Hark the Herald Accounting Changes

One of the few certainties for CFOs about the new year is that they'll see continued efforts toward significant accounting changes that surfaced in 2008, as companies move toward adoption of international financial reporting standards (IFRS).

On December 15, rules that align closely with international standards went into effect that require any assets and liabilities acquired be accounted for at fair market value on the date of acquisition rather than on company assumptions. The new rules also affect stock transactions: the value of buyers' stock issued in a deal will be measured on the closing date rather than the date that the deal is announced. The change will likely lengthen merger and acquisition processes and slow down deal negotiations.

Shortly after that announcement, the Financial Accounting Standards Board (FASB) announced a broad effort that could lead to an expansion of mark-to-market accounting. The Wall Street Journal reported that FASB told its staff to begin work on a project to re-examine accounting for financial instruments. According to the report, one likely scenario under consideration is that the use of mark-to-market accounting might be extended to a wider variety of securities, with FASB taking a holistic view of accounting for loans, bonds, derivatives, and stocks. If the project results in a new standard, it could be bad news for companies with distressed assets.

But IFRS wins hands down as CFOs' biggest accounting rules challenge; the road from U.S. GAAP to IFRS will be bumpy. According to a survey by Ajilon Finance Solutions and the Institute of Management Accountants, 58 percent of U.S. companies say they are unprepared to train staff for the transition.
The top three IFRS-related concerns finance employees have, according to survey results, are the impact convergence will have on their future career prospects, that converged standards might be more challenging to apply than current U.S. standards, and that compliance with converged standards might not be enforced consistently by regulators throughout the world.

To better prepare finance staff for the shift to IFRS, Ajilon suggests that companies conduct a comprehensive diagnostic of existing accounting processes, staff, and training resources; appoint a project management officer; survey finance employees to determine appropriate training methods and regularly review IFRS adoption procedures.

Consultants warn that the conversion is a multi-year effort and 2009 is none too soon to take steps toward the 2014 deadline.