Molasses gets a bad rap for being slow — particularly in January — but 90 years ago this month more than 2 million gallons of it flooded the city of Boston, killing 21 people. Unbelievable as it sounds, a burst storage tank sent a tidal wave of goop racing through the streets at 35 mph, knocking an elevated train off its tracks and causing several buildings to collapse.
Change goop to GAAP and you’ve got a good picture of what could happen on the accounting front in 2009 — minus fatalities, presumably. After years of slogging along, big projects like the adoption of international financial reporting standards, the filing of financial statements in XBRL, and others may burst out with new authority, propelled by a number of factors, including the desire of outgoing Securities and Exchange Commission chairman Christopher Cox to solidify his legacy and heightened efforts to merge the Financial Accounting Standards Board with its international counterpart.
It’s also possible, however, that many of these developments could move sluggishly or change direction when a new SEC chairman takes the helm and emphasizes different priorities.
How will CFOs know when to run, walk, or stand still? We offer a quick guide to five important accounting issues that finance executives need to watch in the coming year in order to avoid any massively sticky situations.
The only thing that seems certain about the move to international financial reporting standards (IFRS) is its uncertainty. “It’s on a tightrope right now,” says John Hepp, partner at Grant Thornton. Although the SEC announced a bold transition timetable in August, the formal comment period didn’t open until November and won’t end until next month, transferring the final say to chairman Cox’s successor. That means almost anything could happen with IFRS, from delay to demise.
The currently proposed timetable would allow the largest U.S. companies to begin reporting their 2009 results in IFRS, and then require large accelerated filers to begin using IFRS in 2014, followed by other accelerated filers in 2015 and smaller companies in 2016. Companies would have to provide financial statements from the previous three years in IFRS at those times, as well, for comparability.
Many see delay as inevitable, in part due to IFRS’s relative youth and lack of robustness compared with U.S. generally accepted accounting principles (GAAP). “IFRS is not ready and we certainly should not be ready to accept it,” says Charles Niemeier, a member of the Public Company Accounting Oversight Board (PCAOB) and one of the leading critics of the currently proposed timeline. “There’s too much at stake in the U.S. system to put our regulatory framework at risk.”
Among those mounting a grassroots movement to slow the rush to IFRS are Analyst’s Accounting Observer newsletter editor Jack Ciesielski, former FASB member Ed Trott, and Bowling Green State University professor David Albrecht (who has compiled the arguments of seven IFRS critics, including Niemeier and himself, on his blog The Summa). Among their arguments: preliminary research from Europe shows that the international “standards” in fact afford investors little comparability among financial statements, one of the key reasons given for U.S. convergence. Niemeier is also leery of letting the International Accounting Standards Board (IASB) be the standards-setter for the world, given its recent capitulation to pressure from European Union authorities to loosen fair-value accounting for banks.