International financial reporting standards are back on the front burner
“Reports of my death have been greatly exaggerated,” Mark Twain quipped. The same might easily be said for efforts to arrive at a single set of global accounting and financial reporting standards for U.S. companies, converging U.S. GAAP (Generally Accepted Accounting Principles) with IFRS (International Financial Reporting Standards). More than 100 countries around the world use IFRS. The U.S. is the only country to use U.S. GAAP.
In February 2010 the SEC issued what it called the “Commission Statement in Support of Convergence and Global Accounting Standards.” Despite its positive-sounding title, the statement effectively took the Bush administration’s road map for adoption of IFRS off the table, even for the largest U.S. companies.
That triggered something of a backlash in the U.S. and abroad, says Mark Friedlich, Director of Accounting, Audit, International Tax and Estate Planning for CCH, a Wolters Kluwer business.
“Supporters of a single global standard for financial reporting around the world attacked the SEC. They felt the U.S. was turning its back on IFRS or pushing convergence so far out into the future that it would hurt the global markets.”
In a May 18 speech at the CFA Institute’s annual conference, SEC Chairman Mary Schapiro went on the defensive. She addressed what she called “myths” surrounding the SEC’s position on convergence, and said the U.S. remains “committed to convergence.”
The upshot: Schapiro’s comments renewed interest in GAAP-IFRS convergence among corporations and major CPA firms, especially the Big Four. “It’s back on the front pages now, where previously it seemed like a topic treading water,” Friedlich says.
This renewal of purpose towards convergence in the U.S. was further supported by FASB Chairman Bob Herz, who, speaking at a recent conference, said FASB has dramatically accelerated its joint sessions with the IASB to finalize almost a dozen major standards in 2011.
Convergence is still a few years off, and key issues remain to be resolved by rule-making bodies, Friedlich says. Yet to be sorted out: revenue recognition, leases and treatment of financial assets, among others.
“Even if U.S. companies are not required to report under IFRS until 2016, that means financial statements for the prior three years will have to be presented under both GAAP and IFRS. So it’s not as far off in the future as you might think,” Friedlich says.
Friedlich says that both corporate CFOs and CPA firm practitioners should take three steps now:
1. Become much more familiar with international standards and the differences between U.S. GAAP and IFRS.
2. Follow the various convergence processes FASB and IASB are taking, especially with regard to open issues like revenue recognition.
3. Speak with your auditors and other advisors about steps they should be taking to prepare for the eventual adoption of international standards.
“CCH has an excellent new product within Accounting Research Manager that compares U.S. GAAP with IFRS and is an excellent tool for both the corporate CFO and the CPA firm,” Friedlich says. “It tracks the differences between GAAP and IFRS on every key issue.”
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This story is from the CCH e-newsletter First Choice, written specifically for tax, accounting and audit professionals. First Choice offers tips, tricks and ideas about how to increase your public accounting firm’s productivity and efficiency. Every issue also features insights with a tax, audit or accounting professional.