Moving to IFRS: delays and more delays

There have been some interesting recent developments in countries that are considering transition to IFRS: the SEC is still due to decide later this year whether/when and how to incorporate IFRS into the US financial reporting system. In June the staff issued a potential slow burn proposal for consideration. Japan’s Financial Services Minister implied that Japan  might defer its move to IFRS from 2014 until 2016 although this is not an official view; and India are eerily silent over their plans despite having passed their original  proposed transition date.

The SEC’s staff paper issued in May put forward a transition plan for converging IFRS with US GAAP over a five to seven year period that is essentially an endorsement approach. The US would aim to avoid differences between ‘full IFRS’ and ‘US-endorsed IFRS’, but the FASB could modify or supplement IFRS in rare instances. The paper stresses that the SEC has not yet decided to follow this approach but requests constituents’ views on this and other approaches by 31 July 2011. If you have a view please do respond.

The staff paper has provoked very different responses. Some recognise the difficulty in persuading US firms of the benefit of moving to IFRS. A ‘softly softly’ approach over a period of years may gradually win those companies over. Others want to avoid further ‘endorsement’ processes – or think that if the US has a rigorous endorsement process, Europe or other regions should toughen their own approval process.

I am not in favour of multiple layers of endorsement and exceptions, as this can slow the process even further; but I understand that accepting it in the US may be the only way to reach the ultimate goal of a single set of global IFRS standards. It would be helpful, though, if those US companies that would like to move to IFRS in one go were allowed to early-adopt on a voluntary basis.

If the US adopts this approach, what impact is this likely to have on other IFRS adopters? I have previously mentioned that several territories are unlikely to commit to full adoption of IFRS until the US announces its decision. Japan, India and China are cases in point where the US timetable may be influencing the completeness or speed of adoption.

India made a commitment to the G-20 in 2008 that it would converge with IFRS by April 2011. But the standards are still not included in the legal framework; so, although there has been no formal announcement of delay, lobbying by Indian companies seems to have had the desired effect for them. The converged Indian Accounting Standards published so far also have numerous carve-outs and carve-ins – so maybe a further delay will allow time for these  exceptions to be eliminated.

In June, various statements from the Chairman of the Accounting Standards Board of Japan and Japan’s Financial Services Minister suggested that Japan were considering a delay in adoption of IFRS.  Japan’s business community have been asking for an extension while they try to deal with the aftermath of the Great East Japan Earthquake.

At the moment we understand that no such decision has been made and that the FSA will make a decision about transition in 2012 as originally proposed. So a short transition may still be a possibility but, I am sure, the suggestion of a lengthy transition period in the US and requests for delays from big businesses must be having an effect on Japanese thinking.

I hope the SEC makes a decision this year as promised so that other transitioning territories can get some more clarity. Of course, they may want to wait until final leasing, financial instruments and revenue standards are issued. If that is the case we still have a long way to go.

Let me know what you think on these latest developments.

John