Recently, SEC Chair Paul Atkins delivered this wide-ranging speech that included a warning that the SEC may reconsider its rules allowing foreign companies to file financials using IFRS due to the IFRS Foundation’s formation and backing of the International Sustainability Standards Board (ISSB). Chair Atkins also noted “significant concerns” with the EU’s new sustainability reporting and due diligence regulations, including the CSRD and CSDDD, citing the “prescriptive nature of these laws and their burdens on U.S. companies.”
Here’s an excerpt from that speech: “As we look with fresh eyes at the types of foreign issuers that receive special accommodations, we should also not lose sight of the bedrock beneath any effective regulatory regime: high-quality accounting standards and financial materiality.
With respect to accounting standards, U.S. companies must prepare their financial statements in accordance with U.S. GAAP, or Generally Accepted Accounting Principles. During my previous tenure at the SEC as a Commissioner in 2007, I voted to support rule changes to permit foreign companies to present financial statements prepared in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), without reconciliation to U.S. GAAP.
When the SEC eliminated the reconciliation requirement, it noted that “the IASB’s sustainability, governance and continued operation in a stand-alone manner as a standard setter are significant considerations in [eliminating the reconciliation requirement], as those factors relate to the ability of the IASB to continue to develop high-quality globally accepted standards.” The SEC specifically noted the ability of the IASC Foundation, which was the predecessor to the IFRS Foundation, to obtain “stable funding” for the IASB.
In 2021, the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB), and its Trustees are now responsible for securing funding for both the IASB and the ISSB. This recent expansion of the IFRS Foundation’s remit cannot divert its focus from its long-standing core responsibility of funding the IASB. In turn, the IASB must promote high-quality accounting standards that are focused solely on driving reliable financial reporting and are not used as a backdoor to achieve political or social agendas. Reliable financial reporting is critical to supporting capital allocation decisions. We all have a strong interest in the IASB’s being fully funded and operational, and I encourage the IFRS Foundation to meet its goal for “stable funding” that prioritizes the IASB and its focus on standards for financial accounting, rather than specious and speculative issues.
If the IASB does not receive full, stable funding, then one of the underlying premises for the SEC’s elimination of the reconciliation requirement for foreign companies in 2007 may no longer be valid, and we may need to engage in a retrospective review of that decision.”
Authored by
Broc Romanek