All eyes are on the Securities and Exchange Commission as it prepares to issue a detailed roadmap this summer for the transition to International Financial Reporting Standards, but some representatives gave hints about what might be in that roadmap at a conference held by the Financial Accounting Standards Board in New York.
FASB Chairman Bob Herz (pictured) likened the move to IFRS, while accountants continue to use U.S. generally accepted accounting principles, to "trying to ride two horses at once." He said FASB was in the process of updating its memorandum of understanding with the International Accounting Standards Board on convergence, but said it was up to the SEC to give a date for the transition.
He and other participants urged the SEC to set a definite date. SEC chief accountant Conrad Hewitt predicted a switch in the next three to five years. He said the commission is scheduled to take up proposed rulemaking this summer. He noted that in February, SEC Chairman Christopher Cox directed Division of Corporate Finance director John White to develop a roadmap.
"The roadmap should concern when companies can switch or have the option to switch," said Hewitt. Among the questions that the roadmap should answer include whether the SEC should include a screening process to say which companies should switch, whether there should be a date certain to keep the transition moving forward, and whether there should be a transition phase for Extensible Business Reporting Language. Hewitt said he had asked the American Institute of CPAs to include IFRS in its Uniform CPA Exam and also asked the universities where he's spoken to include IFRS in their curriculums.
White said he expected the SEC to take a "bilingual approach" to ease the transition and noted that many issues could be addressed with rule modifications. "On the rulemaking front, we have some rulemaking to do," he said. The SEC will also need to make some modifications when IFRS goes to a mandatory stage on issues such as accounting for derivatives, he noted. He does not believe congressional action will be needed to approve IFRS as a standard.
AICPA CEO Barry Melancon said a modification of the Tax Code by Congress would be the best way to handle differences such as the last-in/first-out inventory method, which is not supported in IFRS. "The LIFO issue is primarily a tax issue," he said. He sees growing awareness among corporate CPAs of the move to IFRS. He believes the time is now to set a date certain for the transition. "You converge, converge, converge, but at some point, you have to adopt," he said.
Education is shaping up to be a major hurdle, especially given the uncertainty of the date for the transition. "As we look at training, the biggest single issue is time," said KPMG partner-in-charge of professional practice Sam Ranzilla, a member of the Center for Audit Quality's Professional Practice Executive Committee. "It's got to be used in a relatively short period of time."
Smaller firms are also worried about training. BKD partner-in-charge Steven Rafferty, another member of the CAQ's Professional Practice Executive Committee, said that running two sets of accounting standards would be a big challenge. "The main challenge is that we have no demand," he said. "Clients don't have a detailed understanding of this. ... Until we have a date, I don't think much is going to happen at smaller firms around the country."
Even accounting textbook publishers are hesitant to take advantage of the new standards by issuing new books. "You talk to curriculum publishers and they say there's no demand there," said American Accounting Association president-elect Sue Haka, a professor of accounting at Michigan State University. "The faculty see this as just a financial accounting issue." Getting enough faculty members to teach the new standards is also going to be a problem. In a recent study, her organization found a 13.3 percent decline in the number of accounting faculty between 1988 and 2004, even as student enrollment has increased over the same period.
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