Wrinkles in the IFRS Roadmap

The SEC wants some of the largest U.S. companies to adopt international rules early, but limitations and uncertainty in its plan could diminish those hopes.

However, the fact that standard-setters still have differences to work out between their rules has Nick Cyprus, controller and chief accounting officer of General Motors, wary of adopting IFRS early. “If I lead and there’s changes going on in the convergence process, it’s going to be costly,” he said today at the annual Financial Executives International conference on financial reporting in New York City. Moreover, he noted, early adopters will have to pay more to make up for the lack of IFRS resources available in the United States.

For that reason, the SEC hopes that companies will take the regulator up on its offer to apply IFRS early, so that they can be test cases for transitioning other businesses later on and for “creating additional, but manageable, demand for IFRS-related services at this time,” the commission wrote in the roadmap. Adds Ostling, “Both the SEC and investors, as well as companies themselves, are going to learn a lot from those early adopters, who will pave the way for companies coming on later.”

To be sure, some large multinational companies already required to use IFRS in their overseas reporting would like to cut back on one set of accounting rules before the standard-setters complete their work. But not all of those that want to can become an early adopter under the SEC proposal, which PricewaterhouseCoopers partner and global IFRS specialist Richard Fuchs called “far too limited” in its scope.

As proposed, only the top 20 companies in each industry would be given the allowance, based on market capitalization and whether IFRS is the most dominant accounting language used by their top 19 competitors. The SEC estimates at least 110 companies in about 34 industries could be eligible to receive its permission to adopt IFRS for its regulatory filings for fiscal years ended after December 15, 2009. The so-called “IFRS industries” where companies are more likely to use the international rules over GAAP include energy, oil and gas, and some retail and manufacturing sectors, Gannon says.

Gannon expects the SEC will receive lots of suggestions from commenters wanting the SEC to widen its early-adoption allowance. “I’m not sure I would limit the notion just to industry competition,” he says. “There are other factors the commission may want to consider.”

Then again, the SEC may have a hard time finding volunteers. Talia Griep, controller of Honeywell International, told attendees of the FEI conference today that finance executives are too busy dealing with the financial crisis to consider IFRS. “They’re trying to stay ahead of what’s going on with their businesses as they face the worst economic environment in a very long time,” she says. “It’s just a tall order to ask of any executives.”

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