Such critics could end up having a big influence, given that nothing would be finalized until 2011 at the very earliest. According to the currently proposed timeline, SEC commissioners could change their minds at that point and require all companies to revert back to U.S. GAAP — raising the possibility that early adopters of the proposal will have wasted their money and time. Indeed, the SEC has made it clear that the 2011 vote will not be a “rubber stamp,” says Danita Ostling, Ernst & Young Americas IFRS technical leader. “It will be a robust decision based on their view of what’s best for the capital markets and what’s best for investors.”
But take the top-down view, and the move toward some type of international standards seems inevitable. FASB and the IASB have already committed to converging their respective standards by 2011, which, if accomplished, would effectively blur the distinctions between the two. “Change is coming to revenue-recognition and leasing standards,” for example, regardless of the decision on IFRS, FASB project manager Peter Proestakes said at a November conference in Boston. “If we don’t get a mandate, we’ll continue to go project by project.”
As it stands now, FASB and the IASB are overdue to release a discussion paper for comment on new revenue-recognition rules that would seek to boil down some 25 industry-specific rules into a single general standard. It is also expected to provide thoughts on the timing of booking revenue, and some associated cost issues. As far as lease accounting, the two boards are still working out some differences on how a company should estimate contingencies like options to renew, but at press time they were planning to release a discussion paper next month.
Still, project-by-project convergence could result in a far less radical path than what is currently being touted. The end product could simply be “multiple, different accounting standards that are more alike than different,” but not identical, Proestakes said.
Either way, ignoring auditors’ clamoring and delaying action is likely to be the best strategy for most companies, since more time should yield more certainty and lower costs. As of now, the SEC estimates, a transition could consume from 0.125 percent to 0.13 percent of a public company’s revenue in the first year, including substantial staff time. Martin Headley, CFO of $526 million semiconductor automation firm Brooks Automation, for example, plans to take a minimalist approach to IFRS, training some key individuals on his staff, rather than replacing them or hiring more experts. Still, he said at a recent conference, “I’ll be waiting until I’m sure it’s actually going to happen.”
No doubt he’ll be in good company. Under one scenario, U.S. companies could reach a state of perfect harmony with IFRS users with the barest effort. “In my mind, you’d never have to prepare for a switch to IFRS, because eventually U.S. GAAP and IFRS would become so closely aligned you’d get the same result by using either method,” says the PCAOB’s Niemeier.