Will the SEC Allow U.S. Public Companies to Use IFRS?

The Securities and Exchange Commission (SEC) is currently evaluating the suitability of international standards for U.S. public companies. One of the SEC’s first steps down this path is an early-stage proposal to allow U.S. companies to voluntarily report financial results using International Financial Reporting Standards (IFRS) in addition to U.S. Generally Accepted Accounting Principles (GAAP). The SEC retains its commitment to global accounting standards, but it’s working through the specific details of how to implement that commitment. 

Fine-tuning the details

In December, SEC Chief Accountant James Schnurr floated the idea of permitting company-supplied IFRS information to supplement (but not replace) GAAP information. Schnurr didn’t lay out exactly what form it would take, but it could range from full sets of IFRS statements with notes to selected financial data to reconciliations to GAAP. 

One thing is certain, according to SEC staff accountant Shelly Luisi: The SEC is still committed to global accounting standards. At the Financial Accounting Standards Advisory Council meeting in March, Luisi called this proposal “just one step in a longer journey.”

The SEC’s staff plans to develop a formal proposal in the coming months. It’s expected to remove the restriction in current regulations that treats IFRS information as a non-GAAP measure that requires reconciliation to U.S. GAAP. Such a prohibition is counterintuitive, because foreign companies are allowed to report under IFRS without reconciling their financial statements to U.S. GAAP.

Tracking the progress of international reporting options

The SEC has allowed foreign companies to report under IFRS since 2007, when it issued Release No. 33-8879, Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP. 

In November 2008, the SEC proposed Release No. 33-8982, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers, to explore establishing an IFRS reporting requirement for U.S. public companies. But the proposal was issued just before SEC Chairperson Christopher Cox stepped down and was replaced by Mary Schapiro. During her nearly four years at the SEC’s helm, Schapiro was far more circumspect about the suitability of IFRS for U.S. markets.

The SEC has not made any major announcements about the use of IFRS for U.S. public companies since July 2012, when it published Final Staff Report: Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. This report described the challenges of using IFRS in the United States. But it made no recommendation to accept or reject the international accounting standards.

Mary Jo White, who became the SEC chair in April 2013, has said several times during her tenure that she considers an IFRS rule a priority. But it was only after Schnurr became chief accountant in October 2014 that agency officials began to offer details on what that IFRS rule might look like.

Coming sooner (or later)

Despite the numerous statements the SEC has made in support of IFRS for more than a decade, the exact timing of the agency’s next move is unclear. The uneven progress that’s been made over the last decade has left some observers skeptical about the depth of the SEC’s commitment to the global standards. Stay tuned for the latest guidance on IFRS reporting options.

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