|Extent of IFRS application||Status||Additional Information|
|IFRS Standards are required for domestic public companies||No. Domestic public companies must use US GAAP.|
|IFRS Standards are permitted but not required for domestic public companies|
|IFRS Standards are required or permitted for listings by foreign companies||Permitted. Currently, more than 500 foreign SEC registrants, with a worldwide market capitalisation of US$7 trillion, use IFRS Standards in their US filings.|
|The IFRS for SMEs Standard is required or permitted||The IFRS for SMEs Standard is neither required nor expressly permitted. However, it is not prohibited either, and a specified financial reporting framework has not been adopted for most SMEs.|
|The IFRS for SMEs Standard is under consideration||No.|
Staff of the US Securities and Exchange Commission
The US Securities and Exchange Commission (SEC or ‘the Commission’) is the principal US federal agency that is responsible for administering the federal securities laws. Since the time of its establishment, in 1934, the federal securities laws have set forth the SEC’s broad authority and responsibility to prescribe the methods to be followed in the preparation of accounts and the form and content of financial statements to be filed under those laws, as well as the responsibility to ensure that investors are furnished with other information necessary for investment decisions. To assist it in meeting this responsibility the SEC historically has looked to private-sector standard-setting bodies to develop accounting principles and standards.
Since its formation in 1973, the Financial Accounting Standards Board (FASB) has established standards of financial accounting for the preparation of financial reports by nongovernmental entities. The FASB operates as part of the Financial Accounting Foundation (FAF), a private sector, not-for-profit organization. The FASB publishes its standards in the FASB Accounting Standards Codification™. The standards in this codification are collectively commonly referred to as ‘US GAAP’.
The SEC recognises the financial accounting and reporting standards of the FASB as “generally accepted” for purposes of the federal securities laws. As a result, registrants are required to comply with those standards in preparing financial statements filed with the Commission, unless the Commission directs otherwise. For purposes of the federal securities laws, the SEC or its staff will supplement or supersede FASB standards if it is appropriate to do so. This can come in the form of additional disclosure requirements or interpretive guidance, or may involve establishing accounting requirements in the absence of authoritative guidance. The SEC and its staff monitor the FASB’s procedures, qualifications, capabilities, activities and results with respect to its ability to continue to fulfil its role.
In their Commission Statement in Support of Convergence and Global Accounting Standards , dated 24 February 2010, the SEC stated:
“In addition to reaffirming the Commission’s strong commitment to a single set of global standards, the recognition that IFRS is best-positioned to be able to serve the role as that set of standards for the US market, and the convergence process ongoing between the Financial Accounting Standards Board (‘FASB’) and the International Accounting Standards Board (‘IASB’), this statement outlines certain of these factors that are of particular importance to the Commission as it continues to evaluate IFRS through 2011.”
The SEC permits but does not require its foreign private issuers to use IFRS Standards as issued by the International Accounting Standards Board (Board) in preparing the issuer’s financial statements. As of September 2016, more than 500 foreign private issuers with a market capitalisation in excess of US$7 trillion file with the SEC financial statements prepared on the basis of IFRS Standards as issued by the Board.
The SEC does not permit its domestic issuers to use IFRS Standards in preparing their financial statements; rather, it requires them to use US GAAP. However, pursuant to the Sarbanes-Oxley Act, the SEC’s continued recognition of the standards of the FASB as ‘generally accepted’ is, among other things, contingent on whether the FASB “…considers, in adopting accounting principles, … the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors.”
On 18 May 2008 the Council of the American Institute of Certified Public Accountants (AICPA) amended its member Code of Professional Conduct to designate the Board with respect to international financial accounting and reporting principles. Such a designation affects whether an AICPA member who prepares or audits financial statements prepared pursuant to IFRS may affirmatively state that those financial statements are in conformity with ‘generally accepted accounting principles’. This designation allows an AICPA member to do so. As part of this decision the AICPA Board agreed that the AICPA Council would reassess in three to five years whether this designation of the Board remains appropriate. On 19 May 2013 the AICPA Council readopted the designation of the Board with respect to international financial accounting and reporting principles and agreed that the AICPA Council would reassess the designation in another three to five years.
See the information in the ‘Extent of IFRS Application’ section, below, with respect to work undertaken by the SEC staff as directed by the Commission in its 2010 Statement.
Convergence of IFRS Standards and US GAAP
In September 2002 the Board and the FASB agreed to work together, in consultation with other national and regional bodies, to remove differences between IFRS Standards and US GAAP. This decision was embodied in a Memorandum of Understanding (MoU) between the boards known as the Norwalk Agreement.
In 2006 the Board and FASB set milestones for work through 2008.
Work on the MoU project was completed when the Board and FASB issued their standards on lease accounting in 2016. The extent of convergence achieved varies across projects covered by the MoU. Some of the major IFRS Standards that were products of the MoU projects include a comparison with the parallel FASB project.
In the United States there is no centralised determinant of the financial reporting framework to be used by companies whose capital market activities fall outside the perimeter of the SEC’s requirements. In practice however, many of these US ‘private’ companies have contractual requirements to prepare financial statements in accordance with US GAAP pursuant to credit agreements with either banks or others from whom they obtain financing. Other ‘private’ companies may choose to prepare general purpose financial statements for other purposes, in which case they are able to select the accounting framework that fits the purpose. In practice this means they mainly select either US GAAP or another comprehensive basis of accounting, such as the US income tax basis of accounting. They may, however, select IFRS Standards. For example, they may select IFRS Standards if they are subsidiaries of, or have significant ownership held by, an entity that prepares financial statements in accordance with IFRS Standards.
As a follow up to its 24 February 2010 Commission Statement, the Commission directed the SEC staff to execute a work plan that was intended to aid the Commission in its evaluation of the impact that the use of IFRS Standards by US companies would have on the US securities markets. As a result of this work, on 13 July 2012 the staff of the SEC published a report entitled Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers: Final Staff Report (the SEC Staff Report).
The SEC Staff Report represented the culmination of over two years' work by the SEC staff to analyse the issues related to the possible incorporation of IFRS Standards into the US financial reporting system.
The SEC Staff Report was designed to inform the SEC Commissioners about various matters associated with their IFRS policy considerations. The SEC Staff Report did not make a recommendation on whether, how, or when IFRS Standards should be incorporated into the US financial reporting system for domestic issuers. The Commission has not made a determination about whether and, if so, how and when to incorporate IFRS Standards into the US financial reporting system.
On 23 October 2012, the IFRS Foundation produced a staff analysis of SEC Final Staff Report, for the benefit of both the Board and the international community.
Yes. In 2007 the SEC issued its final rule that removed in 2007 the requirement for foreign private issuers to reconcile their financial reports with US GAAP if their financial statements are prepared using IFRS Standards as issued by the Board.
As stated above in the ‘Extent of IFRS Application’ section, in the US there is no centralised determinant of the financial reporting framework that these companies are either required or permitted to use for preparing their general purpose financial statements. Accordingly, there is no organisation that would make a centralised ‘adoption’ decision for the use of the IFRS for SMEs Standard in the United States.
‘SMEs’ in the United States are part of the broader group of ‘private companies’. If not specified in its contractual commitments, a US private company is able to select the accounting framework that fits the purpose of its financial statements. These frameworks can include US GAAP, IFRS Standards as issued by the Board, or other bases of accounting such as the US income tax basis of accounting.
With respect to SMEs, the AICPA issued a financial reporting framework for privately held small- and medium-sized entities (called the ‘FRF for SMEs’). This framework is intended as a self-contained ‘other comprehensive basis of accounting’ for smaller-to medium-sized, owner-managed, for-profit, private companies that are not required to produce financial statements in accordance with US GAAP.
With respect to the broader group of all US ‘private’ companies, the FAF has established a body—the Private Company Council (PCC)—whose role is to contribute to the FASB’s process of setting accounting standards for private companies.
The PCC has the following two principal responsibilities: