The Public Company Accounting Oversight Board has asked its advisory group how the auditors would react if all companies filing on U.S. exchanges were allowed to use International Financial Reporting Standards.
Without a doubt, domestic auditors would have plenty to deal with if they had to opine on financials prepared using IFRS, the PCAOB notes in a discussion paper. How would they get proper training? And should they worry about the major differences between U.S. generally accepted accounting principles and IFRS? The latter, after all, lacks guidance in accounting for insurance contracts and other areas.
So far this year, regulators have posed many questions about the notion of expanding the use of IFRS in this country and raising the possibility of the foreign standards replacing GAAP. But they have proposed few answers.
This summer, the Securities and Exchange Commission presented two IFRS-related proposals. Under one, the SEC would stop requiring some foreign companies to reconcile their financials with GAAP if they use the International Accounting Standards Board’s version of IFRS. The public comment for the proposal recently ended, with the SEC having yet to announce when it would address the issue again.
The SEC also proposed giving U.S. companies the choice between GAAP or IFRS. The plan is in the “concept release” phase, meaning that the commission is merely culling public views on the idea. The public comment period for the concept release ends next month.
The SEC’s recent push to incorporate IFRS has given the PCAOB plenty to ponder. In the paper prepared for the advisory group’s meeting next Thursday, the PCAOB’s Office of the Chief Auditor has asked the members to think about how the accounting firms will prepare for understanding IFRS. And they will discuss whether the PCAOB should tweak any of its rules if the SEC moves forward with either of its proposals.
Among the questions the PCAOB will ask: Allowing U.S. companies to use IFRS would mean changes in the education of accounting students, but would it also mean changes to the CPA exam? How long would it take for universities to train college graduates on how to audit IFRS-prepared financial statements? How will auditing firms adequately train their staff for understanding IFRS? And what lessons can the firms learn from countries that have adopted IFRS?
For the issue of how the PCAOB should react if foreign private issuers are allowed to use IFRS — which the SEC has yet to vote on after receiving mixed reactions to its proposal over the summer — the oversight board wants to know whether any changes are needed in a standard that sets forth allowances for foreign audit firms that audit SEC registrants.
The advisory group, which meets a few times a year, includes finance executives, attorneys, investor advocates, and representatives of the audit firms, such as PricewaterhouseCoopers and Deloitte & Touche. The group is slated to talk for two-and-a-half hours about the auditing issues surrounding IFRS during a daylong meeting.