by John Bernardi
President Barack Obama’s recent appointment of Mary Schapiro to oversee the Securities and Exchange Commission has raised some doubt about whether the Commission will continue its support of IFRS as the single set of global accounting standards.
Under Christopher Cox, the outgoing chairman, the Commission has been bullish in pushing for a move toward IFRS. For more information about the SEC’s support of IFRS, see the proposed roadmap released on November 14, 2008 via the website listed below.
During her confirmation hearing on January 15th, Ms. Schapiro, on the other hand, indicated her concerns regarding the move to IFRS and stated she would not be "bound by the existing roadmap that’s out for comment."
The plan to replace US GAAP with IFRS has been widely, but far from universally, accepted in the US. Supporters see it as a necessary progression of a global economy and a significant benefit to investors, who will presumably be able to compare and analyze the financial conditions of companies around the world with greater consistency. They also envision a benefit to US filers whose attractiveness to global investors would increase as a result.
On the other hand, detractors wonder how US companies will operate in the “principles-based” world of IFRS and worry that it will lead to a greater opportunity for abuse in financial reporting. IFRS does not provide the “rules-based” approach of US GAAP. As a result, management will need to exercise its judgment to a larger degree than required under the current approach. To illustrate, guidance around revenue recognition under IFRS consists of two basic principles, IAS 18 - Revenue, and IAS 11 - Construction Contracts, with no industry-specific guidance. The rules under US GAAP are too many to list and include specific guidance on their application. While these extensive rules have led to many debates over the accounting treatment for specific transactions, at least there has always been some guidance to point to in justifying the position.
At MorganFranklin, we believe the convergence of US GAAP with international standards is inevitable, regardless of a possible detour or delay in the roadmap resulting from the change in administration. The joint effort between the FASB and the IASB is likely to continue and will place demands on finance organizations for proper and timely implementation. Current convergence projects under review by the FASB and IASB include earnings-per-share, income taxes, revenue recognition, leases and other topics, most of which are expected to be implemented prior to 2011.
In response, US corporations, particularly those with international operations or those with international parent companies, owe it to themselves to remain focused on the potential implications of the change to IFRS. Finance executives, audit committees and IT organizations should have a general understanding of the impact a transition will have, not only on their financial statements, but also on their operations.
We believe any planning for convergence must include a thorough review and update of accounting policy and procedure manuals, a commitment to maintain those policies, and the strengthening of controls around their application. In this way, organizations can demonstrate a solid foundation on which to base decisions concerning accounting treatment of specific transactions, regardless of when the ultimate move to IFRS occurs.
The move to IFRS will be a complex and important one, and we encourage you to voice your opinions. February 19th ends the SEC’s comment period on the roadmap, so this is your chance to make a statement. We would be happy to help you draft a response to the Commission.
How We Can Help
MorganFranklin is a single source for all financial, management and
technology support with a proven track record leading time sensitive
and technically intense initiatives.
Our teams carry certifications and degrees such as CPA, CIA, CISA,
MBA, and PMP, and possess an average of 20 years experience at manager and higher staff levels. Our ability to tap diverse expertise
in-house allows us to proactively manage your requirements and
quickly address issues that could impact your compliance, efficiency
or profitability. Count on MorganFranklin to bring extensive experience,
diverse perspectives, determination, and competitive rates to meet
all of your financial and information technology needs.
To learn more about the SEC roadmap, please contact John Bernardi at john.bernardi@morganfranklin.com.
Learn More about MorganFranklin»
CEO
COO