Talk to auditors these days and you hear the machinery of a nascent industry whirring: the business of international financial reporting standards and the revolution it will bring.
While most client eyes are on the Big Four for their role in convergence, of course, the second tier is immersed as well. CFOs of middle-market companies, and those whose companies do business primarily in the United States, who think IFRS won’t affect them for a long time to come might be startled to see full-scale mobilization efforts underway among their auditors. Case in point: McGladrey & Pullen and its non-attest affiliate, RSM McGladrey.
“What’s underestimated is the educational effort it will require in the heartland, the bread basket of the U.S., including among banks and other customers. It will certainly impact them all,” says Bob Dohrer, partner and practice leader of McGladrey & Pullen’s International Assurance Services Group. A lot of McGladrey’s bread is in that basket. The Bloomington, Minn.-based firm has 150 listed companies as clients on the audit side, many of them middle-market. “When one adds up the numbers of people who are going to have to know about IFRS, it’s clearly a daunting issue.”
Whatever the time frame that eventually applies to the switch from U.S. generally accepted accounting principles to IFRS — generally presented as a five- to seven-year horizon, with some conversions taking place by next year — the stakes are high. “It would probably shock many companies to stop and analyze how many of their business agreements and other arrangements are based on GAAP,” Dohrer says. “I think it behooves them, after looking at the educational considerations, to then move to the impact on business operations: incentive comp plans and relationships with key vendors,” for example, which may require the application of financial information.
“Debt could in fact be called and become due on demand if financial numbers changed due to the adoption of IFRS,” he notes. Talk about potential impact.
Direct and Indirect Costs
Like all new industries, this one will be lucrative for some, and costly for others. McGladrey is working to explain the costs and responsibilities for clients, while also taking note of the rewarding — and busy — job ahead for it and its fellow accountancies.
“As we talk to our clients, we explain that there are going to be direct and indirect costs,” Dohrer says. “The direct costs are easy to get your hands around.” For each member of a company’s accounting department, for example, there are educational options already emerging: classes being offered by industry groups like the American Institute of Certified Public Accountants, and other courses being developed by state associations and Big Four and second-tier firms. They include one-day, high-level conceptual sessions, and deeper, more inclusive four- or five-day “full-immersion courses.”
“From 20 to 25 percent [of finance staff] will need the in-depth, full-immersion courses,” Dohrer suspects. But even with the minimal training that other office employees will require, “I’d figure the cost in the neighborhood of $1,000 per day, per participant. That’s the most direct cost.”