SEC Pushes Back IFRS Roadmap

By extending the comment period, the SEC could impede large U.S. companies from getting a head start on adopting the global rules.

The SEC’s latest extension does not indicate that the commission’s plan will change dramatically, according to D.J. Gannon, a Deloitte & Touche partner, who closely watches the roadmap developments. However, it does put a wrinkle in the likelihood that early adopters could use IFRS for fiscal year 2009 — a prospect, he says, that didn’t seem “realistic to begin with.” Unless companies already began working on their IFRS transition plan last year, they’ll be unlikely able to stick to the SEC’s early-adoption timeline if it’s adopted, according to BDO’s Minnihan.

When the comments do come rolling in, expect to see pushback from companies, auditors, and investors to provide more direction than the current roadmap, Gannon predicts. As it is, the SEC gives itself a 2011 “escape hatch,” Gannon explains, to back out of the entire plan. At that time, the commission will decide whether to move forward with the roadmap and mandate its use. It may be hard for many people to take the commission seriously on its IFRS plan until then.

For the few executives who did find time to respond to the SEC’s call for comment, they are wary of the commission’s dates and how they don’t mesh with U.S. and global standard-setters’ plans for converging their standards by 2011. What’s more, the more than 100 countries that use IFRS — one of the main reasons Cox gave for pushing the SEC’s roadmap — don’t follow the exact set of rules published by the International Accounting Standards Board. As a result, companies could be stuck “devoting considerable resources to minimize inconsistent application of IFRS by developing increased policies and procedures,” wrote Jim McGinty, CFO of retailer Hot Topic.

Others took issue with the cost of implementation. According to James Barlow, corporate controller for health-care company Allergan, audit firms have estimated that a GAAP-to-IFRS switch will cost between 0.5 percent and 1 percent of a company’s annual revenue in addition to two to three years of hard work. He figures his own company will spend at least four times the amount of money to implement IFRS as it spent on implementing the internal-control provision of the Sarbanes-Oxley Act — a prospect that surely won’t sit well with the many CFOs still shaking their heads over the headaches caused by Section 404.

“Is this the best use of our limited company resources during these uncertain economic times, and why should we not continue to take a more gradual, natural evolution to improving accounting standards in the United States and the rest of the world?” Barlow asked in his letter.

Carl Berquist, executive vice president of financial information and enterprise risk management at Marriott International, went further in his criticism of the SEC’s proposal. While he believes companies should eventually be granted the choice of using IFRS, Berquist doesn’t think the SEC should mandate it. “We do not believe that any U.S. issuer should be forced to change its current basis of accounting,” he wrote.

 

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