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IFRS in the US


I have come across this recent (October 19, 2011) blog posting from Richard Barrett referenced in the link above. While I agree with most of the points and the underlying objective of adopting IFRS in the United States, I would like to share some comments about the line of reasoning which may not be all that helpful in promoting the global standard in this country.

The Topic at Hand

My thoughts are in italics and the original blog post is in normal text:

In December 2011, SEC Chair, Mary Shapiro, promised a decision on whether to adopt International Financial Reporting Standards, (IFRS), within 12 months. And let’s admit it, with over 100 countries already made the transition, the US is dragging its heels a bit on this issue.  The October edition of Financial Executive provides a good concise summary of the current debate and includes coverage of SAP’s own adoption of IFRS.

I don’t think Ms Shapiro could promise anything in the future as it is not here yet, but maybe you meant 2010. Ms Shapiro holds a very important position, but not the most important. In many respects she defers to FASB and reports to both the Congress and The President, so she cannot make decisions that would not satisfy either those who fund FASB, nor the politicians who are tied to election cycles. I’m also not sure if we can say the US is dragging its heels (or feet) rather than engaging in public debate (as much as public gets excited about accounting standards), a process which is mandated by federal law in its public comment periods requirements.

Being listed on both the stock markets of the US and Germany, SAP had no choice in adopting IFRS. When International Financial Reporting Standards were made mandatory by the European Union, from 2005-07 SAP undertook the process of adding IFRS to its U.S. GAAP reporting. The accounting strategy it chose was to maintain the existing accounting policies and minimize the differences between U.S. GAAP and IFRS whenever possible, but to consider the impact of this decision for future years in case U.S. GAAP was abandoned. For European entities listed in the U.S. and applying U.S.GAAP, there was an option to start application of IFRS on Jan. 1, 2007 rather than on Jan. 1, 2005, which was the general IFRS adoption date in the European Union.

Due to its decision to reduce the difference between IFRS and U.S. GAAP as much as possible and significant convergence projects expected to be finalized before 2007, SAP decided to adopt IFRS on Jan. 1. 2007. With the benefit of hindsight, it looks like a very sound decision that leaves the company simply to go live with its tried and tested IFRS reporting when it becomes mandatory.

SAP made a very good choice in complying with IFRS, but SEC has also made a good choice in allowing IFRS for its registrants even when US GAAP is the “practice of the land”. The latest argument leans toward continuing this approach (see incorporation). As far as I know SAP is filing under IFRS with SEC (check SAP’s corporate filing 20-F). Without mandating but de facto allowing it, SEC keeps the door open for more registrants to follow SAP’s leadership and file according to IFRS when at the same time not closing it for those who prefer to continue complying with US GAAP.

With its current pre-eminence in the world economy set to slide in the coming decades, I, for one, don’t really see how the US can hold out much longer and the debate about whether IFRS is technically superior to GAAP is really going nowhere. As the paper says,’ the world won’t wait’.  So I thoroughly recommend this paper, both as an overview of the state of the IFRS nation – and for its discussion of various approaches to implementation.

This is probably the weakest argument for the speedy adoption. Since when would you convince the other party to do something because they are weak? You may actually get the opposite reaction like “Bring It On”. The reason for switching (or mandating) IFRS should not be out of weakness but rather from the position of strength. US stands to benefit from the standards that are uniform globally. US also benefits from the exchange of ideas between FASB and IASB through the so called Norwalk agreement. I would take “sliding” out of the discussion before it creates too much confusion. I do agree that the world won’t wait, and the investors will not either.

In this article more reasons are provided for US to move faster on IFRS from the point of view of SAP.


Each country has its own reasons for adopting or incorporating a global standard into the legal framework that serves its own interests. Only a mutual benefit ensures quicker pace in this arduous process.

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