A RECENT Securities and Exchange Commission staff paper painted a relatively positive picture of convergence, suggesting the US regulator has both the tools and the drive to unite US GAAP and International Financial Reporting Standards.

The journey has been arduous and sceptics say the largest economy in the world remains far from scrapping its cherished standards in favour of a global set; so how important is the staff paper, and is it a reliable indicator as the race to convergence enters its final phase?

A graduated approach is outlined in the work plan, with convergence taking place "over a defined period of time". The authors stress the decision to converge has yet to be made, and this is just one of many possible approaches to incorporation.

The work plan also provides for changes to be made to IFRS as part of the process of convergence. This is one option for adopters, and contrasts with the wholesale importation approach favoured by jurisdictions with less well developed accounting standards. Another option is endorsement; this is the approach taken in the European Union, and so far has led to one standard being altered.

Experts viewed the paper in a broadly positive light, saying it indicates the depth of thought involved and reiterates the SEC objective of dual compliance with IFRS and US GAAP. Big Four partners in particular were cautiously optimistic, although their well established support for IFRS could make them prone to positive spin.

The model envisions a transition lasting between five and seven years, at the end of which companies would be fully compliant. This is in contrast to the 'big bang' approach adopted by Europe and Canada ?? whereby all the standards are introduced at once - although the authors acknowledged this tried-and-tested method would make it easier to predict the outcome of convergence.

However, gradually easing into a global standard offers some cushion to the huge pool of domestic companies that have no appetite to sign up to international rules and are raising fierce objections. *

The plan outlined in the paper is relatively complex, allowing for changes to be made on a standard-by-standard basis, By contrast, the big bang method is simple, implementing the whole set simultaneously with a few reliefs offered to certain companies.

The option-to-change model will not necessarily lead to the watering down of IFRS that some stakeholders fear, as the SEC knows alternations will reduce global compliance, potentially making US companies less attractive to foreign investors.

Both the model and the degree to which the US may change IFRS are open to interpretation. Those with faith in convergence maintain that ?? while the SEC may keep its options open with regard to adaptation ?? it is unlikely to make major changes, and the option will act more as a pressure valve than a genuine get-out clause.

Others argue the paper is the first indication of an increasingly soft commitment to convergence. Critics point to major developing economies like India where adoption of IFRS is by no means assured. Even Japan is dithering over implementation, and while smaller economies may suffer from Wall Street's poor understanding of national standards, most of the world can decipher US GAAP.

*The next stage on convergence is a series of round-tables, and the paper has been timed to allow for responses. Staff papers are normally produced every three months, meaning a few more might be on the way before SEC chiefs sit down to decide in late 2011. Staff will use the papers to make recommendations to their superiors, meaning future papers ?? potentially less positive about convergence ?? could have a significant impact.

Papers are developed on a relatively collaborative basis and are by no means the brainchild of a single IFRS obsessive, suggesting general feeling about convergence is positive in the SEC offices. Paul Munter, US partner at KPMG, said it "provides a window into some of staff thinking", noting it allows them to seek information on the costs of convergence under this model.

Sources at the International Accounting Standards Board said the paper signposts SEC thinking and lends weight to the convergence model. They said reserving the right to alter the standards is "not so different from other jurisdictions", and argued a strong process for capturing views and explaining decisions should be enough to avoid substantial deviation from IFRS.

This paper is a firm and positive indicator of SEC thinking on convergence, but the race is far from over. Several months will pass before a decision is made, and the deadline could yet be pushed back. It seems unlikely that the US will opt for big bang adoption, and the current model may be the best IFRS enthusiasts can hope for, with full convergence envisioned in a little over five years.

There are many other degrees of adoption; at its most extreme, the US could reject IFRS outright, though few see this as a viable option. Roundtables will be held at the end of July, and stakeholders will be watching keenly for further signposts to the mindset of SEC staff and, by extension, commissioners. *




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