What the SEC's roadmap means for the future of IFRS: rule could require U.S. public companies to use IFRS beginning in 2014.

• Position: Issue UPDATE

The SEC has released its proposed roadmap for the transition of U.S. public companies from GAAP as we've known it to International Financial Reporting Standards (IFRS).

The long-awaited roadmap is open for a longer-than-normal 90-day review. Comments are due Feb. 19, which moves its potential adoption into the administration of the next SEC chair. President-elect Barack Obama has nominated Mary Schapiro to replace current SEC Chair Christopher Cox.

The roadmap identifies seven milestones that, if achieved, could require U.S. public companies that file with the SEC to use IFRS by 2014.

KEY MILESTONES INCLUDE:

* Improvements in accounting standards, including progress under the Memorandum of Understanding between the FASB and IASB

* Accountability and funding of the International Accounting Standards Committee (IASC) Foundation, which funds the International Accounting Standards Board (IASB)

* Improvement in the ability to use interactive data for IFRS reporting

* Availability of education and training relating to IFRS

* Limited early use of IFRS where it would enhance comparability for U.S. investors

* Anticipated timing of future rulemaking by the SEC

* Implementation of the mandatory use of IFRS by U.S. issuers

Under the proposal, in 2011 the SEC will determine whether to proceed with rulemaking for the IFRS requirement. A few areas are especially crucial in moving forward in the transition to IFRS: a solid source of funding for the IASB, an IFRS taxonomy for tagging financial data, and adequate training and resources for transitioning to IFRS. There is also concern over the proliferation of country-specific carve outs, which undermines the comparability of financial statements worldwide. This problem is going to have to be resolved to avoid financial reporting chaos.

EARLY ADOPTION

In the meantime, early adoption by the nation's 110 largest issuers in certain industries would be allowed as early as 2010, for financial statements beginning after Dec. 15, 2009. Only issuers whose industry uses IFRS as the basis of financial reporting more than any other set of standards would be eligible for early adoption. These so-called "IFRS industries" include energy, oil and gas, and some retail and manufacturing sectors.

In a staged transition, IFRS filings would begin for large accelerated fliers for fiscal years ending on or after Dec. 15, 2014. Remaining accelerated fliers would begin IFRS filings for years ending on or after Dec. 15, 2015...