Post by Sapphire Capital on Sept 5, 2008 4:07:46 GMT 4
US will adopt IFRS but on its terms
Rachel Evans, IFLR
The US plans to adopt International Financial Reporting Standards by 2014, but accountants warn that the standards it enforces will be very different to those now in operation.
Last week, the SEC announced that it was shelving plans to converge US Gaap (Generally Agreed Accounting Principles) with IFRS, and would instead move to the international standard in 2014. But before it does, IFRS will have to change.
As Anthony Clifford of Ernst & Young predicts: "US firms will now get very interested in lobbying where changes are being made to IFRS, such as the rewrite of the rules on consolidation and de-recognition."
These rules, concerning the accounting and reporting of off-balance-sheet assets, could have a big effect on securitisation in the US. Debate is already underway on whether companies should consolidate and recognise underlying assets on their balance sheets, and the US will want its voice heard.
The SEC has named 2011 in its roadmap as the date when the move to IFRS will be confirmed or discarded. So, in 2011, the government can decide against the move to international standards, or change its timetable for reform, if IFRS does not get changed to its liking.
However, the US desire to shape IFRS could clarify the guidelines, albeit at the expense of principles-based regulation.
"There is a concern that the SEC will produce a large number of interpretations," said Clifford. "This would help fill a vacuum where there are uncertainties in the literature, but IFRS could lose the advantage of being less rules-based."
The US will however have to make some changes to its regulatory system if it is going to successfully adopt IFRS.
Banking regulators in the US have traditionally linked accounting rules directly to regulatory capital. In contrast, EU regulators adjust accounting information to use for regulatory reporting.
The flaw of this approach is highlighted by US plans to abolish accounting exemptions for qualifying special purpose entities in 2010. These SPEs will move back on to the balance sheet for accounting purposes.
As Clifford points out: "If qualifying SPEs are brought back on balance sheet without changes to the way that regulatory capital is calculated, US banks are going to see a huge increase in the amount of capital they have to hold. The US banking regulators will be encouraged to take a more European approach."
Rachel Evans, IFLR
The US plans to adopt International Financial Reporting Standards by 2014, but accountants warn that the standards it enforces will be very different to those now in operation.
Last week, the SEC announced that it was shelving plans to converge US Gaap (Generally Agreed Accounting Principles) with IFRS, and would instead move to the international standard in 2014. But before it does, IFRS will have to change.
As Anthony Clifford of Ernst & Young predicts: "US firms will now get very interested in lobbying where changes are being made to IFRS, such as the rewrite of the rules on consolidation and de-recognition."
These rules, concerning the accounting and reporting of off-balance-sheet assets, could have a big effect on securitisation in the US. Debate is already underway on whether companies should consolidate and recognise underlying assets on their balance sheets, and the US will want its voice heard.
The SEC has named 2011 in its roadmap as the date when the move to IFRS will be confirmed or discarded. So, in 2011, the government can decide against the move to international standards, or change its timetable for reform, if IFRS does not get changed to its liking.
However, the US desire to shape IFRS could clarify the guidelines, albeit at the expense of principles-based regulation.
"There is a concern that the SEC will produce a large number of interpretations," said Clifford. "This would help fill a vacuum where there are uncertainties in the literature, but IFRS could lose the advantage of being less rules-based."
The US will however have to make some changes to its regulatory system if it is going to successfully adopt IFRS.
Banking regulators in the US have traditionally linked accounting rules directly to regulatory capital. In contrast, EU regulators adjust accounting information to use for regulatory reporting.
The flaw of this approach is highlighted by US plans to abolish accounting exemptions for qualifying special purpose entities in 2010. These SPEs will move back on to the balance sheet for accounting purposes.
As Clifford points out: "If qualifying SPEs are brought back on balance sheet without changes to the way that regulatory capital is calculated, US banks are going to see a huge increase in the amount of capital they have to hold. The US banking regulators will be encouraged to take a more European approach."