UTC's inventory accounting issue provides a good case in point. Many U.S. firms use what is called 'last in, first out' (LIFO) methodology to account for inventory. When they do this, under U.S. tax law, they are also required to use LIFO for inventory in their tax filings, too. IFRS doesn't accept LIFO, and even proponents like Smith concede that until companies know whether the IRS will continue to accept LIFO they would be forced to wait. "Making that change, if the IRS forces us to change too, would cost us a one-time $50 million," notes UTC's Smith, who sits on the executive committee on corporate reporting of Financial Executives International (FEI). "So even if we did get an option to switch over to IFRS, we'd probably wait to see what the IRS does about that."

Inventory is not the only potential minefield. Other significant issues to be resolved include:

- The need to rewrite and re-sign existing debt covenants and other contracts, most if not all of which have been based on GAAP treatments rather than IFRS;

- The handling of research and development, which is an expense charged to operations under GAAP, but which under IFRS has research charged to operations and development depreciated;

- The differences in business combination accounting, with GAAP permitting no contingent liabilities after a merger while IFRS allows contingent liabilities; and

- The treatment of minority non-controlling interests, which are calculated at fair market value under GAAP, but can be calculated at fair market value or book value under IFRS.

These are only a few areas that would bring change to U.S. corporate accounting with a switch to IFRS. A white paper released by PriceWaterhouseCoopers in January sets out at least 30 areas where companies may have to contend with the change.

None of this comes as a surprise to the SEC or the Financial Accounting Standards Board. Both agencies have been working with the International Accounting Standards Board for many years trying to align GAAP and IFRS, in anticipation of eventual adoption of those standards in the U.S. Like most politically complicated processes, convergence has not moved forward as fast as globalization might require.

Meanwhile, there is also the question of whether there are enough accountants familiar with IFRS to handle internal and external audits. Certainly, it's true that U.S.-based multinationals are already using IFRS accounting standards for their international subsidiaries, which means they have staff abroad already trained in its intricacies. The big accounting firms are also already providing accounting services to those subsidiary operations, as well as to foreign corporate clients in places like Europe or Hong Kong, which are using the IFRS standard, and are conducting audits of those companies' books.

"We've been training certain of our professionals on IFRS for a couple of years, because we have clients reporting using IFRS, whether directly or through reporting to their foreign parent," says Samuel J. Ranzilla, partner for professional practice at KPMG. "Even so, the training of our professionals for the implementation of IFRS by U.S. public companies will be a significant undertaking on our part."

He says that the company has developed several plans for how it would handle the training, but explains that it is waiting to decide which one to use. "We're waiting to see the proposed rule from the SEC before we execute on a plan," he says. "A training effort like this has to be sensitive to the timing of implementation, to assure that our professionals are trained just in time to use their training shortly after its delivery." If they get trained and then don't apply their new knowledge for a year or two, he explains, they could lose a lot of their facility with the new standard.

The training of the vast army of accountants and auditors that would inevitably be required once all public companies, large and small, converted over to IFRS, will take considerable time. At present, there is not even one U.S. college textbook on IFRS accounting, and university accounting departments offer, at best, only one course in IFRS accounting. (That compares to 30 to 50 course hours required to be credentialed for GAAP.) "We have a second-year elective on global financial reporting," says Mary Barth, a professor of accounting and senior associate dean of academic affairs at Stanford University's Graduate School of Business, "so it's in the works here."

But Stanford has an advantage, thanks to Barth who is one of only two U.S. representatives on the International Accounting Standards Board (IASB). The IASB oversees the IFRS in a similar fashion to the way the Financial Accounting Standards Board (FASB) regulates the implementation of GAAP.

One area where there seems to be broad agreement on is on the advantages to the investor of IFRS. "With GAAP, it is all about the numbers," says Bob Burns, director of policy and research at the Center for Audit Quality (CAQ), a non-profit Washington-based group that tries to "bring together" and address the issues of investors, auditors and corporate finance officers. "IFRS, in contrast, is numbers and disclosure about what's going on. So all in all, I think investors may get more information from IFRS statements."

Says Barth, "I cannot think of any area where GAAP offers more disclosure than IFRS. And IFRS has more disclosure in the area of financial risk. It's true that the U.S. does quarterly reports, while most IFRS countries only have semiannual reports, but if the SEC wants to insist on quarterly reports they could stay."

UTC's Smith says financial reports done using IFRS will be longer. "You have to do much more disclosure, explaining why you did what you did," she says. "If you look at companies that went from GAAP over to IFRS, the footnotes get much longer. So investors are getting a lot more information. So I guess it's good for investors in that they'll be able to know more, but they'll have to read it, or listen to the analysts' call."

While much has been said about how U.S. GAAP and IFRS systems are based on different approaches–GAAP is more rules-based and IFRS more principles-based–IASB representative Barth downplays those differences. "I'm biased, of course," she laughs. "But I think the rules/principles dichotomy is not as big as people are making out. With IFRS, you have a set of rules to make sure principles are met. In many ways, it can be easier to understand than GAAP. It's less of a secret society of the accounting staff."

She may be in a minority. "IFRS is a different mindset," says FEI's Fabio. "With GAAP you have a lot of bright-line rules, and a lot of second-guessing about those rules. With IFRS, you get principles, instead of rules, so things won't be as black and white. Companies will have to use a lot more judgment in the accounting. "

The U.S. litigious nature adds another complicating element. U.S. courts abhor ambiguity, and a system in which two similar enterprises with two different sets of accountants can come up with opposite answers to an accounting issue by following a principle is sure to end up being adjudicated in court, where it will result in a rule. Then, says KPMG's Ranzilla, the challenge will be for both the U.S. and the IASB to avoid a gradual trend towards national IFRS's, and a piling up of new rules. "The American legal system is a challenge we face," agrees Barth.

In its January white paper, PWC urged companies to begin preparing now for a future conversion. The firm recommends that corporate finance departments do their own cost/benefit analyses of the conversion to IFRS. As well, they suggest that managements look at change management strategies designed to smooth the path. The impact of IFRS accounting policies on reported results needs to be measured, and plans need to be made to educate investors about these impacts in advance. PWC also advises that companies that have overseas operations should begin planning now for ways to centralize their accounting functions once the U.S. operation is also on the IFRS system.

No doubt, just as with SOX, a significant chunk of the panic that inevitably precedes the first filing with a new system will prove to be irrational; only 313 early SOX filers failed to pass their Section 404 internal control audits. But companies that are worried about their income statements and balance sheets getting whacked with IFRS are not all Chicken Littles. Smith still believes that companies are more ready than they realize for IFRS, and ultimately the plusses of the new system will outpace negatives. "I think corporate America–especially the larger global companies–will get on board IFRS quickly," predicts United Technologies' Smith. Most of them, she notes, have people overseas already working with IFRS. "You need only look at Europe," Smith points out "They had to make their transition to IFRS by 2005, and they didn't even finish writing the standards until 2004. If they can do it there, where some of the countries had very arcane accounting standards, we can do it here."

Despite Cox's enthusiasm, most experts expect regulators to recommend ample ramp-up time. The recent PWC white paper predicts that the SEC will allow U.S.-based companies to file their financial reports using IFRS on an optional basis sometime in 2009 or 2010, with a mandate to switch over by 2013. Sam Ranzilla, a partner for professional practice at KMPG, agrees with that prediction. For smaller companies, he anticipates an even more generous rule–with the SEC giving them until as late as 2015. This would follow how the SEC has treated smaller enterprises when it came to SOX filings.

"It's not clear to me how long this process will take," says Stanford University's Barth. "We're all still guessing, but I'd certainly be surprised if they said, okay, starting next year all companies will use IFRS. I'd be less surprised if they said that starting next year some, or any, public company could choose to make the change." She adds, "I hope they put a deadline on it, though. The worst of all possible worlds would be to have a long period of parallel systems."

Regardless of the timetable, IFRS is coming to the U.S.–and soon. Cox made sure of that recently by allowing non-U.S. competitors to file in the U.S. using IFRS. Of course, that puts U.S. companies at a competitive disadvantage since they must still file using GAAP here and IFRS in the rest of the world.

"Even if regulators make IFRS optional, they're all going to switch," predicts Allan Afterman, a consultant and author of several books on SEC regulations and financial reporting. "It's a foregone conclusion that in four to five years, most or all U.S. companies will be using IFRS."