A Research-Based Perspective on the SEC’s Proposed Rule—Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) by U.S. Issuers

SYNOPSIS: The Securities and Exchange Commission (hereafter, SEC) issued a call for comment on a proposal to adopt a roadmap for potential use of international financial reporting standards (hereafter, IFRS) by U.S. companies. We comment on five key issues raised by the SEC proposal. First, we propose that the need for a global regulator is overstated. A global regulator is unlikely to help achieve the stated goals of comparability and consistency of financial reporting on a global basis. We favor allowing U.S. companies to choose use of U.S. GAAP or IFRS rather than mandating one global monopoly set of standards. Second, we agree that the focus on auditing is a very relevant issue that deserves more attention from standard setters. Gains from adopting principles-based accounting standards such as IFRS are likely to be realized only if auditors are also principles-based. Third, while we have serious concerns about governance and financing mechanisms of the International Accounting Standards Board (hereaft...