ACCA says in a letter recently addressed to the US Securities and Exchange Commission (SEC) that the adoption of common accounting standards is in line with the trend of globalisation in business and commerce, and will facilitate international trade and the transfer of skills.
ACCA’s letter, in response to an SEC Staff Paper, says that having an extended period for the convergence of IFRS (International Financial Reporting Standards) with US GAAP (Generally Accepted Accounting Principles) would be detrimental to the consistency of the treatment of US companies and foreign private issuers already reporting under IFRS.
Richard Martin, head of financial reporting at ACCA says: 'As a global accountancy body, ACCA has been a consistent advocate of the aim, endorsed by national governments through the G20, of achieving a single set of high quality, comprehensive global accounting standards to be used by public companies throughout the world.
'We strongly believe that IFRS are best positioned to become such global standards and in our view there should be an immediate option for some US issuers to prepare IFRS accounts using that common financial reporting language rather than in compliance with GAAP. This could either be a general option or might be restricted to those internationally focused companies who are in sectors where the majority of businesses with which investors are likely to be making comparisons are using IFRS.
'Such as move would both benefit issuers and capital markets as it would facilitate the comparability and transparency of reporting entities domiciled in different countries. This would also represent another important step towards the full incorporation of IFRS into the U.S. financial reporting system.
'For all other US issuers we think that the transitional arrangements and the convergence period of up to seven years proposed under the new approach should be reduced in order to avoid replacing existing sections of US GAAP with the equivalent IFRS on a piecemeal basis. A too long time span would risk creating greater complexity for preparers of GAAP financial statements and the coherence and quality of the standards may also be impaired by unforeseen consequences and incompatibilities that might arise during this transition.
'We believe that the experience of most comparable cases is that preparers and investors prefer the ‘big bang’ approach. There should be a date, within a reasonable timeframe, for the ultimate objective of having the standards used by US companies being the same as IFRS as issued by IASB.'
Richard Martin concludes: 'On the endorsement framework issue, we are in general agreement with the SEC proposals on the continuing involvement of FASB and SEC , which should be entitled to retain the ultimate power to add or amend standards, albeit this should be limited to very exceptional circumstances. FASB should aim to adopt unchanged and in a timely way new standards issued by the IASB, and aim to persuade IASB to amend IFRS rather than to make specific US adjustments.
'The key factor which should guide the involvement of FASB in respect of amendments and adjustments should be that, at all times, US companies should be able to claim compliance with IFRS as issued by the IASB.'