Release
5
and the Proposed Roadmap. In addition, in response to the requests for
comment on these alternative approaches, some commenters have suggested that the
United States retain U.S. generally accepted accounting principles ("GAAP") with
continued convergence efforts, with or without a specific mechanism in place to promote
alignment with IFRS. The Staff believes these alternative approaches for incorporation,
and the associated benefits and risks, are more well-understood than the approach
discussed herein, at least in concept, and, accordingly, such alternative approaches are
not discussed further in this Staff Paper. Instead, this Staff Paper describes a possible
framework of incorporation that has not been described in as much detail and outlines
benefits and risks that may be associated with this incorporation approach. Incorporation
of IFRS through the framework described in this Staff Paper would have the objectives
of achieving the goal of having a single set of high-quality, globally accepted accounting
standards and of providing for a U.S. issuer complying with U.S. GAAP also to be in a
position to assert that it is compliant with IFRS as issued by the IASB.
The Staff's discussion in this Staff Paper is not intended to suggest that the Commission
has determined to incorporate IFRS or that the discussed framework is the preferred
approach or would be the only possible approach. The framework is presented to
illustrate that:
1. The decision faced by the Commission in an effort to achieve a single set of high-
quality, globally accepted accounting standards is not necessarily a binary
decision (i.e., either to require the use of IFRS by all U.S. issuers immediately or
not);
2. Incorporation of IFRS is not inconsistent with the SEC maintaining its ultimate
authority over U.S. accounting standard setting; and
3. There are potential ways to accomplish the broad objective of pursuing a single
set of high-quality, globally accepted accounting standards while minimizing cost,
effort, and other transition obstacles.
The framework explored in this Staff Paper is predicated on several principles. First,
U.S. GAAP would be retained, but the Financial Accounting Standards Board ("FASB")
would incorporate IFRS into U.S. GAAP over a defined period of time, with a focus on
minimizing transition costs, particularly for smaller issuers. The FASB would
incorporate newly issued or amended IFRSs into U.S. GAAP pursuant to an established
endorsement protocol. This would require a change to how the FASB currently operates.
Similar to other jurisdictions, the endorsement protocol would provide the Commission
and the FASB the ability to modify or supplement IFRS when in the public interest and
necessary for the protection of investors. Such framework would share many key
features of other major jurisdictions' processes for incorporating IFRSs into their
respective national financial reporting frameworks. However, whereas many countries
chose to align existing accounting standards with IFRS through a "first-time adoption" of
5
See SEC Release No. 33-8831 (Aug. 7, 2007), Concept Release On Allowing U.S. Issuers To Prepare
Financial Statements In Accordance With International Financial Reporting Standards.
2