A property-casualty insurance trade group said today it backs Securities and Exchange Commission efforts that could lead to the adoption of International Financial Reporting Standards (IFRS) for traded U.S. companies.
The comment from the Property Casualty Insurers Association of America (PCI) followed the SEC's announcement last week that it will publish for public comment a proposed "Roadmap" that could lead to the use of (IFRS) beginning in 2014.
Jim Olsen, PCI director of insurance accounting and investment, said PCI will be submitting comments and "our position is we support one global set of high quality [accounting] standards."
However, he noted there are still discussions going on concerning issues of insurance accounting for IFRS, mostly related to evaluation of insurance liabilities. "We want to make sure it is appropriate for companies that are our members. There is a lot of work to be done," he said.
Stock companies presently use U.S. Generally Accepted Accounting Principles. The commission said it would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multiyear plan sets out several milestones that, if achieved, could lead to adoption of IFRS in stages.
Mr. Olsen noted that under the SEC plan in 2009 a number of larger publicly traded companies will be allowed to make an early adoption of IFRS and file with the SEC on that basis so the commission can track them and see how IFRS works in order to make a decision.
While it "certainly appears we will have the IFRS accounting standards," Mr. Olsen said there are problems because the SEC is looking for one global standard for IFRS as promulgated by the International Accounting Standards Board in London.
However, he noted that many nations have adopted IFRS but changed it for their own country. "The UK, for example, had made modifications so it is no longer fitting with what the SEC says they will accept."
In discussing the decision, SEC Chairman Christopher Cox noted the possibility for "a true lingua franca for accounting." Over 100 countries worldwide require IFRS, and 85 of those countries require it for their domestic companies, he added.
Mr. Olsen noted that while all insurers file statutory accounting statements with the National Association of Insurance Commissioners, some private companies don't file their financial reports in the GAAP format required by the SEC.
If the SEC adopts IFRS in place of GAAP accounting, Mr. Olsen said the NAIC's Statutory Accounting Principles Working Group might consider replacing statutory accounting with IFRS.
The SEC Roadmap, he said, would have smaller traded firms begin using IFRS in 2016 if the system was approved by the Commission.
In a statement, the American Council of Life Insurers, Washington, said that it looks forward to seeing the actual details of the Roadmap. The statement noted that statutory accounting, which ensures solvency for insurance companies, would not be directly affected by the SEC's proposal.
ACLI said the project is still in its early stages, so the impact on the industry is difficult to determine. But the ACLI commented that "a strong, global set of accounting standards for public corporations would be a welcome development."
Doug Barnert, executive director of the Group of North American Insurance Enterprises, New York, said GNAIE supports "a single, robust, high quality set of accounting standards." However, he added, there are still a lot of "ifs" surrounding the project. For instance, he said there are a lot of potential problems because a change to US GAAP could affect statutory accounting. Even if statutory accounting remains, the impact on things such as the NAIC's Codification requirements is uncertain.
Lisa Filomia-Aktas, a partner with Ernst & Young, New York, said IFRS filings will require examining assets and liabilities as well as what is on and what is off the balance sheet, which will require a lot of work to convert to IFRS.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.