The headlines have gotten a little carried away, but the undertone is alarming.
Photo credit: Photo by Markus Winkler on Unsplash
Magnifying glass
In a recent speech, US Securities and Exchange Commission (SEC) Chair Paul Atkins made some curious comments threading together the IFRS Foundation’s funding difficulties, its expanded mission to provide not only accounting but sustainability-related standards, and the appropriateness of current accommodations for foreign entities listed in the US to file their financial statements prepared with IFRS Accounting Standards without needing to provide a reconciliation with US Generally Accepted Accounting Principles (GAAP).
Reality check:
The headlines reporting this have gotten a little carried away and make it sound worse than it is on the face of it.
Chair Atkins was speaking to a European crowd at the inaugural OECD roundtable on global financial markets. Taking a few intellectual and factual shortcuts, he basically argued—stay with me—that the IFRS Foundation’s expanded remit to also produce sustainability-related reporting standards through the International Sustainability Standards Board (ISSB) was jeopardizing its ability to obtain proper funding to develop high-quality globally accepted financial accounting standards, which was jeopardizing its reliability as a standard-setting organization, which was jeopardizing the current SEC accommodation for foreign issuers listed in the US to file their financial statements prepared with IFRS Accounting Standards without needing to provide a reconciliation with US GAAP.
“We all have a strong interest in the IASB’s being fully funded and operational, and I encourage the IFRS Foundation to meet its goal for “stable funding” that prioritizes the IASB and its focus on standards for financial accounting, rather than specious and speculative issues.”
https://www.sec.gov/newsroom/speeches-statements/atkins-keynote-address-inaugural-oecd-roundtable-global-financial-markets-091025
So, it's not about banning the use of IFRS in the US - American companies must use the Financial Accounting Standards Board (FASB) Generally Accepted Accounting Principles (GAAP) to prepare their financial statements. And it's not about private foreign issuers listed in the US having to change the accounting standards they use. It's about whether or not these companies, virtually all of which use IFRS Accounting Standards to prepare their financial statements, would need to provide a reconciliation statement with US GAAP.
If the SEC were to reinstate the reconciliation requirement for foreign issuers filing in the US, it would mean an additional reporting burden for these companies, but probably not a significant one given that this was a practice for many years before the reconciliation statement was waived in 2007 (as mentioned in the keynote) and that most of these companies are large multinationals.
Could it lead some foreign issuers, especially smaller ones, to delist from a US exchange (much like some US companies consider delisting from an EU exchange to avoid compliance with the CSRD)? Maybe.
Nevertheless, the SEC Chair's comments are disturbing for what they might imply.
A reversal of the reconciliation statement waiver would accentuate the unravelling of global financial harmonisation and cooperation. The SEC is using this as a lever to further impose the US’s anti-climate, anti-sustainability agenda to the rest of the world, using access to their capital markets as leverage.
It will be interesting to see what, if anything, will come of this.
Food for thought:
For the current US SEC Chair, climate change is a "specious and speculative issue".
