Roundtables discuss switch to IFRS

Internal Auditor, Feb, 2008 by S. Scharf

AS PART OF THE ONGOING EFFORT TO CONVERGE global accounting standards, the U.S. Securities and Exchange Commission (SEC) recently held roundtable discussions in Washington, D.C., to examine the implications of allowing U.S. companies to choose between filing their financial statements using U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). As part of the discussions, the SEC looked to the European Commission's three-year mandated transition to IFRS for possible pitfalls and lessons learned.

Proponents of the plan include large, U.S.-based multinational organizations whose off-shore subsidiaries are already using IFRS. "We did initiate a project a few years ago when a lot of our foreign subsidiaries had to go under IFRS reporting," Proctor & Gamble Comptroller Mick Homan told roundtable participants. "We viewed that as a very significant simplification opportunity for the company because we have statutory reporting in over 100 countries around the world." Homan went on to say that although the transition would take a minimum of two to three years and cost millions of dollars, U.S. companies could benefit from the experiences of their European counterparts. By most accounts, European companies made the transition relatively smoothly--more than 7,000 companies moved to IFRS during the three-year period. In addition, IFRS is now mandated or permitted in more than 100 countries.

Some roundtable participants said the transition might be easier for U.S. companies because IFRS and GAAP are more closely aligned than they were a few years ago due to the progress of the accounting convergence project led by the Financial Accounting Standards Board and International Accounting Standards Board. However, discussion also centered around factors unique to the transition in the United States, including the U.S. bank regulators' GAAP-based system, state laws with GAAP requirements, and many U.S. accountants' lack of IFRS experience.

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Although none of the 14 roundtable participants argued against moving toward IFRS, there was disagreement as to how the transition should be carried out. Participants recommended that the SEC implement a phased approach, allowing a dual accounting period before mandating the use of IFRS. Margaret Smyth, vice president and comptroller for United Technologies Corp., suggested a deadline of 2011, when Canada, China, India, and Japan are scheduled to make the switch. Participants also suggested allowing smaller companies more time to make the transition.

To read the roundtable transcripts, visit the SEC's Web site, www.sec.gov.