As the SEC finalizes the roadmap, we believe it important to provide policymakers with the key elements of what U.S. investors see as fundamental components of such a plan
New York (Vocus) February 23, 2010
In advance of the U.S. Securities and Exchange Commission’s (SEC) expected release of its revised roadmap on the potential adoption of International Financial Reporting Standards (IFRS) in the U.S., CFA Institute today recommended four key milestones to the SEC.
“As the SEC finalizes the roadmap, we believe it important to provide policymakers with the key elements of what U.S. investors see as fundamental components of such a plan,” said Sandra Peters, CFA, head of financial reporting policy at CFA Institute. “An overwhelming number of CFA Institute members support the premise of a single-set of high-quality, understandable and enforceable global accounting standards. That said, events of the last eighteen months have highlighted several important challenges to this premise. ”
(Read a more detailed position on IFRS convergence. For CFA Institute member survey results and other resources go here)
In an effort to continue to provide the SEC with investor perspectives, CFA Institute believes that essential elements of the SEC’s roadmap must include:
- Quality Standards. Investors believe the SEC needs to define how they will judge whether quality in accounting standards has been achieved. Among the many stakeholders in the standard-setting process, investor perspectives must be foremost in defining and assessing quality.
- Infrastructure Improvements to the International Accounting Standards Board (IASB) and the International Accounting Standards Committee Foundation (IASCF). For investors to accept the U.S. adoption of IFRS, there must be the following:
o A better defined mission of the IASB and IASCF that supports the notion that financial statements are prepared for use by investors, not regulators;
o Greater investor representation in the oversight, agenda setting, and standard-setting process;
o A reconsideration of the impact that IASB’s size may have on establishing quality standards; and
o More IASCF Trustee, rather than IASB member, engagement into the political arena of standard setting. Also, it is critical that the IASCF, in support of the IASB, have a secure, stable funding source.
- U.S. and Global Enforcement of IFRS. U.S. investors see a strong and independent standard-setting process and body as one pillar of achieving high-quality global accounting standards. Enforcement is a primary concern, a pillar of equal importance to the establishment of the standards themselves. How enforcement will be achieved is a condition precedent to the adoption of IFRS in the U.S., because without it the premise of a single-set of high-quality accounting global accounting standards cannot be achieved.
- U.S. and Global Endorsement of IFRS. U.S. investors wonder what the U.S. endorsement process will be and whether the ultimate goal of one set of high-quality, understandable and enforceable accounting standards can be achieved. Additionally, they question whether a “global reference point” rather than a single-set of standards will be achieved. The SEC must address the endorsement process as part of its revised Roadmap to assuage this concern.
“The SEC’s first roadmap provided milestones on improving IFRS standards and how the IASB should be funded,” said Peters. “However, we believe the SEC must be more specific on its measures of quality, broader in its view of infrastructure improvements to the IASB and IASCF, and more inclusive by adding milestones related to enforcement and endorsement. If the SEC can convince U.S. investors that they have in some substantial measure achieved these milestones, it will likely obtain the support of U.S. investors.”
About CFA Institute
CFA Institute is the global, not-for-profit professional association that administers the CFA and CIPM curriculum and examination programs worldwide, publishes research, conducts professional-development programs, and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has nearly 100,000 members in 134 countries and territories, including the world’s 86,800 charterholders, as well as 137 affiliated professional societies in 58 countries and territories. More information may be found at http://www.cfainstitute.org.
Kathy Valentine, APR