On February 24 of this year, the U.S. Securities and Exchange Commission issued a statement and a work plan re-affirming its continuing support for a single set of high-quality global financial reporting standards.

The SEC also continued to advocate for the convergence of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards issued by the International Accounting Standards Board. The work plan was widely interpreted as a sign that the SEC plans to move ahead cautiously. The earliest target date set by the SEC for mandated adoption was moved back from 2014 to 2015. The SEC also expressed concerns over the complexities and costs of overhauling the U.S. economy and its accounting standards too quickly.

Now that the dust from that announcement has settled, however, accounting professionals are sensing opportunity. In this article, I'll explain why it's essential for both U.S. public and private companies, as well as the accounting profession, to get ahead of the convergence and adoption curve. Whether you are in private practice or public accounting, you can take critical steps now to increase your knowledge and value during this transition period to IFRS standards and beyond.

2015 IS SOONER THAN YOU THINK

The SEC will plan to cast its vote in June 2011 on whether to mandate adoption of IFRS for U.S. public companies as early as 2015. While one may think IFRS is five years away, in reality many public companies will have to start recording transactions under IFRS as early as Jan. 1, 2012, due to requirements to include three years of comparative financial information in SEC public filings.

Since May 2008, U.S. private companies have been given the option to adopt IFRS, provided it makes business sense. In fact, in order to compete in the global economy, many companies have already taken this step. In the summer of 2009, the IASB issued accounting standards tailored specifically for privately-held companies - IFRS for Small and Medium-Sized Entities]. This "IFRS Light" reflects many of the same principles as full IFRS, but has been streamlined and simplified in a number of areas that are not relevant to private companies. It's in the best interest of all U.S. companies to begin evaluating IFRS today, for a number of reasons:

The benefits of a global standard. More than 117 countries have adopted, or plan to adopt, IFRS as the standard for financial reporting, and that number is expected to increase to 150 by next year. This global standard promotes international commerce, increases comparability and transparency for investors, reduces regulatory impediments and facilitates cross-border operations. For any company with global aspirations, IFRS is the blueprint for the future.

The race for talent and resources. By next year, it will be apparent that the U.S. will face a drastic shortage of accounting/auditing professionals with IFRS knowledge and experience. Currently, much of the IFRS-ready talent in the U.S. is employed with either Fortune 500 companies or large international public accounting firms, and is reserved for their needs. Most other public companies and accounting/audit service providers will be forced to recruit IFRS skill sets from abroad in an increasingly competitive U.S. labor market. IFRS knowledge and experience also will be in very short supply among all types of consultants, vendors and financial institutions with whom companies interact.

Cultural change. The transition from GAAP to IFRS is a cultural change that requires a totally different mindset. Instead of following the specific rules and interpretations of GAAP, with its 3,000 pages of guidance, accountants and auditors must adapt to IFRS's leaner body of principles and concepts. It will take some time for many U.S. accounting professionals to learn how to think outside the U.S. GAAP box. It also will require a change in thinking and put more emphasis on understanding and applying principles and to focus on the substance of the transaction.

Transition complexity and cost. The average company will need at least three to five years to make a successful conversion, during which parallel financial information (U.S. GAAP and IFRS) will co-exist. Most companies will need to revamp and upgrade their accounting software programs and retain IFRS-ready IT consultants and attorneys. By some estimates, conversion costs could range, on average, from 0.5 percent to 1 percent of total annual revenues, so expenses must be allocated across several years' budgets and numerous line items. The changeover will affect virtually every aspect of financial operations and reporting, including contracts, compensation and internal controls.

LEARNING IFRS FOR SMES

The time is right for professionals to learn IFRS Light for private companies to assist them in developing and implementing a conversion strategy.

On a positive note, IFRS for SMBs greatly simplifies the principles accountants and auditors of privately held companies will use to measure assets, liabilities, income and expenses. For private companies, it boils down to approximately 230 streamlined pages of guidance. Required financial statement disclosures are reduced, and the standard is updated only once every three years, which will help private companies realize cost efficiencies. It also offers SMEs advantages in accessing capital from foreign sources, comparing financial results with global competition, and expanding international trade and alliances.

Conversely, privately held companies that delay conversion will have trouble accessing the human capital, IT and infrastructure resources required to make conversion successful. The large international public accounting firms will not have the capacity or priorities to help private companies, and the lack of a conversion blueprint and a period of parallel reporting will lead to costly delays and mistakes.

What can you do now?

Here are specific actions accounting and auditing professionals can implement in 2010 to capture new opportunities:

Educate clients. Now is the time to educate yourself and your clients on the benefits of IFRS and the problems any delays in implementation could result in. You are in the best position to help companies develop a plan for phased-in conversion and parallel reporting. All clients need your help planning and implementing an initial self-assessment that maps out a plan for IFRS adoption. You also can help them access sufficient talent and resources, educate stakeholders, and coordinate changes with supplier, consultant and lending relationships.

Upgrade your knowledge. To fill holes in your IFRS knowledge, a variety of training courses and resources are (or soon will be) available. For example, the American Institute of CPAs is developing a 75-hour IFRS Certificate of Accomplishment Program, expected to be launched in 2011, to assist U.S. accountants and auditors understand IFRS and help transition U.S. companies to IFRS.

Expand your network. Develop referral relationships with other professionals who can help your clients implement successful conversions - especially attorneys, who will provide legal services ranging from vendor contracts to compensation agreements. You also can refer clients to IT specialists, software developers, payroll processors, compensation/benefit specialists and executive recruiters.

Guide to transition planning. Each client's conversion blueprint will require a clear timeline, adequate allocations of resources and the total commitment of senior management. The parallel reporting period will be critical to success and will require careful planning and intricate coordination. Whether you serve as a guide yourself or refer clients to competent consultants, your help will be valuable and appreciated.

Summary

It is an unprecedented challenge for the world's largest economy to implement a complete change in accounting standards. However, the U.S. accounting and auditing profession now faces this reality. Forward-thinking members of our profession are recognizing the opportunities convergence and adoption will create for their careers, firms and clients. They are taking proactive steps right now to fill a void that will soon exist in the market for experienced, competent advice and implementation services.

The best time to start reaping the benefits of IFRS convergence and adoption is now. AT

Salvatore Collemi, CPA is a senior manager at Rothstein Kass, an international CPA and advisory services firm based in Roseland, N.J.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access