IFRS Coming to America?
The U.S. Securities & Exchange Commission (SEC) yesterday adopted a proposed roadmap towards the American use of an international accounting system called International Financial Reporting Standards (known as IFRS).
Here’s what happened: The SEC voted to open for public comment the use of International Financial Reporting Standards (IFRS) by 2014. This issue has been gathering steam among multinational companies for some time, and has more recently become a favorite of SEC Chairman Christopher Cox. He sees the adoption of IFRS as a way to smooth the transition to a global economic regulatory structure.
Yet the SEC seems to have delayed making the decision if the system should be mandatory until 2011 when it will again review the issue.
Most countries in the world already use IFRS for their business accounting. Currently U.S. firms use the U.S. Generally Accepted Accounting Principles (GAAP), but the SEC has been considering allowing U.S. firms to select one of the two systems when they file required financial and regulatory reports. U.S. firms that operate overseas and file reports with non-U.S. securities regulators are already familiar with IFRS.
There are going to be some fundamental challenges coming down the road. Notably:
- There are very few educational offerings available in the U.S. to teach IFRS. Both at the university level, but also for industry practitioners.
- The consulting industry is just beginning to come up to speed on IFRS.
- Small to middle-sized companies may find it more expensive to implement IFRS (this brings up the analogy to SOX).
Major take-ways: Chairman Cox is pushing the U.S. towards the reality of the global economy. This is a good thing. Unfortunately, the SEC was non-commital on the timing of adoption, or whether it will be mandatory. There will surely be more to come on this important issue. In either case, there will undoubtedly be a lot of consulting work in the U.S. as a result of IFRS.
