Magazine article The CPA Journal

As the Move to IFRS Accelerates, Liability Looms for Unprepared U.S. CPAs

Magazine article The CPA Journal

As the Move to IFRS Accelerates, Liability Looms for Unprepared U.S. CPAs

Article excerpt

The steady advance toward the acceptance of International Financial Reporting Standards (IFRS) as the basis for U.S. financial reporting represents a fundamental change for the U.S. accounting profession. It is a switch for which the U.S. is ill-prepared on many levels. One area that has not received enough attention is that of legal liability . During the transition to or the initial adoption of IFRS, U.S. courts could be flooded with liability claims questioning whether accounting standards can be relied upon and whether accountants are competent to prepare financial statements.

New education and certification initiatives are needed so that CPAs have the necessary levels of competence to head off serious risks of debilitating malpractice claims. The AICPA1 state societies, and universities must make this a priority. In August 2008, the AICPA announced that it is taking a leading role in, among other things, ensuring that accounting education and the Uniform CPA Examination address IFRS.

As the profession recognizes the importance of preparing for the transition to IFRS, the key issue practitioners will face is figuring out how to prepare to meet the standards within their Code of Professional Conduct so as to reduce their exposure to malpractice claims arising from the transition. This is not the adoption of a few new rules or the application of old rules to a new situation - this is a monumental change. IFRS creates a completely different way of thinking about financial reporting and represents a great deal of risk, including litigation, to anyone who is unprepared.

IFRS is a principles-based set of standards that have been adopted as a single source of international financial reporting and accounting standards. It has been developed over many years as the globalization of trade has demanded a means of uniformly addressing financial issues across borders. Today, nearly 100 countries require or allow the use of IFRS for the preparation of financial statements by publicly held companies. The SEC has announced that it will soon allow U.S. public companies to report in IFRS rather than U.S. GAAP and is laying the groundwork for making its adoption mandatory.

The United States is one of the last large capital markets that has not yet made the switch. IFRS has been adopted in Canada, Japan, India, and in the European Union. For the past five years, FASB has been working with the International Accounting Standards Board (IASB) to resolve differences between U.S. GAAP and IFRS. It is clear that IFRS principles do not look or act like U.S. GAAP rules. Although the current focus is on public companies, it seems unlikely that American business will accept having two fundamentally different accounting methods. It is contrary to the basic purpose of financial reporting to have industry peers report their operations based on two different standards. As such, a single reporting standard will be necessary.

The increasing acceptance of IFRS, both in the United States and around the world, means that now is the time to drive education of IFRS throughout the profession. In 1986, Congress adopted sweeping changes to U.S. tax laws. Thousands of relatively unprepared tax professionals had to completely relearn their profession. This event is another such moment for CTAs. As even small companies do business across borders, all accountants, but particularly CPAs, will be affected.

Accounting standards demand competence and set a very high bar for CPAs. Advising a client or providing financial statements or analysis without adequate training and a complete understanding of IFRS will not only violate j standards, it may result in the loss of business from a valued client, lead to malpractice liability, or both. The j must lead this effort and should consider requiring IFRS certification for all CPAs as a means of ensuring that the profession is prepared.

IFRS and Hs Growth in Global Acceptance

This international process began several decades ago as an effort by industrialized nations to create standards that could be used by smaller nations unable to develop their own accounting standards. …

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