The Securities and Exchange Commission voted to publish for public comment its long awaited proposed road map that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. Public companies will be allowed to begin reporting under IFRS in two years and all public companies may be required to do so in 2014.
Large, multinational companies in industries where there is heavy global competition will be the early adopters; some are already dealing with IFRS because of requirements outside the United States. "The commission has structured the transition so that the largest companies would be required to adopt IFRS in 2014, followed by the next largest and then smaller companies after that," says D. J. Gannon, Leader of Deloitte's IFRS Solutions Center. "Now there's a clear vision of where the SEC wants to head.
"Smaller companies, which traditionally have less complicated financial statements than large multinationals, have fewer incentives to adopt international accounting standards," says Gannon, who also points out that the largest companies have already been thinking about the broader implications of IFRS, not just the accounting aspects. "You need to know what international standards mean for your ERP systems, debit capture, internal control environment, tax structure, cash management/treasury functions, etc.," he says. Systems could present the biggest challenges. "There will be some cases that will require major systems work because the systems weren't updated recently or are too old," he says.
Although IFRS revolves around public companies, private companies will ultimately be affected. Next year the International Accounting Standards Board (IASB) will come out with a version of IFRS for public companies, Gannon says.
Some say that the advantages of the IFRS system, which is considered to be more flexible than GAAP, could result in smaller public companies and private firms preferring IFRS.
Naysayers of the road map include Senate Banking Committee Chairman Christopher Dodd (D-Conn), and Senator Jack Reed (D-R.I.). The Associated Press reported that the senators contend it was premature because the convergence of GAAP and IFRS isn't expected to be achieved until 2011, when the commission would make a decision on whether adoption of IFRS is in the public interest and would benefit investors.
The proposal requires a second vote after a sixty-day comment period before it becomes binding.