US SEC chair Paul Atkins criticised major firms for backing disclosure rules he says jeopardise financial materiality, at an AICPA-CIMA conference, while chief accountant Kurt Hohl cautioned that the ISSB's expanding role within the IFRS Foundation may be pulling resources and attention away from core accounting standard-setting.
Atkins spoke of his "shock" over the last five years by "the focus of some [audit and accounting] firms on things that, in my view, would have completely subverted the importance of financial materiality and financial accounting".
Without mentioning the word 'climate', he said he was referring to "some of the disclosure rules that were pushed forward at the SEC to the chair, frankly, [by] some of the largest firms in the profession".
Atkins told the accountants and auditors in attendance: "These are the areas where I expect the profession to hold the line, and if you can't do that in the face of pressure from the government, from your investors - or so-called investors, in some cases politicised investors - I think that's a real problem."
Some of the comment letters submitted to the SEC are still on firms' websites, he noted. "So I assume you still stand by them. Looking forward, we have a very heavy regulatory agenda coming up next year, and I will look rather with scepticism, and discount some of the comments that come from the profession in this area."
Atkins concluded: "There needs to be a real refocus on the basics of financial accounting and auditing."
Knowing that following him on stage was the SEC chief accountant Kurt Hohl, he encouraged the moderator - Julie Bell Lindsay, CEO of the Center for Audit Quality – to ask Hohl about international issues.
"It's extremely important that we stay focused on maintaining the United States as having the best capital markets in the world," he said. "The accounting profession, auditing profession, is incredibly important to all of that [...] but we want to make sure that you also stick to what's important. Stick to the basics, as I was mentioning before. Don't let the shiny bauble distract you. Just do what's right by investors. That's your crucial job."
And with that cue, Bell Lindsay asked Hohl about the Atkins' September speech - in her words, where "he talked about the governance of the international standard setters". Where many saw a threat to review the US regulators' 2007 decision to permit foreign companies to present financial statements prepared in accordance with the IFRS standards as issued by the International Accounting Standards Board (IASB) without reconciliation to US GAAP, and by the same token he told Europe to drop double materiality.
Asked his take on the governance of the international standard setters, Hohl replied that the market cap of foreign companies that list in the US capital markets is $14trn. Of those, 75% use IFRS standards. So, IFRS is "very important" to the US capital market.
"Paul [Atkins] was on the SEC when it adopted the rules allowing foreign private issuers using IFRS to do so without reconciliation to US GAAP," he said. "He supported that because he was comfortable with the IASB's ability to develop high-quality accounting standards and with the functioning and funding of the IFRS Foundation."
But since the International Sustainability Standards Board has been added as a sister board to the IASB within the IFRS Foundation, Hohl said. "If you look at the funding, most of the money flowing into the IFRS Foundation is going to the ISSB to develop sustainability standards - not accounting standards. So there's a concern that having the ISSB within the IFRS Foundation could cause a loss of focus on what is truly a priority for our capital markets: the development of high-quality accounting standards. We need to take a close look at governance and funding there."
Similarly, he continued, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA), "operate under a complex governance model" under the Monitoring Group and the Public Interest Oversight Board.
"The challenge is that the Public Interest Oversight Board is in financial difficulty, and the governance structure is cumbersome," Hohl said. "We're going to look at how we can intervene. If we're going to ask the PCAOB to adopt the IAASB's standards as a baseline for auditing standards in the United States, we need to ensure those international standards are of super-high quality - independent, objective, and well-developed."
He said this will involve a lot of close work with international stakeholders to "hopefully" resolve "many of these issues so that we can continue to allow the use of IFRS in the US and have high-quality auditing standards developed globally for use here".
"That's a significant undertaking, in a world of herding cats," Hohl said.
However, he was more upbeat when talking about the cooperation between the IASB and the US standards setter – FASB.
It's important that FASB's CEO Rich Jones works with the IASB on "developing international accounting standards - and vice versa, for the IASB to work with the FASB and learn from one another".
"One of the things I'm really focused on is getting as much cooperation and convergence as we can on standards, because it reduces investor confusion, avoids undue costs, and allows us to leverage each body's work to develop standards more quickly," he said. "For example, if the IASB takes up a topic first and the FASB then takes up a similar project, the FASB can learn from the IASB's feedback and potentially issue standards on a quicker basis."
The big challenge in reducing cost, however, is to get preparers to participate in the standard-setting process, Hohl said. "Auditors, the big firms, and investors are pretty vocal, and some of the trade associations for preparers are as well. But individual companies often come in after the fact saying [they] don't like the standard. We need to find a mechanism for companies to participate on the front end of the project, to inform the FASB, so we can produce high-quality standards at a reasonable cost."