IFRS Adoption: A Necessary Evil
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In as unsure of economic times as the one we’re living in today, it is only natural for people to desire some additional consistency and reliability, principally relating to the business world. In the world of accounting these two factors are imperative in order for firms to perform daily business operations. Due to the ever-changing anatomy of business and the pull towards globalization companies must conform to more internationalized standards than ever before. Companies using the current Generally Accepted Accounting Principles in the United States are being pressed to convert to these international standards set forth by the International Accounting Standard Board by 2014. There are, however, some encumbrances for many corporations to deal with if they are to transfer over to widely used International Financial Reporting Standards. These hindrances may prove to be combative of the potential 2014 mandatory adoption the SEC had set during its meeting in late 2008. As the convergence of the United States GAAP and IFRS continues to progress it will ultimately become essential for U.S. corporations to fully adopt and administer these regulations in order to keep up with the world’s changing economic and business climates.
Much of the reason for the Securities and Exchange Commission to propose a US adoption of IFRS is simply to create a uniform accounting system that can be applied throughout the world. In terms of the 2014 date set for the adoption by US-based corporations, it is merely a tentative date and nothing definitive is on the agenda at this period in time. In its document, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) by US Issuers, the SEC set milestones that they will assess in 2011 in order to establish mandatory adoption date. These milestones include the following: Achieving sufficient improvements to IFRS, enhancing the independence, accountability and funding of the IASB and its Trustee Organization, achieving sufficient progress on the taxonomy for XBRL compatibility, and sufficient improvement in IFRS education and training in the US (”IFRS Reporting: Current Situation and Next Steps”).
This proposed roadmap has not gone by without its share of criticism, however. In her article that highlights the resurgence of the IFRS debate, Maria Leone addresses the main concerns that were given briefly after the 2008 SEC meeting by the premier opponents of the IFRS conversion deadline. Their apprehensions involving the deadline included the following:
Training U.S. accountants and auditors by the proposed 2014 deadline would be impossible; the SEC would cede its regulatory power to a global regulator; the standard-setter that wrote the rules – the International Accounting Standards Board – would buckle under political pressure; and compared with U.S. generally accepted accounting principles, IFRS is weak and would therefore invite accounting abuse. (Leone)
To go along with the previously mentioned weaknesses is the pure financial aspect of the conversion. Businesses stand to shell out a significant amount of money in order to transfer over to international standards during that first year. Sarah Johnson comments on the initial costs of US businesses and the SEC’s proposed plan in her article titled “Guessing the Costs of IFRS Conversion”. Sarah states, “In its proposed plan to move all U.S. publicly traded companies to the global standards, the SEC also predicted that the largest U.S. registrants that adopt IFRS early would incur about $32 million in additional costs for their first IFRS-prepared annual reports” (Johnson). She also makes note of comments made by one of the leading global management consulting companies, Accenture, about their take on the degree of difficulty involved in performing the IFRS conversion and its comparison to European conversion. In their statement they mention:
For one, U.S. companies will have to run GAAP and IFRS simultaneously under the SEC’s plan and in order to meet statutory and regulatory requirements outside the SEC’s purview, such as for filings made with the IRS. In addition, the European experience is viewed to have been a bit easier because the countries’ accounting rules were fairly similar to the principles-based IFRS, whereas GAAP is considered more rules-based, or prescriptive. (Johnson)
Some supporters counter these higher priced accusations with the fact that they believe a company who does not adapt to international standards may actually be paying more than one that has adapted to the new set of standards. There is no doubt that this transition will be an uphill climb but ultimate goal is within reach.
“There is a clear trend toward adopting IFRS as the single body of internationally accepted financial reporting standards. In the next few years, thousands of companies will move to IFRS as a primary basis of financial reporting” (Gannon). There are clear and prominent factors that point to the fact that transitioning from US GAAP to IFRS, and including a full blown conversion, is almost now a necessity in the United States. Whether it is directly or indirectly, most US companies are affiliated with international firms. “Some [US companies] may be required to adopt IFRS to meet the reporting requirements of an international parent or investor company, while others may recognize the need to voluntarily supplement their current financial reporting with IFRS to allow for an accurate comparison with foreign competitors” (Gannon). In addition, there already have been several efforts to unite the US GAAP and IFRS, including IASB’s attempts to publish numerous statements that narrow the gap between the two accounting standards. Along with these aspects US companies that are subsidiaries or own subsidiaries in foreign countries may also be required to use IFRS along with their regular standards. And finally, if a US company maintains foreign investors it is also likely they would need to release information according to IFRS.
From the pressures of foreign companies to domestic inefficiencies the conversion is all but a certainty. It is just a matter of when and how US corporations are going to adapt and stay afloat during this transition period. International Financial Recording Standards will soon be uniting the United States with the rest of the world in creating a new and integrated system for the business and accounting world alike.
Article Source:http://www.articlesbase.com/accounting-articles/ifrs-adoption-a-necessary-evil-1589548.html
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