Could Convergence Lead to Litigation?

With accounting standards moving toward convergence around the world, some accounting firms are beginning to worry that the adoption of International Financial Reporting Standards could lead to litigation.

U.S. generally accepted accounting principles have developed to some degree with litigation protection in mind. All those thousands of pages of guidance give accountants more assurance that their professional judgment isn’t just based on their own personal opinion.

With IFRS set to take over the accounting profession worldwide as U.S. GAAP and the systems developed in other countries move toward adoption of the “single high-quality set of standards” that advocates have been touting, accountants will be moving into more of a principles-based system that leaves open more room for interpretation. It’s probable, though, that all those years of carefully developed guidance on specific industries and other matters won’t go away completely, though.

Many accounting firms are likely to want to keep those old volumes on GAAP on hand to cite in case their judgment gets called into question in court. While U.S. GAAP may not be applicable as the guiding set of standards when and if IFRS does take over, it will surely provide some proof of precedent if needed.

The American Institute of CPAs is trying to help accountants make the transition. At its Spring Council meeting in Amelia Island, Fla., this week, the institute introduced IFRS.com, a new Web site it is launching with its CPA2Biz unit to provide information and training materials explaining the differences with GAAP.

Having detailed rules doesn’t necessarily provide a defense against litigation, of course. “The most important rule for the CPA is to apply professional judgment,” said AICPA senior vice president Arleen Thomas at a media briefing.

She added that the AICPA would continue to provide “non-authoritative guidance” to help CPAs. The authoritative guidance will still come from the Financial Accounting Standards Board. And now that the AICPA Council has voted to recognize the International Accounting Standards Board as a standards-setter, increasingly it’s going to come from the IASB as well.

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