The change in the value of the assets would also result in changes on the income statement. By contrast, under GAAP rules, assets are reported on a historical cost basis.
"Although fair-value accounting would make it easier for investors, analysts and insurance company safety rating agencies to evaluate insurance companies, corporations are concerned that fair-value accounting would make earnings and the value of reserves more volatile," says Kurt Schacht, CFA, managing director of the CFA Institute, Charlottesville, Va. "IFRS is not quite ready for prime time in U.S. markets. We fully support mutual recognition at some point. However, we believe that the (Form) 20-F elimination is premature."
Schacht also expressed concern about enforcement oversight, as well as the way auditing standards are adopted. There are other issues he says must be addressed if U.S. and international accounting standards converge: He says that there are major gaps in the financial reporting standards for significant classes of information, such as revenue recognition, pension plans and leasing.
He says more time is needed by the SEC to evaluate companies' effectiveness in implementing international accounting standards.
Inconsistent company application leads investors to lack confidence in current claims of IFRS compliance.
High quality, independent audits for full IFRS compliance have yet to be achieved and could pose a long-term problem. Regulators' coordinated efforts to enforce full IFRS compliance are still being implemented, and thus the overall effectiveness of regulatory oversight has not yet been fully demonstrated.
The current funding structure of the IASB remains a major issue. The International Accounting Standards Board is funded by companies and accounting firms. So there could be a conflict of interest.
Investors and investment professionals have little representation on the IASB and IASC Foundation, the body that appoints the IASB.
Standard & Poor's Neri Bukspan, managing director and chief accountant, and Ronald Joas, director of financial reporting, say they support the move to a global standard; however, they indicated that the IFRS disclosure framework is substantially incomplete.
"The importance of disclosures becomes much more evident during periods of transition, when reported financial information may change meaningfully for many, hindering analysts' ability to perform peer and period-over-period comparisons," they say.