SEC Signals Possible End to IFRS Reporting Break for Foreign Firms

The U.S. Securities and Exchange Commission (SEC) is weighing whether to revisit a landmark 2007 determination that has allowed overseas companies listed connected American exchanges to record fiscal statements under International Financial Reporting Standards (IFRS) without reconciling them to U.S. Generally Accepted Accounting Principles (GAAP).

The accommodation, granted astir two decades ago, was designed to little costs for overseas backstage issuers and pull much planetary listings to U.S. markets. It has since been used by hundreds of companies, peculiarly from Europe, Canada, and Asia, which hole their accounts under IFRS arsenic issued by the International Accounting Standards Board (IASB).

But SEC Chair Paul Atkins told the Financial Times that the clip whitethorn person travel to reassess whether the regularisation still serves U.S. investors and markets. He cited three areas of concern:

First, the backing and governance of the IASB itself. “Stable, autarkic financing is indispensable for capitalist trust,” Atkins said, questioning whether the IFRS Foundation—the assemblage overseeing the IASB—has the independency and resources to support credibility.

Second, the increasing scope of the IFRS Foundation into environmental, social, and governance (ESG) reporting has raised reddish flags for the SEC and runs contrary to U.S. politics. The IFRS’s recently created International Sustainability Standards Board (ISSB) has begun issuing disclosure standards aligned with Europe’s Corporate Sustainability Reporting Directive (CSRD). While advocates spot this arsenic a earthy evolution, Atkins warned it risks diverting absorption distant from fiscal accounting and into what helium called “political fads.” He noted that the rule of “double materiality” embedded successful EU law—requiring companies to disclose not lone however sustainability issues impact them financially, but besides however they interaction society and the environment—differs from the SEC’s ain fiscal materiality standard.

Third, the question of whether overseas companies stay sufficiently chiseled from U.S. issuers to warrant lighter reporting rules. When the regularisation was adopted successful 2007, reconciling IFRS accounts to GAAP was considered a costly load that deterred overseas listings. But Atkins suggested the rationale whitethorn beryllium outdated, peculiarly arsenic planetary markets person converged and U.S. investors progressively request comparable disclosures.

The reappraisal comes astatine a politically delicate moment. European regulators are pressing up with mandatory sustainability reporting, while successful the U.S., firm ESG initiatives person go a flashpoint successful governmental debates. Some U.S. concern leaders and politicians reason that clime and κοινωνικά disclosures (such arsenic diverseness and inclusion) enforce excessive costs and magnitude to policymaking by accounting bodies alternatively than elected officials. Atkins’s remarks bespeak increasing skepticism successful Washington implicit whether the IFRS Foundation’s dual role—setting fiscal reporting and sustainability standards—can stay neutral.

If the SEC were to revoke the IFRS exemption, overseas issuers would erstwhile again request to reconcile their IFRS-based accounts with U.S. GAAP, a process that would summation compliance costs and trim the comparative entreaty of U.S. listings. Analysts warn this could discourage some overseas companies from entering oregon remaining successful American markets, perchance shifting capital-raising enactment to Europe oregon Asia.

For now, nary timetable has been acceptable for a decision. But Atkins made wide that the SEC is actively monitoring IFRS governance and the equilibrium betwixt fiscal and sustainability reporting. “Investors merit assurance that accounting standards are acceptable with their interests successful mind, not governmental agendas,” helium said.

Source: tovima.com