Influencing the Future of IFRS in the United States

The future of international financial reporting standards in the United States may be uncertain, but it is not simply a matter of chance.

There are three techniques that enable CFOs to plan intelligently for the future despite the many unknowns associated with the use of international financial reporting standards (IFRS) in the United States. In previous columns (see Related Articles, below), I gave an overview of all three techniques and explored the first two in detail. In this column, I will focus on the third technique, proactive influence.

The proactive-influence technique assumes that an enterprise can influence, to a significant degree, the circumstances it faces in the future. Unlike scenario planning, risk analysis, and other techniques that assume a company will react to whatever circumstances may come about, proactive influence involves determining the possible future scenario that would most benefit a company’s stakeholders and then developing a plan of action to increase the likelihood of it happening. Proactive influence is an especially important adjunct to reactive planning techniques when the most-beneficial future scenario is unlikely to happen on its own.

Targeting a Specific Decision Outcome

To illustrate how proactive influence works in practice, let’s say your company is based in the United States and falls under the jurisdiction of the Securities and Exchange Commission (SEC). Let’s also say your executive team has determined that it would be beneficial for your company to prepare its financial reports using IFRS instead of U.S. generally accepted accounting principles (GAAP).

In all cases of proactive influence, you must first identify the decision-maker who is capable of making a difference in the future circumstances your company faces. In our example, the key decision-maker is the SEC.

The next step is to identify the decision alternatives that are realistically possible. Certainly the SEC could decide to maintain the status quo, continuing to prohibit domestic registrants from using IFRS for statutory financial reporting purposes. But what about requiring domestic registrants to use IFRS instead of U.S. GAAP? Such a decision is highly improbable, for the reasons I have explained in previous columns. What is left, then, is the possibility the SEC could grant domestic registrants the option to use either IFRS or U.S. GAAP. The viability of this decision alternative is supported by the fact that the SEC already granted foreign registrants such an option three years ago.

Pounder Oct 2010

Between the SEC’s two realistically possible decision alternatives, only a decision to grant domestic registrants the option to use IFRS or U.S. GAAP would be consistent with what we have assumed would be beneficial for your company. In targeting a specific decision outcome of a key decision-maker, we conclude the first phase of the proactive-influence process.

Developing a Plan of Action

The second phase of the proactive-influence process is developing a plan of action to increase the likelihood of the decision outcome you have targeted. To do so effectively, you must identify the factors that will have a significant influence on the key decision-maker.


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