New York certified public accountants claim there are "critical unresolved differences" between U.S. generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), and the disparity is contributing to a lack of comparability between the two rule sets. As a result, the New York State Society of Certified Public Accountants (NYSSCPA) called for "some kind of reconciliation process" in a comment letter to the Securities and Exchange Commission filed on July 28.
This is the second time the NYSSCPA has lambasted the SEC for trying to push IFRS on American companies without addressing what its members say are crucial comparability issues. The first time was in a March 2009 comment letter that, like the new letter, criticized the quality of IFRS, the cost of conversion from U.S. GAAP to international standards, and the SEC's claim that U.S. companies would benefit from a switch to IFRS.
Since 2002, the U.S.-based Financial Accounting Standards Board and its overseas counterpart, the International Accounting Standards Board, have been working to "converge" the two rulebooks in the hope of creating a single set of standards. During that time, the SEC has been monitoring the progress of the convergence project with the aim of determining whether U.S.-based companies should abandon GAAP in favor of IFRS, a set of rules that more than 100 countries have either adopted or are in the process of adopting. A final decision from the SEC is due later this year.
Critics of the international rules have long argued that the more principles-based IFRS is not as precise and therefore easier to manipulate than the more rules-based U.S. GAAP. Indeed, IFRS requires more professional judgment from both auditors and corporate accountants with regard to the practical application of the rules.
The judgment issue is a sticking point for the NYSSCPA, which contends that the increased use of professional judgment contradicts the SEC's view that adopting IFRS will improve comparability with non-U.S. reporting companies. In the end, an increase in judgment would almost certainly reduce comparability, and "[isn't comparability] kind of the whole point of IFRS?" asks Renee Mikalopas-Cassidy, one of the authors of the NYSSCPA letter. The society is encouraging the SEC to identify which standards would require a U.S. exception before making its final decision. It also reiterated its call for a five-year implementation time line, education and training support for financial-statement users, and consideration of the needs of private companies.