SEC Chief Threatens Ban on European
Accounting Rules Over Sustainability
Paul Atkins questions whether overseas companies
should be barred from using International Financial Reporting Standards
SEC
Threatens Ban on IFRS Over Sustainability Focus
Regulatory
Tensions
·
SEC Chair Paul Atkins has
warned that overseas companies may be barred from using International
Financial Reporting Standards (IFRS) in the U.S. if the IFRS Foundation
continues to pursue sustainability and climate-related disclosures.
·
Atkins criticized the IFRS Foundation for “chasing
political fads,” arguing that sustainability principles could undermine
IFRS’s integrity and its compatibility with U.S. GAAP.
Background
& Implications
·
For nearly 20 years, the SEC has allowed foreign
companies listed in the U.S. to use IFRS instead of Generally Accepted
Accounting Principles (GAAP).
·
A ban would require companies to reconcile their
financials with U.S. standards, a costly and time-consuming process.
·
Atkins has reversed several policies of former SEC
Chair Gary Gensler, including those on crypto, climate disclosures, and AI,
since his appointment by President Donald Trump in April.
Sustainability
Standards Debate
·
Atkins opposes double materiality, which
includes disclosing a company’s impact on the environment—not just how
environmental issues affect the company.
·
Critics argue that IFRS’s sustainability standards
stretch the definition of financial materiality, even though IFRS does
not formally adopt double materiality.
·
The SEC recently withdrew a rule that would
have required climate-related disclosures.
Funding
Concerns
·
Funding for the IFRS’s sustainability body is set
to expire soon, raising concerns about the financial strain on
the parent foundation.
·
Atkins questioned whether this could affect the
quality of future IFRS standards.
IFRS
Foundation Response
·
The IFRS Foundation emphasized its independence
between sustainability and accounting standard bodies.
·
It stated that its sustainability initiative was
launched in response to global investor demand and is undergoing a two-year
transformation, including a new funding strategy.
·
The Foundation maintains ongoing dialogue with
the SEC, acknowledging its role as a key stakeholder.
This clash reflects deeper philosophical divides
over the role of financial reporting in addressing global challenges. Want to
explore how this could affect multinational companies or ESG investing trends?
The
top US markets regulator has threatened to ban overseas companies from using accounting
rules from the International Financial Reporting Standards if its rulemakers continue to pursue sustainability and climate issues.
Securities
and Exchange Commission chair Paul Atkins told the Financial Times that the IFRS
Foundation was “chasing political fads” with sustainability issues, calling it “a
real issue, a real problem”.
“Those
sorts of [sustainability] principles coming into IFRS could undermine the integrity
of IFRS and particularly its compatibility with [US accounting standards],” Atkins
said, which “creates a question” of whether the SEC should prohibit its use in the
US.
The
SEC has for almost two decades allowed overseas companies with US listings to use
accounting standards issued by the IFRS Foundation, rather than adhere to the US’s
own standard, Generally Accepted Accounting Principles. Meeting the approved accounting
standards are required to access US capital markets.
Revoking
overseas companies’ ability to use IFRS accounting standards would force them to
reconcile their accounting with US standards, a lengthy process that could come
at considerable cost. Atkins, a champion of light touch regulation, has reversed
many of the policies of his predecessor Gary Gensler, including on cryptocurrency
exchanges, climate disclosures and artificial intelligence, since his appointment
by President Donald Trump in April.
He
reiterated his concern about the global accounting body’s focus on sustainability
in his keynote address at the OECD Roundtable on Global Financial Markets on Wednesday,
hitting out at the body that created the IFRS Foundation.
“They
must promote high-quality accounting standards that are focused solely on driving
reliable financial reporting and are not used as a backdoor to achieve political
or social agendas,” he said.
US
accounting standards do not contain explicit requirements for sustainability or
climate-related disclosures, and the SEC in June withdrew a near-finalised rule
that would have required such disclosures.
One
person familiar with the IFRS Foundation’s discussions with US regulators said the
standards body had for months been operating in fear of the US crackdown on sustainability
efforts, adding that some speeches had been edited to avoid further straining relationships.
The
criticism from Atkins was pointed at so-called double materiality disclosures, where
companies are told to disclose the sustainability impact of their activities on
the outside world — on top of the standard “financially material” issues, such as
the impact of climate change on the company itself.
The
IFRS’s sustainability standards do not rest on double materiality. But critics of
its sustainability standards say the sustainability impact disclosures that the
body classifies as “material” lie beyond traditional definitions of financial materiality.
Atkins
added that the funding originally allocated to the IFRS’s sustainability body would
expire soon, leaving the parent foundation footing the bill despite existing worries
about “adequate funding” for the IFRS itself.
“With
another draw on their resources, what does that portend for the IFRS standards that
come out of the board?”
The
IFRS Foundation said: “The SEC is an important stakeholder and we continue to maintain
close dialogue with it.”
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foundation added that it established its sustainability body “in response to investor
and capital market demand globally for financially material sustainability-related
financial disclosures”.
It
operates and is funded independently from the foundation’s accountancy standard
body, it said, which was “a key consideration” when it was established, and “their
respective standards do not impose requirements on each other”.
“The
IFRS Foundation is midway through a two-year transformation programme . . . including the development of our long-term funding
strategy.”