The Securities and Exchange Commission has published its long-delayed roadmap for the transition from U.S. generally accepted accounting principles to International Financial Reporting Standards.

The roadmap was originally announced in August, but had been delayed by the global financial crisis. It aims to move U.S. companies from U.S. GAAP to International Financial Reporting Standards, with most large companies making the transition in 2014. However, the 20 largest U.S. companies in a given industry according to market capitalization can begin transitioning in 2010 for their financial statements beginning after Dec. 15, 2009.

"Early adoption will be available to a limited group of companies starting in 2009," Financial Accounting Standards Board Chairman Bob Herz explained to attendees at a recent conference in New York.

IFRS filings would begin for large accelerated filers for fiscal years ending on or after Dec. 15, 2014. Smaller accelerated filers would begin IFRS filings for years ending on or after Dec. 15, 2015. Non-accelerated filers, including smaller reporting companies, would begin IFRS filings for years ending on or after Dec. 15, 2016.

The SEC expects that it would require three years of audited financial statements in the first year of IFRS reporting. This would allow the company to begin its books and records and internal controls with respect to IFRS reporting for all three years of audited statements that would be required in its first year of IFRS reporting (2012 to 2014 for large accelerated filers, 2013 to 2015 for accelerated filers, and 2014 to 2016 for non-accelerated filers). So far, approximately 114 countries use IFRS, according to International Accounting Standards Board Chairman Sir David Tweedie.

There will be a 90-day comment period, up from the original 60-day comment period that had been proposed in August, so the proposed roadmap would have to be approved during the first months of the Obama administration.

The SEC would also meet in 2011 to assess how well companies have been dealing with the transition and how they are progressing toward a set of seven milestones, up from four in the original proposal. The milestones include improvements in accounting standards; the accountability and funding of the International Accounting Standards Committee Foundation, which oversees the IASB; improvements in the ability to use interactive data-tagging technology, or XBRL, for IFRS reporting; education and training related to IFRS; limited early use of IFRS where this would enhance comparability for U.S. investors; the anticipated future timing of future rulemaking by the SEC; and the implementation of the mandatory use of IFRS by U.S. issuers.

"This marks a significant step in having a single set of high-quality global accounting standards," said Chester Abell, national tax partner-in-charge of tax accrual services at Big Four firm Ernst & Young. "That's the rationale for achieving more effective access to capital markets."


The transition to IFRS has caused friction in some countries. Tweedie admitted that he came close to resigning from his post as IASB chairman after the European Commission insisted on exceptions, or "carve-outs," from the standards. The problem seems to have originated with demands from the French banking authorities.

"We have an understanding with the French bankers," quipped Tweedie. "They don't trust me and I don't understand them. In France, I'm treated like a king - and you know how they've treated their kings."

The dispute threatened to delay the release of the SEC roadmap even further. "If there was a hole blown through European accounting, you might not have had the SEC put out the roadmap [in mid-November]," he said.

IFRS is more principles-based than U.S. GAAP, which relies more on complex sets of rules. It will require accountants to apply more judgment to their interpretations.

"U.S. GAAP is crumbling under its own weight," Tweedie said. He advised that if accountants have questions on applying the principles, they should check with colleagues within their own firms and at other firms, and carefully document the reasons for their judgments in the disclosures they make on financial statements - but they should not expect the IASB to provide guidance on every point. He noted that he regularly turns down most requests for guidance. Nevertheless, both the IASB and FASB have been working together to provide guidance on some of the more controversial issues, such as dealing with assets in illiquid markets.

Tweedie said that accountants should try to work together to avoid litigation, and he criticized the use of forensic accountants as expert witnesses by prosecutors to disparage the work of other accountants. He noted that the only times he had testified as an expert were to defend another accountant's judgment. "I never go in on the prosecution," he said.

However, there are likely to be roadblocks on the roadmap to IFRS.

Fifty-eight percent of U.S. companies are unprepared to train staff for the transition from U.S. GAAP to IFRS, according to a survey of approximately 500 finance and accounting professionals by Ajilon Finance Solutions and the Institute of Management Accountants. At the same time, though, 86 percent of professionals reported that they anticipate IFRS conversion having a positive impact on the accounting profession. Fifty-two percent of respondents said that their employers want them to have a general awareness of IFRS and convergence.

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