Wallflowers Wonder: When Will GAAP Merge with IFRS?

The drop-dead date for a single set of world-wide financial reporting standards? Don't ask.

Like geeky high school sophomores trying to screw up the courage to ask the homecoming queen to the prom, participants at yesterday’s accounting forum at Baruch College couldn’t quite bring themselves to ask for what they wanted: a date.

Despite the presence of Securities and Exchange Commission officials Conrad Hewitt and John White at the forum—and despite frequent allusions to the need for a firm date—participants never directly asked by when, exactly, the SEC will mandate that U.S. companies file financial results using international financial reporting standards.

That was, however, what they wanted to know. Most of the 35 other members of the panel, which was sponsored by the Financial Accounting Standards Board, made a point of noting that they could better deal with the inevitable switch from U.S. generally accepted accounting standards to IFRS if they had a firm date. “The ball is very much in the court of the SEC,” remarked FASB chairman Robert Herz.

Shareholders are looking for a “date certain” order from the SEC, said panelist Gail Hanson of the Wisconsin Investment Board, who is a former CFO of Cobalt Corp. Speaking for the investor community, Hanson noted that shareholders want to know that the regulator will give companies “sufficient” lead time to make the switch.

Meanwhile, IFRS has become a “just-in-time” training issue for large accounting firms, said Sam Ranzilla, a committee member of the Center for Audit Quality and a KPMG partner. Ranzilla said that he could mandate IFRS training for everyone at KPMG.

But if there doesn’t end up being a reason to use it for a year or more, it will be forgotten and the firm will have wasted a lot of time and money. “Tell me a due date, then I’ll deal with it. People are too busy making a living [to start preparing for IFRS when the effective date is unknown],” added Judy O’Dell, the president of FASB’s private companies financial reporting committee and CFO of a family-owned real-estate and construction firm. Many private companies will likely follow in the accounting footsteps of their public-company counterparts and report results using IFRS within five to seven years, she said.

Indeed, many U.S. multinationals already report using IFRS in overseas subsidiaries. Further, in November 2007, the SEC allowed foreign companies to file their financials in IFRS, rather than require them to reconcile them to U.S. GAAP as they had been previously required to do. By February, the SEC proposed that it give American companies the option of reporting using IFRS immediately and mandate such accounting in the future. That proposal is still being reviewed.

Since 2002, FASB and the International Accounting Standards Board have been working together on a joint convergence project to harmonize U.S. GAAP and IFRS. Their approach has been to tweak existing standards and adopt similar ones; come to a consensus on converging more disparate rules; and replace poorly-constructed or out-of-date standards. That entire effort is expected to take another three to five years to complete.

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