Push for Convergence Accelerating, Demand Grows for IFRS Expertise
U.S. companies need to prepare for the convergence of global accounting standards. A mid-year update of the Financial Accounting Standards Board’s agenda left no doubt that the group is actively planning for U.S. GAAP to be replaced by International Financial Reporting Standards (IFRS), reports CFO.com. Moreover, a large majority of accounting leaders from around the world agree that a single set of international standards is important for economic growth, according to a survey conducted recently by the International Federation of Accountants (IFAC). Of the 143 leaders from 91 countries polled, 90% responded that a single set of international financial reporting standards was “very important” or “important” for economic growth in their countries.
Right now, the push towards convergence is accelerating…along with demand for IFRS expertise, reports executive search firm, A.E. Feldman. The bottom line: almost every country, including the United States, will most likely be using IFRSs to some extent by 2011. Right now, however, there remains a shortage of professionals with sufficient knowledge of IFRS to make the conversion and to maintain IFRS financial statements, both among domestic and international operations. As a result, A.E. Feldman reports that accounting jobs are opening up as the need for IFRS-trained accounting talent intensifies.
Convergence Accelerating
The globalization of business and finance has led more than 12,000 companies in almost a hundred countries to adopt IFRS, according to the American Institute of Certified Public Accountants (AICPA). In 2005, the European Union began requiring companies incorporated in its member states whose securities are listed on an EU-regulated stock exchange to prepare their consolidated financial statements in accordance with IFRS. Australia, New Zealand and Israel have essentially adopted IFRS as their national standards. Canada, which previously planned convergence with U.S. GAAP, now plans to require IFRS for publicly accountable entities in 2011. The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) plan convergence by 2011.
Here in the U.S., the push for convergence is accelerating. According to a recent AccountingWeb report, a poll of AICPA members reveals the expectation is that it will take three to five years to fully implement the changes brought by the IFRS.
Narrowing the Gap
Many differences between IFRSs and U.S. GAAP have been narrowed as a result of the ongoing convergence efforts, according to Deloitte research. The firm has identified several areas in which substantial convergence has already occurred: share-based payment, business combinations and segments.
The rules differ broadly, however, on key topics such as inventory accounting, insurance industry accounting, when companies can recognize revenue and the use of fair value accounting.
In a recent report, CFO.com cites a FASB webcast in which there was “a reference to the Securities and Exchange Commission’s acceleration of convergence between U.S. and international accounting standards over the past two years, which has shifted the focus from gradually aligning the two systems to actually eliminating U.S. GAAP in favor of IFRS.” The report also notes that FIN 48 (Accounting for Uncertainty in Tax Positions) remains a major sticking point in adopting international standards, although the FASB intends to propose some sort of resolution “in the next few months.”
“Once a critical mass of non-U.S. companies in a certain industry sector begins to report their financial results using IFRS, there will likely be pressure for U.S. issuers to do the same, to allow investors to better compare their financial results. But this issue will have an impact far beyond just financial reports. It will affect almost every aspect of a U.S. company’s operations, everything from its information technology systems, to its tax reporting requirements, to the way it tracks stock-based compensation,” according to the AICPA.
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. According to A.E. Feldman, any company that has a parent or a subsidiary internationally and requires consolidation will abandon U.S. GAAP and report based on IFRS.
The increasing acceptance of IFRS, both in the U.S. and around the world, means that now is the time to become knowledgeable about these changes, according to the AICPA. The group warns that most CPAs will somehow be affected.
Demand for IFRS Expertise
The use of IFRS by U.S. publicly held companies will create the need for effective training and education, according to the AICPA. The group contends that currently most U.S. accountants in the United States are not trained in IFRS. Additionally, most specialists, such as actuaries and valuation experts, who are engaged by management to assist in measuring certain assets and liabilities, are also not taught IFRS. The AICPA concludes that all parties will need to undertake comprehensive IFRS training.
The AICPA has launched a web site, IFRS.com, to help its members and financial professionals learn about and stay informed on IFRS. “It is increasingly clear that as international standards gain wider acceptance and use in the United States, the accounting profession must keep pace,” said Barry C. Melancon, President and Chief Executive Officer of the AICPA.
The bottom line: CPAs need to begin to prepare for the day (in the not-so-distant future) when the SEC could designate a date for voluntary, or possibly mandatory, adoption of IFRS by all U.S. public companies.
A.E. Feldman’s accounting division is constantly researching industry trends and developments. To learn more about convergence or inquire about existing and future job opportunities in accounting the lines of communication are open. Contact A.E. Feldman’s President, Mitch Feldman, and the firm’s cutting edge accounting recruiting team here.
