Most of all, these executives are worried about the cost of conversion. The SEC predicts that early adopters of IFRS would each incur about $32 million in additional costs in the 10-Ks they file in 2010. James Campbell, corporate controller at Intel, estimated an IFRS conversion would cost his company $50 million, prompting him to ask the SEC to study the issue more thoroughly before issuing a mandate in 2011.
Health-benefits company WellPoint, which had $61.1 billion in revenue in 2007, estimates it would cost $80 million for the first year of implementation, a number that would decrease to $2 million by the third year. Chief accounting officer and controller Martin Miller doubts investors will want their companies to make such a “significant” investment on IFRS. “Given the state of the current economy, many companies potentially do not have additional funds available to expend on an IFRS adoption project,” he warned in his letter.
Indeed, many companies are taking a wait-and-see approach to the IFRS momentum, which seemed to be moving fast under Cox precrisis, but has now hit a standstill. More than two-thirds of financial professionals have not budgeted for converting to IFRS, according to a Deloitte & Touche survey in March of 150 CFOs and finance managers.
That report may come as little surprise to Barbara Scherer, CFO at headset manufacturer Plantronics, who notes the recession has forced her company to cut costs and head count and to focus on cash flow. An IFRS conversion would raise her accounting and legal fees, plus staffing costs to maintain two accounting systems during the transition and for training. “In the current business and economic environment, any resources and funds used on the IFRS implementation would not be the appropriate resources at this time and provide little return or benefit to our business or shareholders,” she wrote.
Further, the downturn will likely crimp the SEC’s original plan to give the largest U.S. companies the chance to adopt IFRS early. “Given the current economic environment, significant issues challenging most companies, and given the uncertainty regarding the final decision in 2011, it is contrary to sound fiscal management to expend resources on a long-term project that has not been fully vetted and where the final outcome is not readily apparent,” wrote Douglas Shuma, chief accounting officer and corporate controller at Telephone and Data Systems.
Some observers argue that adoption of IFRS, rather than convergence, may be the better route. For one thing, adoption would eliminate “the arbitrage” between the two standards that has caused politicians to exert undue influence over what should be an independent standards-setting process, says DJ Gannon, a Deloitte & Touche partner specializing in international accounting and reporting. During the past year, U.S. lawmakers and European heads of state have pushed the Financial Accounting Standards Board and the International Accounting Standards Board, respectively, to change rules to eliminate any advantage American companies may have had over their international counterparts, or visa versa.
Further, Gannon told CFO.com that IFRS already has been blessed by the SEC as appropriate for use by foreign private issuers that list on U.S. exchanges. Still, “the SEC is sending a mixed message,” says Gary Illiano, the national partner in charge of international and domestic accounting for Grant Thornton. He argues that the SEC contends that while IFRS “is good enough” for foreign private issuers and big companies that qualify for early adoption, it’s not for the vast majority of public companies.