At long last, the Securities and Exchange Commission (SEC) has proposed a roadmap for adopting International Financial Reporting Standards (IFRS). Large U.S.-based multinationals could switch to IFRS from Generally Accepted Accounting Principles (GAAP) in 2010. A vote in 2011 would determine whether to mandate the international standards for all public U.S. companies–on a staggered schedule.
Companies with market values exceeding $700 million would switch to IFRS in 2014; companies worth $75 million to $700 million would make the change in 2015; and smaller companies would have until 2016.
The transition to IFRS is conditional. First of all, collaboration to merge standards must continue unabated between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). IASB also must obtain a stable and independent source of funding. The SEC worries that IASB relies too much on voluntary contributions from companies and other sources that could withhold payments to influence policy changes.
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The SEC also wants to make sure that adequate IFRS training exists. Recently the American Institute of CPAs proposed introducing IFRS questions to the CPA exam. So far, most university professors have not worked IFRS into their curricula, according to a survey by KPMG LLP and the American Accounting Association. Only 38% have made a serious effort toward that end. "The key is to get accounting firms and corporate accounting staffs up to speed," says Diana Scott, principal and consultant in Tower Perrin's technical services group.
Switching to IFRS, which is now used in more than 100 countries, "would provide greater comparability across firms and industries globally," according to D.J. Gannon, a partner at Deloitte & Touche LLP and leader of the consulting firm's IFRS Solutions Center. In turn, he adds, greater comparability would result in more efficient capital allocation.
Also, in a recent speech, SEC Chairman Christopher Cox predicted that IFRS would lower the costs of capital for U.S. public companies "since global accounting standards would eliminate the duplicative cost of preparing two sets of financial statements."
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