SEC Chairman Cox Says Subprime Market Crisis a "Stress Test" for GAAP, IFRS
AICPA | August 4, 2008
Securities and Exchange Commission Chairman Christopher Cox kicked off a discussion on financial reporting Monday saying the subprime mortgage crisis provided “a critical stress test” for U.S. generally accepted accounting principles and International Financial Reporting Standards.
"We cannot speak about financial reporting in 2008 without paying heed to current times," Cox said in opening remarks. "We all know what’s going on in the capital markets."
The SEC hearing was designed to provide commissioners with an opportunity to analyze and compare the performance of IFRS versus U.S. GAAP during the recent financial market turmoil. Two panels focused on the financial services sector and oil and gas, and technology sectors. The SEC is considering an IFRS roadmap that would allow U.S. publicly-held companies to issue financial reports using international standards set by the London-based International Accounting Standards Board.
"All and all I think it held up well," said Matthew Schroeder, managing director for accounting policy at Goldman Sachs Group Inc. Goldman through the Securities Industry and Financial Markets Association supports the SEC’s proposal to allow U.S. companies the option to report financial results using IFRS.
Council of Institutional Investors General Counsel Jeff Mahoney urged the SEC to take into consideration critical areas of IFRS identified in an IASB memo -- including fair value accounting, consolidation policy and de-recognition rules -- that need to be improved before the international standards are adopted in the U.S.
"Many U.S. investors believe those areas need to be taken care of before we go forward," Mahoney said. U.S. accounting principles are set by the Financial Accounting Standards Board in Norwalk, Conn.
The Council of Institutional Investors, an association of 130 pension funds with $3 trillion in assets, has raised concerns about the IASB and IFRS in comments to the SEC on its proposed rule change.
Ernst and Young partner and IFRS markets leader Ken Marshall said, "We as a firm believe we ought to move as soon as possible to a date certain" for U.S. adoption of IFRS.
The Wall Street Journal’s "Heard on the Street" column reported the SEC is expected to unveil its plan soon to put U.S. companies "on track to adopt international accounting standards," eventually replacing U.S. rules. The swearing-in last week of two of the SEC's three new commissioners "paves the way" for Cox to move ahead with this "long-awaited project," the WSJ said.
