“It’s time to start preparing for the arrival of international accounting standards,” says the lead article in this month’s CFO Magazine, simply entitled “Goodbye GAAP.” “Experts at the Big Four accounting firms say a Securities and Exchange Commission mandate for all U.S. publicly traded companies to use IFRS [International Financial Reporting Standards] is inevitable.” Some predict that larger U.S. firms could begin using IFRS instead of GAAP in three years, while a mandatory conversion could take effect within five.
But international convergence of accounting standards is “clouded with questions,” says the editor’s letter. IFRS is “only” seven years old (compared to GAAP’s thirty-five years), but already has thousands of pages of rules. These could multiply as each country makes its own modifications. U.S. implementation will be “costly and difficult,” say representatives from accounting firms (for which convergence could be “the next gigantic billing opportunity,” according to the CFO letter). If auditors are understandably slow to advise on GAAP now, in the current oversight climate, will international convergence completely stall the process? “Will you be indemnified for implementing IFRS, or will it open up a hole large enough for the plaintiff’s bar to drive a truck through?”
SEC roadmap for convergence. The SEC will vote on a proposed timeline for U.S. adoption and implementation of IFRS sometime this year, says the “Goodbye GAAP” article. Larger U.S. firms could begin to use IFRS as early as 2011, with mandated compliance by 2013; smaller firms could follow suit in 2015. In the meantime, as part of its initiative to support convergence of accounting standards and “in light of market developments,” the SEC recently proposed amendments to permit foreign private issuers improved access to U.S. capital markets and cross-border transactions while also protecting investors. The amendments appear in the March 12, 2008 Federal Register, with comments due by May 12, 2008.
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