Convergence Presenting Global Opportunities For U.S. CPAs
The European Union is dragging its heels on a push to converge accounting standards. The EU has just issued a proposal that would delay the need for companies in “third countries” such as the U.S., Japan, Canada and China to use international standards until the end of 2011, according to Reuters. The existing requirement would have forced these companies to reconcile their financial statements by the end of 2008. Despite the setback however, the trend towards convergence is seemingly inevitable, and a reality for U.S. accountants working with international clients.
The international convergence of accounting standards is a global trend that began more than three decades ago. Today, as companies vie for overseas capital and investors seek to access foreign markets, the demand for financial reporting standards that transcend national borders is growing. Nearly 100 countries (including the European Union, Hong Kong, Australia, Russia, South Africa, Singapore and Pakistan) require or have a policy of convergence with International Financial Reporting Standards (IFRS).
The International Accounting Standards Board (IASB) issued the first-time adoption of IFRS back in June 2003. Since 2005, more than 7,000 listed companies in the European Union have been required to prepare consolidated financial statements under IFRS. Many other countries have announced plans to require IFRS reporting within the next five years. Overall, the increased acceptance of IFRS has led to a surge in the number of companies following suite.
Switching to IFRS significantly reduces the cost of accounting and financial reporting for multi-national companies, which would otherwise have to translate and reconcile records prepared under various country-specific standards. And according to the Managing Director of Accounting Recruiting at executive search firm, A.E. Feldman, “Any company that has a parent or a subsidiary internationally and requires consolidation will abandon GAAP and report based on IFRS.”
Here in the U.S., the Financial Accounting Standards Board (FASB) and IASB have been working in recent years to bring GAAP and IFRS closer together. In 2002, the IASB and the FAS agreed to work towards reducing differences between the two standards. And by February 2006, the two bodies issued a Memorandum of Understanding including topics on which they will seek to achieve convergence by 2008.
Moreover, the SEC has proposed plans to allow foreign issuers listed on U.S. exchanges to produce financial statements using IFRS without reconciling their numbers to U.S. standards. At the same time, the FASB is pushing U.S. standards toward closer alignment with the international system. Robert Herz, Chairman of the Financial Accounting Standards Board, recently stated that he prefers a single set of standards and rejects the idea of a U.S. version of IFRS, according to a report in Web CPA.
In an increasingly global financial community, candidates seeking accounting jobs stand to benefit from an international perspective. A.E. Feldman reports that the increased availability of IFRS-trained accounting talent globally is creating expansion opportunities for a number of U.S. firms. But competence with international financial reporting models is key, and the challenges ahead are considerable. IFRS are centered on approximately 2,500 pages of “principles” while GAAP is comprised of about 10 times as many “concrete” rules. That said, A.E. Feldman notes that U.S. accountants who apply IFRS require solid analytical skills and sound judgment.
