Choosing a Place along the IFRS Adoption Continuum: The Perspective of U.S. Corporate Accountants
Becker, D'Arcy A., Miller, William F., Academy of Accounting and Financial Studies Journal
The International Financial Reporting Standards (IFRS) adoption continuum ranges from no formal action to complete IFRS conversion. Currently over 100 countries and 12,000 companies have adopted some form of IFRS; this includes many privately-held U.S. companies. The United States is the last large economic powerhouse to withhold an IFRS mandate for its publicly traded companies. Although most U.S. surveys show widespread agreement that there are clear benefits to having just one set of global accounting standards (for example a reduction in the cost of capital), the U.S. Securities and Exchange Commission has not yet required IFRS adoption.
One reason for the delay is a lack of detailed knowledge about exactly how IFRS will impact businesses. Which companies will experience a reduced cost of capital due to reduced information risks? Is it possible that some companies will have the same level (or a higher level) of information risk they have now because different countries are allowing IFRS implementation in different ways? The reduced cost of capital will not be achieved merely because statements are comparable due to the use of common standards; users will have to understand and believe they are comparable (Nobes and Zeff, 2009).
Concerns over comparability are difficult to combat because few jurisdictions have adopted IFRS without modification. There are differences from country to country, and sometimes by region within a country (Nobes and Zeff, 2008). There must be a balance between standards uniformity and the need to accommodate inter-country differences in cultural and business norms.
Other issues still to be resolved include the relative roles of various standard setting bodies in establishing accounting and auditing standards; whether IFRS use should become mandatory (versus optional); whether the U.S. will allow customization of particularly contentious IFRS standards, and how IFRS will roll into CPA licensure and the CPA exam, among other issues.
Many large U.S. companies are making informed decisions about IFRS and are taking actions commensurate with their views of its eventual likelihood of adoption. On one end of the adoption spectrum are companies that have taken few actions supporting a change to IFRS. These companies may be taking the most economically-feasible route. It may be unwise to take on the burden of changing to IFRS when the payoff is questionable. If IFRS is not required, capital markets will not punish companies who fail to adopt IFRS by increasing the cost of capital. In fact, the lack of an IFRS mandate may mean that the costs of the change to IFRS may not be recouped in reductions in the cost of capital (Sunder, 2009).
On the other end of the adoption spectrum are companies that have made the full change to IFRS. These companies believe that it is unwise to sit on the sidelines and wait until the benefits of IFRS are completely clear. They see the potential risk disruption of their access to capital as more prominent than the risk of adopting standards that may turn out to be disadvantageous in some way. Many of these companies have international operations in countries that report in IFRS already, providing incentive to move ahead with IFRS to streamline inter-company reporting.
This paper investigates reasons companies choose a particular position along the IFRS adoption continuum outlined above. Interviews were done with high level accountants at ten large U.S. corporations whose adoption strategy ranges from no action at all to complete conversion to IFRS. Common themes and concerns regarding these companies' IFRS implementation are reported and discussed. In general, our results show that IFRS implementation is neither as costly nor as difficult as most studies to date have proposed.
DIFFERENCES IN IFRS PREPAREDNESS
The AICPA and the Big Four accounting firms are in agreement about the need for IFRS preparation. …