U.S. Companies Stepping Up Convergence Efforts, IFRS Talent in Demand
U.S. companies need to prepare for the convergence of global accounting standards. Although convergence is still five years away, companies are not wasting any time examining its potential staffing and tax implications, according to FinancialWeek. A recent report in USA Today calls the looming transition, “a regulatory sea change that could cost billions of dollars.” According to the report, the impact is likely to surpass that of the Sarbanes-Oxley Act of 2002. USA Today also warns that the change is inevitable. “Whether U.S. companies like it or not, the new era of global accounting appears unstoppable, and businesses that ignore the International Financial Reporting Standards (IFRS) will fall behind.”
The globalization of business and finance has already led to the successful mass adoption of IFRS by upwards of 12,000 companies in more than 100 countries (including the European Union, Hong Kong, Australia, Russia, South Africa, Singapore and Pakistan). Approximately 85 of those countries require IFRS reporting for all domestic, listed companies, according to the SEC. Other countries are expected to follow suit over the next few years, including Chile (2009), Korea (2009), Brazil (2010), India (2011), and Canada (2011).
Moreover, Deloitte reports that 40% of the Fortune Global 500 companies currently use IFRSs, and that percentage is expected to increase significantly over the next couple of years since most companies outside the U.S. that currently use their home-country GAAP will be required to move to IFRSs.
The question about whether the world is going to global standards is no longer ‘if,’ but ‘when,’” says KPMG Chairman and CEO Timothy P. Flynn in a statement. In fact, if regulators have their way, thousands of U.S. companies and foreign corporations that do business in the U.S. will adopt IFRS within five years. That means companies must start preparing today.
USA Today quotes University of Dayton Business Professor, Donna Street, as saying, “If companies don’t prepare, if they don’t start three years in advance, they’re going to be in big trouble.” The report notes that companies need two to three years to upgrade their communications and software systems and staff up with thousands of trained financial professionals. Regulators, CPAs and investors also need to gain expertise on global accounting principles.
IFRS Looming
The Securities and Exchange Commission (SEC) announced in the fall of 2008 it voted to publish for public comment a proposed roadmap, or series of benchmarks, that will guide the U.S. through the process of convergence from U.S. GAAP to International Financial Reporting Standards (IFRS). The move could ultimately unite the global business community and move all U.S. public companies under a single global standard by 2014.
Companies, however, will need to have two sets of books, one in IFRS and one using GAAP for two years prior to the transition for comparison purposes. Such efforts will require preparation and planning.
The SEC plans to make a decision by 2011 on whether the adoption of IFRS is in the public interest and would benefit investors. According to the SEC, “The increasing integration of the world’s capital markets, which has resulted in two-thirds of U.S. investors owning securities issued by foreign companies that report their financial information using IFRS, has made the establishment of a single set of high quality accounting standards a matter of growing importance. A common accounting language around the world could give investors greater comparability and greater confidence in the transparency of financial reporting worldwide.”
Although adoption of International Financial Reporting Standards (IFRS) isn’t required of U.S. companies until 2014, almost 25% of the 800 or so respondents polled by PricewaterhouseCoopers (PwC) said they have stepped up their conversion efforts, reports FinancialWeek.
Tax Departments Bracing for Convergence
With IFRS more closely aligned with tax accounting than U.S. GAAP, 60% of the respondents polled by PwC say they have involved their tax departments in their conversion efforts, reports FinancialWeek. More than half, 57%, also reveal they expect their tax departments to perform a detailed review of their current method of tax accounting in conjunction with their book accounting policy changes.
Financial Week quotes Ken Kuykendall, a Partner in PwC’s Industry Services Group Tax Practice, as saying, “Tax directors —and possibly CFOs—are seeing the necessity of bringing tax to the table in sufficient time to make a difference in both strategy and execution of this significant change.”
CFOs Optimistic About Convergence
U.S. CFOs have an optimistic view of IFRS – especially compared to their European counterparts, according to CFO.com, citing a recent study conducted by Duke University and Oxford University. Of the 749 Finance Chiefs polled, 88% U.S. respondents said convergence was good or very good, compared to 65% of Europeans polled.
The aspects of IASB (the standard setting body responsible for the development of International Financial Reporting Standards), that U.S. CFOs prefer are due process, transparency, accessibility, inclusiveness, and accountability, according to the study.
U.S. respondents of the Duke/Oxford survey were also more confident than their European counterparts that IFRS aids financial stability, adds CFO.com. Half of U.S. financial executives said that the global standards increase the stability of financial markets versus just 25% of German CFOs, 11% of French finance chiefs, and 8% of top U.K. CFOs.
Revenue and Expense Recognition
Moreover, the accounting issues associated with convergence that are garnering the most attention are revenue and expense recognition, adds FinancialWeek. Roughly 33% of those polled by PwC say their company’s transfer pricing arrangements under IFRS would be most impacted by changes to revenue recognition. An additional 19% believe changes to expense recognition would have the most significant impact.
In short, companies must begin to tackle the time and cost of conversion to IFRS, the organizational impact of convergence both internally and externally, the complexity of the conversion process and finding and hiring in-house IFRS talent, according to FinancialWeek.
The report quotes Tessie Johnson, an Advisory Partner and IFRS Conversion Specialist at the PwC as saying, “Starting early is key to identify the necessary changes and implement them. I also think that many companies may want to start early to be able to do as much in-house as possible.”
Accounting and finance executives continue to be confronted by the increasing complexities of changing tax laws and regulations, including the push for International Financial Reporting Standards (IFRS). Amid the trend, hiring qualified professionals remains the most critical concern for U.S. firms, according to the AICPA. Executive search firm, A. E. Feldman, reports that recruiting among accounting firms remains highly competitive. The firm says that accounting jobs are opening up as firms address mounting resource demands. Current opportunities include, tax manager jobs, audit jobs, international tax jobs, and business valuation jobs.
Are you an accountant or IFRS convergence specialist? If you want to grow your career or discuss your company’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
