SEC chief warns of ban on European accounting rules over sustainability focus - Trade Treasury Payments

Securities and Exchange Commission chair Paul Atkins has threatened to ban overseas companies from using International Financial Reporting Standards (IFRS) if its rulemakers continue to pursue sustainability and climate-related initiatives. This stance could disrupt cross-border financial reporting practices established nearly two decades ago.

In an interview with the Financial Times, Atkins characterised the IFRS Foundation’s sustainability focus as “chasing political fads,” calling it “a real issue, a real problem” that undermines the integrity of accounting standards. Atkins stated that the application of sustainability principles in IFRS could compromise its compatibility with US accounting standards, raising questions about whether the SEC should prohibit the use of IFRS in American markets.

Atkins-led SEC is pushing back against policies set by former chairman Gary Gensler, focusing on changes to regulations for cryptocurrency exchanges, climate disclosures, and artificial intelligence.

Since his appointment by President Donald Trump in April, Atkins has moved to position himself as a proponent of lighter regulation, advocating for the dismantling of what he sees as regulatory overreach.

Market implications loom

For about two decades, the SEC has permitted foreign companies with US listings to prepare financial statements using IFRS standards rather than converting to America’s Generally Accepted Accounting Principles (GAAP). This accommodation has allowed international companies to access the world’s largest capital market without maintaining dual accounting systems.

Revoking this permission would force overseas companies to reconcile their accounting with US standards, a process financial experts describe as lengthy, complex, and potentially expensive. 

Such a requirement could alter calculations for international companies considering US listings, potentially reducing American markets’ global attractiveness and splitting international capital flows.

IFRS Foundation defends sustainability focus amid pressure

Atkins’ criticism specifically targets double materiality disclosures, which require companies to report not only financially material issues affecting the company itself, but also their broader sustainability impact on society and the environment. 

IFRS sustainability standards don’t explicitly require double materiality, but critics argue that material sustainability disclosures go beyond traditional definitions of financial materiality.

The financial viability of the IFRS sustainability initiative is another point of contention. Atkins highlighted that the dedicated funding established initially for the sustainability arm faces imminent expiration, which would force the parent foundation to absorb these costs despite its own financial constraints. 

While acknowledging the SEC as an important stakeholder with whom it maintains close dialogue, the IFRS Foundation emphasised that its sustainability initiatives are driven by global investor and capital market demand, rather than political pressure. The organisation maintains that it established its sustainability body to address investor and capital market demand globally for financially material sustainability-related financial disclosures. 

The sustainability arm operates and is funded independently from its accountancy standard-setting body, with standards that do not impose requirements on each other.

What are the broader implications? 

This regulatory standoff occurs amid growing international differences on sustainability reporting requirements. While European regulations have moved toward comprehensive sustainability disclosure frameworks, the US has taken a different direction, with the SEC withdrawing a nearly finalised rule in June that would have required climate-related disclosures.

The potential ban indicates a divide on the purpose and scope of financial reporting. How this tension resolves will likely shape international financial reporting for years to come.