Corporate executives are getting ready to move to International Financial Reporting Standards, but say they probably wont do it until the Securities and Exchange Commission mandates it, even if an early adoption option is allowed, according to a new survey.
The survey, by KPMG and Financial Executives International, found that 75 percent of the over 900 accounting and financial reporting executives polled say their organizations would wait until the SEC requires IFRS as the standard for filing financial reports before they move away from U.S. GAAP.
Nearly half the survey respondents anticipate an SEC decision on IFRS in 2011, with only 15 percent of the executives saying they do not expect a vote next year on whether to incorporate IFRS into the financial reporting system for U.S. issuers. In addition, 94 percent of the respondents say their organizations could accomplish the adoption of IFRS by 2016 if a decision is made in 2011.
This survey reflects a sense of confidence that those involved in the financial reporting process will be ready to implement IFRS when required, as long as the SEC provides sufficient time once a decision is made, said KPMG partner Janice Patrisso in a statement.
One third of the survey respondents say they understand IFRS well, compared with just 20 percent of executives who responded to a similar survey a year ago. Yet, one third of the executives also say the lack of knowledge elsewhere in their organization would be their biggest concern if they were required to adopt IFRS immediately.
Theres an enormous lack of real knowledge, said Tom Jones, director of Pace Universitys Center for the Study of International Accounting Standards, and a former vice chairman of the International Accounting Standards Board, in an interview with WebCPA. When people are worrying about the international standards or adoption, they really dont know in great depth what it is. Obviously you get plenty of firms on the East Coast. IBM knows plenty about it. Theyre ready to go. But particularly for the midsized kind of companies, as you get away from the East Coast, the knowledge is based on hearsay.
A 57 percent majority of the respondents say convergence of U.S. GAAP and IFRS is the best approach to IFRS adoption, and 30 percent say they would like to see a date certain established for when the U.S. market would adopt IFRS.
The availability of in-house resources (74 percent) and existing systems (68 percent) comprised the two major challenges that respondents pointed to when considering adoption of IFRS. Despite the lack of in-house resources, some 81 percent say they expect they will build knowledge of IFRS through a reallocation of existing employee time.
A significant majority (65 percent) of the respondents say the implementation cost is the main disadvantage to IFRS adoption, while 54 percent are concerned that a more judgment-based set of standards may lead to more second-guessing by the market and regulators.
FEI president and CEO Marie N. Hollein said the findings indicate a readiness by some companies to achieve compliance, but adequate time is needed to make the switch. Additionally, Hollein noted that 65 percent cited cost of implementation as a concern, and a third of the executives say their companies have not yet assessed how IFRS will affect their companies, and would await a rule proposal or even the final rule from the SEC before they look at how IFRS will change accounting and other areas throughout their organizations.
Requiring adoption of the new converged U.S. GAAP standards and later IFRS could create a significant burden on companies, and FEI would hope that the regulatory process will provide enough time for companies to understand the impact of the new standards and have the opportunity to respond to any rule proposals offered by the SEC, Hollein said in a statement. It is important that implementation be done right the first time.
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