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IFRS or Standards Convergence?

Jack Sweeney April 14th, 2009

After being followed at a measured pace for most of the past decade, the schedule for implementing International Financial Reporting Standards (IFRS) within the U.S. has accelerated over the past year or two. Two bellwether events: Last year, the U.S. Securities and Exchange Commission (SEC) allowed some foreign issuers that file financial reports with the SEC to use IFRS without reconciling to U.S. Generally Accepted Accounting Principles (GAAP), as had been required. Then, last August, commissioners voted to publish a “road map” outlining the move to IFRS for publicly traded companies within the U.S.

However, with the economy in a tailspin and both regulators and CFOs focused on survival and recovery, it’s likely that the time frame may be extended. David Kaplan, leader of PricewaterhouseCoopers LLP’s International Accounting and SEC Services Group, recently fielded a few questions concerning the adoption of international standards by American companies. ###

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3 Comments to “IFRS or Standards Convergence?”

Frederick Petrus Says:

April 15th, 2009 at 10:57 am

It’s no secret, IFRS does not seem to be consistently applied from country to country. From what we understand IFRS is frequently applied in a manner that is similar to a given country’s current or former national accoutning standards.

The fact that the global approach to IFRS seems a bit spotty makes us want to wait for a more mature approach or vision. At the same time, we fear some upcoming transactions could be put in jeopardy (after the execution) if we don’t more fully understand what the IFRS impact may be. It’s already clear to us the greatest costs behind IFRS are not the expense of acquiring IFRS knowledge.
brenda holsworth Says:

April 16th, 2009 at 9:04 am

We’re trying to define what might be considered early milestones as we advance toward international standards. The idea of course is to monitor our progress. However, we’re at loss to know what those milestones should be….Any suggestions?
Dave Kaplan Says:

April 22nd, 2009 at 11:07 am

To Frederick, I would observe that there are two kinds of diversity in financial reporting. First, diversity that makes similar economic transactions look different and second, diversity that makes dissimilar transactions look the same. I would acknowledge that IFRS sometimes allows the first more than does US GAAP. But US GAAP more often, because of its prescriptive rules and very detailed guidance, makes dissimilar transactions look the same. Neither is good for investors and the capital markets. It will take time for IFRS to continue to improve, but the roadmap still calls for US change 5 to 7 years out. Significant improvement will occur, as a matter of course, during that time period. The US can be a lot more influential in the process of helping IFRS to mature if we are on the inside; if we have decided to move the US to IFRS, than if we remain on the outside.

Also, I would observe that the standards themselves are only part of the solution. In additional the regulatory environment is important and the US regulatory environment is more robust than the environment in a many other jurisdictions. Overtime, regulatory systems will improve around the world and industries will coalesce around similar presentations creating more consistency. Again the SEC will have more influence if the US has announced a willingness to move to IFRS.

I also agree that your point about making sure you fully understand the IFRS impact of transactions is very important and would encourage you to do so, as IFRS is already impacting the US markets in many ways.

Brenda, transition to IFRS is a challenging process that does take time. Project management is very important and it would be difficult to fairly summarize key milestones in an email, especially without knowing specific information about your enterprise. What I would say, however, is that determining the early milestones is a key part of approaching an IFRS conversion strategically. Each business is different and a structured approach to this process makes a lot of sense. I would encourage you to reach out to an advisor who has done a number of IFRS conversions to discuss the process and approach in more detail.