The Inevitable Move to IFRS?

By Baker, C. Richard | The CPA Journal, December 2008 | Go to article overview

The Inevitable Move to IFRS?


Baker, C. Richard, The CPA Journal


The question is seemingly no longer "if," but "when" the United States will adopt International Financial Reporting Standards (Ir7RS). In a forum held this past June at Baruch College in New York City, the Financial Accounting Standards Board (FASB) addressed the question of when and how the United States would move to IFRS. Participants in the forum included top officials from the FASB, the Financial Accounting Foundation (FAF), the Financial Accounting Standards Advisory Council (FASAC), the International Accounting Standards Board (IASB), the SEC, the AICPA, the Financial Executives Institute (FEI), the Institute of Management Accountants (LMA), the CFA Institute, the Public Company Accounting Oversight Board (PCAOB), and the American Accounting Association (AAA). Additional participants included individuals representing financial statement users, small and large companies, auditors, regulators, educators, and other parties that might be affected if there is a move from U.S. Generally Accepted Accounting Principles (GAAP) to IFRS.

Among the issues discussed at the forum included: whether U.S. GAAP should ultimately converge with IFRS and, if so, how and when; how to pre- pare the United States for a shift to IFRS; accounting education and pro- fessional certification; regulatory and tax issues; the potential effects on private companies and not-for-profit entities; and the future role of the FASB. SEC Chief Accountant Conrad Hewitt said that one important issue would be whether U.S. companies should have the option of moving to IFRS, and whether this option should be phased in over time, with large companies going first Several groups, such as the CFA Institute, opposed allowing U.S. companies the option to adopt IFRS, preferring a mandate from the SEC instead. Others recommended giving companies a five-year lead time to adopt IFRS, with a single deadline for adoption. Finally, other groups, such as the IMA, favored the optional approach, but with a shorter, three-to-five-year timeframe to get acquainted with IFRS (Nicholas Rummell, "SEC Leaning Toward Optional Adoption of IFRS," Financial Week, June 16, 2008).

Subsequent to the roundtable, in August 2008, the SEC voted to publish a proposed road map that could lead to the use of IFRS by U.S. companies beginning in 2014. The SEC plans to make a decision in 2011 on whether the adoption of IFRS is in the public interest and would benefit investors. The proposed multiyear plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. companies in their SEC filings.

What Has Prompted Convergence Toward IFRS?

The issue of convergence between U.S. GAAP and IFRS has been developing for some time. Issued in August 2007, SEC Concept Release 33-8831 addressed the question of whether U.S. companies should be allowed to prepare their financial statements in accordance with IFRS. An SEC ruling issued in December 2007 allows foreign private companies to use IFRS without reconciling to U.S. GAAP. These actions have raised the importance and the urgency of this issue. FASB Chairman Bob Herz stated at the June 2008 FASB forum that the organization faces the challenge of "riding two horses at the same time" until convergence is achieved. To avoid this problem, the FASB has indicated in its response to the SEC concept release that investors would be better served if all U.S. public companies were to use a common set of international accounting standards, which would be best accomplished by moving U.S. companies toward IFRS. Thus, a move to LFRS appears to be inevitable.

Nevertheless, there are a number of challenges to the adoption of LFRS, and thus the question arises: What's the hurry? Shouldn't we take the time to get it right?

Big GAAP Versus Little GAAP

As various countries around the world have moved to LFRS, one particular issue often comes up: What about small and medium-sized enterprises? The IASB has addressed this matter by issuing an exposure draft of a proposed IFRS for small and medium-sized enterprises (SME). …

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