Corporate accountants facing a move to IFRS are quick to say they will need technical training. But their toughest task may actually be mastering “soft skills,” says Richard Fuchs, PricewaterhouseCoopers partner and global IFRS specialist. Fuchs says a move from U.S. GAAP to IFRS will require training in how to apply judgment, analysis and critical thinking to accounting standards, as well as how to make transparent disclosures.
Fuchs, who spoke on Monday at a financial reporting conference sponsored by Financial Executives International, worked in Europe and Asia helping companies move from local generally accepted accounting principles to IFRS. His observation from his time abroad is that U.S. accountants will have to be trained differently. No longer will accountants collect and examine the facts, and then pour over 25,000 pages of rules to find the correct accounting application, quipped Fuchs. Rather, when applying IFRS, they will have to work with broader principles and “learn how to report in openness.”
In fact, Fuchs points out that many of the concepts contained in IFRS are the same as those used in U.S. GAAP. The trick for corporate accountants in America will be to learn how to evaluate the economics and substance of a transaction, and then apply judgment to arrive at an answer, rather than point to guidance or bright line rule.
Many preparers and auditors argue that making a professional judgment call is difficult for American accountants because the U.S. legal system is so litigious, and judgments that turn out to be wrong could also wind up being grounds for a negligence lawsuit. Yet other observers disagree. Cases that charge negligence when a sound judgment based on evidence is presented won’t stand up in court, ultimately causing those types of suits to die out, said David Tweedie, chairman of the International Accounting Standards Board, who gave the keynote address at the conference.
Preparers will be called on to “to make a call, and sometimes that will be wrong, but it won’t be negligence,” mused Tweedie. What’s more, he said that under IFRS, financial statement preparers and users won’t get the exact same number every time, but “an envelope of acceptability” regarding financial results must emerge in the United States.
Tweedie reckons that there will be some small discrepancies between the financial results submitted by companies, and those worked up by financial statement users, but both sides “will have to say we can live with that” instead of beating a path to court, said Tweedie. Further, regulators should give up the second guessing game. If preparers and auditors “act with integrity” and base their judgments on sound evidence, then regulators should not feel compelled to open up an investigation. This new way of operating won’t open the door to lax reporting or regulation, insists Tweedie, just adherence to principles that demand that the economics and substance of a transaction be highlighted and explained.
The legal ramifications of IFRS are one hurdle that U.S. companies must clear; another is the compliance cost component. Without a doubt, if the Securities and Exchange Commission mandates IFRS in the United States, there will be a “significant” one-time upfront cost to making the switch. While that cost varies by company and country, Fuchs pointed out that in the past, government and private studies underestimated the expenditures for European and Asia companies, and he figures that the same will happen in the United States.