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IFRS US prospects

Ian Welch

Ominous sounds from the US over the prospects of IFRS ever being accepted in the world's largest capital market are becoming more frequent. In this publication last month the SEC's former chief accountant joined in, expressing his doubts.

Yet a report recently issued by the Association of Chartered Certified Accountants (ACCA), based on a survey of 500 US-based investors by Forbes Insights, may lift some of the gloom.

The research found that a majority (57%) of US investors expect that the country will eventually adopt IFRS. And encouragingly, more investors agreed than disagreed that the long term benefits of adoption would outweigh the costs - 41% against 29%.

As a long time supporter of global standards, ACCA is pleased to see a positive investor view - we have always believed that US adoption of IFRS would give a tremendous boost to the cause of globally comparable financial reporting. But respondents warned that the process will take time and need substantial investment in staff and training. So hold the champagne just yet.

Key findings were:

  • The most significant challenges identified by investors are the one-off transition matters, while longer-term concerns are rated less highly;
  • The most informed investors polled believe it will take US corporates some four and a half years to be ready for IFRS. They ask that convergence plans aim for full convergence, allowing adequate time for investors and industry to adjust;
  • Awareness of IFRS among US-based investors is modest - when asked, only 34 per cent of investors felt able to cite specific differences between US GAAP and IFRS;
  • However, 38 per cent of investors said they were comfortable comparing statements prepared under IFRS with statements prepared under US GAAP;
  • Only 16% believed that US corporates were 'prepared';
  • Investors saw marginal differences between IFRS and US GAAP, with 22 per cent of investors claiming that the quality of disclosures under IFRS are higher, against 25 per cent who favoured US GAAP; and,
  • Among investors with a solid understanding of IFRS, however, the balance shifts to 40 per cent to 21 per cent in favour of IFRS.

This last finding is encouraging - the more familiar investors are with IFRS, the more confidence they have in the standards, which echoes the experience in countries that have already adopted IFRS. The fear of the unknown is always understandable, which makes it vital that there is, at the right time, investor education and substantial investment in training. There will clearly be a major role for the profession in this respect, although it must be very careful not to exacerbate any fears in the US that a move to IFRS is just 'accountants creating work for themselves'. Fears of an over-dominant role for auditors in interpreting the standards and second-guessing management could undermine the whole project.

Respondents were also worried about a Ioss of US influence over the standard-setting process. The International Accounting Standards Board needs to be sympathetic to this fear, although current frustrations may not help. Its chairman Hans Hoogervorst, speaking at ACCA' s International Assembly on 23 Novemeber, admitted that the relationship with US Financial Accounting Stamdards Board had become more difficult over the past 12 months, and that the US standard-setter no longer talked of global standards but merely of 'comparability' instead.

Hoogervorst believed that, even in the worst case US scenario, other countries would not be put off joining the IFRS regime, as they may have been five years ago. Malaysia for example was fully committed.

But ACCA still feels that a US 'no' would be a major blow. And that is why we hope that the guarded cause for optimism revealed by our survey proves well-founded.

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