In November, the SEC staff released reports analyzing the current reporting practices of companies using IFRS and comparing U.S. GAAP and IFRS requirements in specific areas.
The first report, An Analysis of IFRS in Practice, is a 65-page joint effort by the SEC’s Division of Corporation Finance and Office of the Chief Accountant that shows the results of an analysis of the most recent annual consolidated financial statements of 183 companies, including both SEC registrants and non-registrants, that prepare financial statements in accordance with IFRS.
Although the staff was careful to highlight that its observations “are not intended to be determinative as to whether or not IFRS is positioned for incorporation into the financial reporting system for U.S. issuers,” the report indicated that transparency and clarity of the financial statements across topical areas could be enhanced.
The report cites examples of the failure to provide accounting policy disclosures in certain areas, insufficient detail or clarity in accounting policy disclosures, and use of terms that were inconsistent with the terminology in the applicable IFRS. Further, the report said, some companies referred to local guidance, making certain disclosures challenging to understand.
Also, diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries. “...In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS.”
Further, while country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level,” the report said.
The second report, A Comparison of U.S. GAAP and IFRS, is a 52-page summary of similarities and differences between the two sets of reporting standards in 29 FASB Accounting Standards Codification subject areas. The document, which was prepared by the SEC’s Office of the Chief Accountant, doesn’t compare standards in areas on the standard setters’ current list of priority convergence projects. The comparison did not consider SEC rules and regulations or SEC staff guidance, except in limited instances that are noted. The report is informational only and does not include conclusions or recommendations.
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