IFRS: No Longer If, but When

The SEC will release a time line later this year for allowing U.S. companies to use international financial reporting standards.

U.S. and international accounting standard-setters have been working through the differences between their two sets of rules for the past five years, but they still have at least five more years of negotiating to do. When the concept of converging the standards was first addressed, the idea was to commingle the two and end up with the highest quality of accounting rules possible, regardless of how long it took. However, “we seem to have lost patience somewhere along the line,” says Niemeier.

In the meantime, proponents of an IFRS option in the United States say patience is not an option. The SEC and the large accounting firms argue that the globalization of the capital markets and the popularity of IFRS adoption in more than 100 countries have far outpaced the convergence project. At the same time, they say the convergence work should not be hampered — and may actually be accelerated — if IFRS is more widely used in this country.

Niemeier counters that the consistency of IFRS among the companies that use it has not been proven. There are variants of IFRS beyond the version created by the International Accounting Standards Board, and recent reports suggest that some companies are not fully complying with IFRS.

SEC spokesman John Nester confirmed to CFO.com that the commission is working on a road map that will be released publicly this year. Details and dates have not been released, though.

Still up in the air is whether the SEC will allow companies to use either set of standards indefinitely or mandate that all begin using IFRS eventually. Several observers of this topic predict the SEC will come out with some sort of IFRS-related proposal this spring.

Last year Financial Accounting Standards Board chairman Robert Herz called for a timetable for moving U.S. companies to IFRS. He believes IFRS will take over U.S. GAAP as the globally accepted accounting principles worldwide. But a wealth of issues need to be addressed before getting there, including adjustments to the CPA exam, banking regulations, state contracting laws, and other legal agreements that companies make that specify the use of GAAP.

At the same time, FASB and IASB are plugging away on the standards that are the most difficult to converge so far, including pension and lease accounting, revenue recognition, and financial-statement presentation. “I want to get a single set of high-quality standards, and I’d like to do it within a reasonable time frame,” Herz told CFO.com. That time frame could be between 5 and 10 years from now.

According to DJ Gannon, a Deloitte & Touche partner, large companies will need 18 months to two years of preparation to change over from GAAP to IFRS. He believes it would be possible for the SEC to give 2011 as the year for making such a change, at least for large companies, while other accounting experts have said 2013 to 2015 could be doable for smaller companies.


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