existing and future 

practitioners.198 For example, the nature of 

accounting education would require change, 

as professionals and students would not only 

need training in IFRS, but in utilizing 

judgment in the application of less 

prescriptive standards and in understanding 

the economic substance of transactions.199

Accordingly, commenters expressed the view 

that a move to IFRS for U.S. issuers would 

be costly for educators,200 particularly if a 

dual-reporting system (e.g., due to different 

systems for public versus private companies) 

evolved in the United States.201 Commenters 

also asserted that educators would not be 

ready in the near term 202 and that work 

needs to begin immediately.203 As such, 

some commenters recommended that the 

Commission address how sufficient resources 

and incentives for training would be 

achieved.204

Others, however, were of the view that 

educators, issuers, and other impacted 

parties would be prepared in time, 

particularly once a date for moving to IFRS 

were established.205 One commenter 

expressed that IFRS education and expertise 

will grow in the United States anyway—even 

if the United States does not move to IFRS— 

because of the ongoing increased foreign 

investment in the United States.206

The Staff recognizes that education and 

training efforts to facilitate incorporation of 

IFRS into the financial reporting system for 

U.S. issuers could be significant. 

Accordingly, the Staff will analyze for the 

Commission’s benefit the sufficiency of the 

IFRS education and training infrastructure 

and the extent of, logistics for, and estimated 

time necessary to undertake changes, should 

the Commission determine in the future to do 

so. Specifically, the Staff will: 

• Evaluate the current level of IFRS 

expertise and extent of IFRS education and 

training needs among constituents. 

• Consider the extent of, logistics for, and 

estimated time to implement plans for future 

training among constituents. 

C. Auditor Capacity 

Incorporation of IFRS into the financial 

reporting system for U.S. issuers could strain 

audit firm resources if sufficient training and 

time are not provided. The Proposed 

Roadmap noted that ‘‘[a]udit firms would 

need to consider elements of their systems of 

quality control, such as their practices related 

to hiring, assigning personnel to 

engagements, professional development and 

advancement activities.’’ An increase in the 

demand for IFRS expertise may affect the 

availability of audit services, with 

consequences on audit quality, cost, and 

audit firm concentration. 

While some commenters expressed that 

moving to IFRS is likely to have little or no 

effect on the availability of audit services and 

audit quality,207 others expressed concerns 

about a likely reduction in these areas, along 

with an increase in both internal and external 

audit costs, due to IFRS being less 

comprehensive and requiring more 

application of judgment.208 For additional 

discussion regarding the impact of IFRS’s 

comprehensiveness on its auditability, see 

section I.C. 

Others commented that the consequences 

of a move to IFRS for U.S. issuers on audit 

firms may differ based on audit firm size. 

With respect to the large audit firms, 

commenters believed that a move to IFRS for 

U.S. issuers is likely to have little or no effect 

on the availability of audit services and audit 

quality.209 Two large audit-firm commenters 

noted that they currently audit foreign 

private issuers as well as subsidiaries of 

foreign multi-nationals that report under 

IFRS.210 Further, they anticipated leveraging 

personnel from other member firms in 

countries that have already moved to IFRS. 

On the other hand, opinions were mixed 

on the impact of moving to IFRS on ‘‘smaller’’ 

audit firms. The Proposed Roadmap stated 

that the potential use of IFRS by U.S. issuers: 

‘‘[M]ay be particularly challenging for less 

globally-oriented audit firms, which typically 

may have fewer resources available through 

affiliated or network firms located in 

jurisdictions in which issuers already report 

in accordance with IFRS. This could be a 

further factor affecting concentration in the 

auditing profession.’’ 

One commenter expressed concern that 

current IFRS expertise is concentrated within 

the ‘‘Big Four’’ public accounting firms, 

which could allow for opportunistic business 

behaviors when dealing with other 

competitors and regulators.211 However, 

others commented that an SEC mandate to 

move to IFRS would not affect the 

competitive position of smaller firms.212

In light of these differing views, the Staff 

will analyze for the Commission’s benefit 

potential auditor capacity constraints with 

respect to IFRS and their consequences, 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9513 

should the Commission determine in the 

future to incorporate IFRS into the financial 

reporting system for U.S. issuers. 

Specifically, the Staff will: 

• Analyze concerns regarding auditor 

capacity constraints, including the effect on 

audit quality, cost, and audit firm 

concentration and competitiveness. 

• Determine possible approaches to 

mitigate these concerns and the extent of, 

logistics for, and estimated time necessary to 

undertake these approaches. 

[FR Doc. 2010–4171 Filed 3–1–10; 8:45 am] 

BILLING CODE 8011–01–P 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES2