IFRS is getting a lot of press, but the SEC also announced it's going to let the Australians operate in the American market as well. That's potentially even bigger.

I don’t see it as a particularly measured approach. The vote was 5-0, and a big train was just started down the track. It is unclear what leverage this leaves the US to insist on and influence the accounting practices in IFRS, even when we are convinced certain practices are beneficial.

Big news from SEC with, once again, little thought or explanation provided. Capital market competitiveness forces us to do this. The accounting firms like it. Done deal.

I think it is an exaggeration to say there is little thought or explanation provided. The SEC released a concept paper on it in 2000, and has been talking about it, pushing IASB-FASB convergence, arguing about it in public conferences, etc. for much of the past decade. Go to the SEC's website and search "iasb" under the news and public statements section and you get 168 hits.

The leverage the SEC has with IFRS is now enormous -- significantly more than it had before. Before, it had to fight for influence on the IASB because the Europeans objected that IASB seats should be reserved for IFRS-users. Now, the SEC has undermined that argument and has also established a bilateral mechanism for discussions with the IASB (as well as a multilateral oversight system with the EU and Japan). On top of that, because IFRS is principles-based, interpretation and enforcement become critical. Since the SEC has the most enforcement firepower and the most intellectual wattage in the accounting area vis-a-vis other national regulators (a factor of size and budget), if the SEC interprets and enforces IFRS in one direction, it will have a profound impact on all the other national users. (This is a very big concern in Europe, which is one of the reasons the UK has recently gotten cold feet about convergence and the idea that the U.S. will adopt IFRS.) It becomes an even bigger issue since IOSCO has a program for monitoring and coordinating national interpretations of IFRS, and the SEC plays such a big role in IOSCO (to the point of chairing the committee charged with monitoring these interpretations).

And, finally, after Enron, the intellectual arguments against IFRS really dried up. The cost of capital for foreign private issuers hasn't changed since the SEC decided to get rid of the GAAP reconciliation requirement (at least not yet), which leads to the conclusion that global markets are already factoring in accounting differences and really don't care that much about the difference between GAAP and IFRS. If that's the case, a move to IFRS makes sense. It makes cross-border comparisons so much simpler, and when combined with XBRL, you get no loss of material information.

I should also add that the SEC's influence on international accounting is also greater now precisely because of the mutual recognition agreement with Australia. Previous comments by SEC staff make clear that the SEC will not consider a foreign market "comparable" if it doesn't use IFRS in it's "pure" form (i.e., without the EU "opt-outs" regarding fair value accounting). Add the two together, and the SEC not only influences IFRS, but influences how others use it.

MDF: Thank you for taking the time to make such a thorough and thoughtful response to my statement.

I assume that IFRS is looking more like GAAP than it was in 2002, now that the US is all that's out, and is thinking about coming in and engaging. But could the US have had much influence in 1998, when the heart of the standards were being devised? SEC bailed on the IOSCO process....right?

The real change to IFRS came in 2001, with the creation of the IASB. The framework for IFRS/IAS was created earlier (and SEC staff were heavily involved in developing that framework), but it wasn't until the IASB was created that IFRS could evolve into something that could reasonably pass muster. And, of course, the IASB-FASB convergence project accelerated that considerably.

The SEC involvement in IFRS development (both directly, and very significantly through IOSCO) is partly what has proven so infuriating to some EU regulators; the SEC has a big influence, pushes its agenda through the IASB-FASB convergence project, demands U.S. representation on the IASB (it did this by requiring that IASB members be selected based on professional competence rather than geography) -- and then refuses to adopt IFRS and insists on IFRS-GAAP reconciliation.

On the IOSCO process, I take it you mean the 2000 statement encouraging all IOSCO members to adopt IFRS? On that, I'd have to say "yes and no." The actual IOSCO statement encourages IOSCO members to allow multinational issuers to use IFRS, subject to "supplemental treatments," which include reconciliation. That aspect was definitely a tip to the SEC, which wasn't going to allow unreconciled IFRS in the U.S. market. And, of course, since IOSCO's Technical Committee votes by consensus (and the SEC chairs the standing committee on accounting and disclosure), the 2005 statement encouraging "ongoing" analysis of whether reconcilation is still necessary (and the database for monitoring IFRS interpretations) had to have been signed off by the SEC.