The SEC staff released its self-described “roadmap” for convergence with, and adoption of, IFRS. The release is a proposed rule subject to a review and comment period by the community of preparers, auditors and users of financial statements, as well as all those that would be impacted by the change.

An obvious political wind has been behind the move to IFRS in the US. Making things more pressing is the common thread of economic suffrage underway globally and the role of financial information – or the absence of it – littering the path to these troubles.

The proposed rule is extensive and has two principal discussion segments, followed by the codification of the amendments. The first segment covered in sections I thru III lays out a strategic view of the obstacles to adoption and potential benefits available if a series of “milestones” can be reached, to the agency’s satisfaction. The second segment discusses circumstances where limited early adoption of IFRS by select companies is foreseen, if it’s found to enhance comparability of financial information for US investors.

I will focus on the principal strategic points in the first discussion segment of the proposal. I believe the staff expresses its reservations about the convergence ever coming to bear, along with the gates that have to be gone through, in order to overcome those reservations. This segment of the rule covers nearly 50 pages, so I will carve it into a series of blogs.

I was struck by the tone within the proposal. It’s diplomatic in its delivery and just as suspect about the value of the change and the likelihood it can be pulled off in anything short of a decade. And even then, it’s not clear the staff believe it would be adopting a more focused and informative compendium of reporting rules that will advance the protection of investors. They want it proven, steadfastly.

The momentum behind a transition for US reporting to IFRS has mounted swiftly. But anyone in the rulemaking chain with history writing, interpreting or applying US GAAP and IFRS understands such a hurried shift is as dangerous as it is popular.

US GAAP and IFRS are languages for conveying accurate accounts of historical financial position and results of operations. While US financial reporting has truly grown cumbersome and at times irrelevant because it can ignore economic substance underlying business transactions in favor of matrix based solutions, it will not get better for merely having adopted another reporting language. Its flaws are concentrated in application & interpretation.

Things like conservatism and organizational interests overcome economics. IFRS will not change this. Other kinds of influential variables currently exist in every jurisdiction that has or would adopt IFRS as part of the “single global standard” movement. The standards can be the same but the variables influencing the application and interpretation are as broad as the politics of each jurisdiction (e.g. how difficult is it to gain consensus at a UN meeting on any matter of global interest?).

The proposed rule establishes its benchmarks early:

We believe that the benefits of moving towards a single set of globally accepted standards as a long-term objective for increased comparability of financial statements are attainable through the use of IFRS only if IFRS represents a single set of high-quality accounting standards, which is best accomplished through the use of IFRS as issued by the IASB. (p. 17).

…in determining whether to proceed with requiring the use of IFRS by U.S. issuers, the Commission will consider the extent to which IFRS as issued by the IASB is used globally, is applied consistently, and supports the assertion of IFRS as the single set of high-quality global accounting standards. (p. 18)

The staff are making it clear that until the self-interest of individual nations is sacrificed for consensus adoption of a single authoritative rulemaker governing IFRS’s development and interpretation (to the SEC’s liking), IFRS remains an interesting concept but don’t look for it in a US prospectus any time soon.