After nearly a decade of discussions, white papers, presentations, work projects and comment letters - both pro and con - the question of whether the United States will soon join roughly 130 other countries in adopting some form of International Financial Reporting Standards still remains unclear.
While both the Financial Accounting Standards Board and its overseas counterpart, the International Financial Standards Board, continue their joint work on a series of in-progress convergence projects as outlined in the original 2006 Memorandum of Understanding between the two bodies - standards on financial instruments, revenue recognition and leases, and accounting for insurance contracts, among other things, remain to be hashed out - by mutual decision, both agreed earlier this year to push back the original completion date of June 2011.
More recently, the Securities and Exchange Commission, whose support for IFRS under its current administration has at times been tepid, held a recent series of roundtable discussions with various stakeholders, many of whom indicated support for a hybrid "condorsement" (a combination of convergence and endorsement) approach that was initially outlined in an SEC IFRS workplan that was released in May.
While the SEC has not yet made a decision on whether or not to approve the use of IFRS, a decision of some sort is expected by the end of the year.
Meanwhile, many in the profession appear to be waiting for the regulator to issue a decision on IFRS before they begin preparations in earnest.
According to a survey by the American Institute of CPAs, more than three quarters (76 percent) of CPAs in public companies are delaying preparations to adopt IFRS until the commission issues a decision. That's up 13 percentage points from the prior survey. Also, 78 percent of CPAs already have some knowledge of IFRS. The level of familiarity ranges from a rudimentary understanding of high-level concepts to having enough expertise to train others.
"There are fair points framing the debate on each side," said Dan Noll, the director of accounting standards for the AICPA. "What the current tea leaves are saying is the SEC is signaling they don't want to abandon IFRS completely, but they don't want to go to the other extreme and require public companies to replace U.S. GAAP. That's why I think you're hearing a lot about condorsement. Ultimately, though, it will be the marketplace that decides."
Under the condorsement model, FASB would endorse new IFRS standards one at a time as part of the convergence process, instead of adhering to a large-scale "Big Bang" approach.
The condorsement protocol would provide the SEC and FASB the ability to modify or supplement IFRS in the public interest and for investor protection.
"IFRS is on the SEC's burner, but not the same burner that [former SEC Chairman] Christopher Cox had it on," said Kim Lamplough, partner-in-charge of the Assurance Division in Florida for Top 100 CPA and business advisory firm Marcum. "There's a fair amount of pressure because it's on the world stage. I think the world is looking to see what the U.S. is going to do."
Meanwhile, Hans Hoogervorst, who succeeded Sir David Tweedie as chairman of the IASB in June, anticipates that the U.S. will ultimately adopt International Financial Reporting Standards.
The former Dutch finance minister said that although both sides had a number of issues to resolve, he remained "positive" about the outcome. "The U.S. is the largest national capital market in the world with some of most developed and sophisticated accounting standards; therefore it's appropriate that the SEC has taken its time," he said in a recent speech. "At the same time, we need to help complete the missing pieces of the IFRS jigsaw, and an important element of that is encouraging the United States to come on board."
However, the commission erased a previous IFRS roadmap that would have mandated that public companies transition to IFRS by 2014, and there are also major rumblings abroad that might temper Hoogervorst's enthusiasm.
Japan, for instance, under pressure from the corporate sector, is reported to be mulling a retreat from its previously announced 2015 adoption date, while India has reversed its position on IFRS adoption and put its own in-country standards in place instead.
Mike Renzelman, a shareholder and head of the technical services practice at Top 100 Firm Schneider Downs, said that though the IFRS timeline is cloudy at best, firms should begin preparing for it.
"A lot of this depends on who you ask," said Renzelman. "The responses seem to be all over the board. It seems to sway with the SEC leadership. But there's still lots of hurdles."
He said that Schneider Downs has begun an "IFRS awareness program" and sends out regular e-mails to the partners in public practice with updates.
"If you look at the nations who use IFRS, each of them have little nuances unique to their countries," he noted. "You can have the rules vs. principles debate all you want, but principles are only as good as the people who apply them. At the end of the day, you have to ask, are you really getting the same thing?"
Along those lines, inconsistent global enforcement has been one of the oft-heard critiques of IFRS convergence or adoption.
"To be fair, the SEC is the strongest of the regulators in the world," said Ken Marshall, IFRS practice leader at Big Four firm Ernst & Young. "We've had hiccups, for sure, like Enron and WorldCom, but overall [the SEC] does a good job ensuring consistent U.S. GAAP. We don't see that same consistency with IFRS. If we're going to one set of standards, we need to all be speaking the same language."
Fred Choi, Distinguished Service Professor of Business at New York University' Stern School of Business, agreed: "What's the role of standards? It's to assure comparability and improve operational and allocational efficiency of the markets," said Choi, who developed the IFRS template for the NYU accounting curriculum. "The payoff is increased investor participation. You always want money flowing into the most promising company. If two companies prepare on different financial reporting standards, it may be harder to tell which one is the more profitable one."
A RECENT CONVERT
Canadian companies on a calendar year-end were required beginning Jan. 1, 2011, to convert from Canadian GAAP to IFRS.
Jason Kingshot, one of the national IFRS leaders for Calgary, Alberta-based chartered accounting firm MNP, said that the firm began preparing for the transition back in 2006.
"I had worked under the IFRS framework in the Cayman Islands and we brought in another partner who was from South Africa," explained Kingshot. "We identified IFRS leaders in our regions and began weekly training where we concentrated on one standard at a time. From there we developed training modules. Overall, it went pretty well; there were little bumps here and there. Sometimes you tend to overlook smaller issues. Internally we tried to put the right people in the right engagement. It went better for the most part in the larger companies. It also depended what industry you were in. For instance, impairment is a two-step process under Canadian GAAP; with IFRS, it's one."
At press time, the SEC had set a soft deadline of July 31 for all comment letters on its IFRS transition workplan.
Said Renzelman of Schneider Downs, "The question is whether the U.S. is ready to turn over control to a world body. My guess is no. The moral of the story is they're probably a lot further away than everyone believes."
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