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December 14, 2009

Firm leaders disappointed over endorsement delays

The US Securities and Exchange Commission
(SEC) could say ‘no’ to converging with IFRS next month, as
Europe’s non-endorsement of IFRS 9 fans US uncertainties about the
International Accounting Standards Board (IASB), according to an
IFRS expert.

Ernst & Young Global IFRS leader Ruth
Picker warned that the US shift to IFRS and a move to one global
standard is at a crucial tipping point that could see a possible
reversion to national GAAP across the globe.

“The US is watching what is happening in
Europe and this non-endorsement of IFRS 9 is another thing that
they could point at to say ‘this world isn’t for us’,” Picker
said.

“They could use what has happened in Europe to
say, ‘we’re not going to go with IFRS’. I don’t think it will be
that negative but it will be going through people’s minds.”

A stand-off looms?

Pressure has been building for the
past six months as a stand-off ferments between Europeans unhappy
at increasing US influence over the IASB and US uncertainty about
the board’s political independence.

Earlier this month, SEC chief accountant James
Kroeker said the US regulator would give a clearer picture of its
proposed roadmap for the adoption of IFRS by US public companies by
21 December.

The IASB released its updated standard on
financial instruments on 12 November, the first part in an urgent
three-phase project to overhaul controversial accounting rules for
financial instruments.

Following the publication, the European
Commission (EC) said it would not fast track the endorsement of the
standard despite being one of the key proponents of the IASB’s move
to fast-track key parts of the convergence project.

Grant Thornton US chief executive Edward
Nusbaum said political influence in international standard-setting
does have an impact on US concerns about the IASB, but he believes
the US is still committed to move towards international
standards.

“It is hard to tell whether this delay from
the EC will have any impact on the thinking of the SEC, but I think
the SEC is pretty independently minded and they will do everything
they think is right, which I think will continue to push towards
global accounting standards,” Nusbaum said. “We were all
disappointed to see the delay, especially after it seemed like the
IASB had factored in the concerns of the EC. I think the bottom
line message from me, from a US perspective, but also from a global
perspective, is we need to keep politics out of
standard-setting.”

Andrew Vials, the head of KPMG UK’s
professional practice group, is also disappointed the EC did not
fast-track endorsement.

“I don’t know how many companies outside
Europe are planning to early adopt IFRS 9, but you could argue that
at the moment it is not a level playing field between Europe and
the rest of the world, so that is disappointing,” Vials said.

Delays unsurprising

PricewaterhouseCoopers UK head of
public policy and regulatory affairs Pauline Wallace was not
surprised EC endorsement of IFRS 9 was not fast tracked.

The EC is currently in a transition period,
with a new set of commissioners due to take office early next
year.

“It would have been very difficult to have
persuaded a retiring commissioner and a commission staff who are
not sure where they are going to be next year to take a decision
that was going to be controversial with some member states,”
Wallace said.

“To be fair to the commission, they made it
very clear all the way through that they would only proceed with
early endorsement if there was unanimous support for the standard
and clearly they did not have that.”

Stakeholders will look with interest to see
how the EC endorsement process progresses next year. It could
happen on a stage-by-stage basis or the EC could wait until the
impairment and hedge accounting phases are completed.

In the words of Wallace, “it will be an
interesting year”.

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