The world’s largest economy has
proposed plans to require its listed companies to use IFRS by 2014.
Although firms welcome the move, they warn the impact will spread
far wider than public companies. Nicholas Moody and Carolyn Canham
approached several firms to discuss the time line and its

When US Securities and Exchange Commission (SEC) chairman
Christopher Cox announced the “cautious and careful” proposal to
require US public companies to file financial statements under IFRS
by 2014, few firms were surprised. The move had been hinted at
since last September when the commission issued a concept release
allowing US issuers to prepare financial statements using IFRS.

Two months later, the SEC voted to allow foreign entities to
file using IFRS without reconciling with US GAAP. This latest
decision is being seen as the next logical step towards the use of
one global set of accounting standards, although US firms warn the
impact of the change will run far deeper than many appreciate.

The IFRS road map moves the world’s largest economy from the use
of US GAAP to the international standards by 2014. The SEC said it
would make a decision on whether to proceed with mandatory adoption
for all companies in 2011 but has indicated some large US public
companies can begin filing financial statements prepared according
to IFRS as early as 2010.

The commission estimated as many as 110 qualifying companies –
about 14 percent of US market capitalisation – could begin using
IFRS in fiscal years ending after 15 December 2009. The multi-year
road map also proposes carrying out staged mandatory adoption dates
beginning in 2014 for large accelerated filers, 2015 for
accelerated filers and 2016 for non-accelerated filers.

Right direction

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Dave Kaplan, the leader of international accounting consulting
services at PricewaterhouseCoopers US, says the SEC is heading in
the right direction with the announcement, a sentiment shared by
all firms this publication approached.

“The level of complexity of the accounting standards in the US
is extensive. We think this is an opportunity to bring in IFRS,
which do not have the extensive details the US standards do,” he
says. “This allows a bit more professional judgement, which we
think is good, and provides a sound foundation on which to continue
to build and improve those standards so they are the most robust
standards for global capital markets and investors.”

RSM McGladrey international assurance services group leader
Robert Dohrer says the proposal largely met his expectation of what
the time line should be. One feature that was a little unexpected
was the final decision on convergence being postponed to 2011.

“I think the popular opinion, and certainly my position, has
been that we needed the SEC to make a definitive announcement.
Furthermore, as opposed to their concept release, where their
proposal was just to allow IFRS to be used, I was of the opinion
that we needed a mandate to really make convergence happen. I had
hoped that we would have had that specific mandate made now,” he

Grant Thornton US managing partner for international client
services Carol Banford says she wouldn’t be surprised if the date
for mandatory adoption was earlier than 2014.

“I think once they see how these [first 110 qualifying] companies file and the progress that has been made between the
International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB), there will be more and more
interest in moving this along at a faster pace,” she says.

Dohrer says the optional use of IFRS by these qualifying
companies beginning in 2010 causes him a little concern.

“It means that for certainly a number of years now, particularly
in the US, we are going to need to maintain both US GAAP and IFRS
technical accounting skills. So training, keeping the training
current in both of those areas, will be an incremental cost to us,”
he says.

Dohrer estimates the 110 figure is very much a maximum. He has
already spoken to one company that falls within that category, but
is in an industry where IFRS is not prevalent, and therefore is
unlikely to take the IFRS option.

Firms all agree that the 2014 target provides a reasonable time
frame, although several warn the transition will have wide reaching
implications that many US clients are only beginning to

Kaplan says the target to educate staff and clients by 2014 is
“absolutely achievable”.

“Use Europe as an example,” he says. “The announcement in the UK
was made in 2002 for a changeover at the end of 2005. Today, we are
signalling that’s where the US is going to be going in 2014 on a
mandatory basis and the underlying accounting that exists in the US
is much more similar, from a conceptual perspective, to IFRS than
many of the local accounting models that had to transition to IFRS
in Europe.”

Changing perception

Bruce Pounder is president of Leveraged Logic, a consultancy
which offers IFRS education and training to US accountants. He says
the timetable is right where it needs to be because “any transition
of this ilk can not happen overnight”.

The majority of American accountants he has dealt with in the
past have not been concerned with international accounting matters
but that is now changing.

“Many American accountants assume that IFRS has nothing to do
with them,” he says. “I think the SEC has made it very clear, at
least to public companies, that this does have everything to do
with them.”

DJ Gannon, a partner in the Deloitte US IFRS solutions centre,
says the SEC announcement has significantly heightened the
visibility of IFRS.

“Most folks in the US realise where we are heading and that’s a
good thing. Up until a year ago, most people didn’t follow much of
this stuff and they saw it as a non-US issue. Now, I think that has
completely changed – accounting firms, companies and regulators
have completely changed their perspective,” he says.

The increased visibility has sparked what Pounder calls a
“burning curiosity” as US accountants try to get their heads around
what has captured the attention of the SEC.

Pounder says demand for information on IFRS has exploded in the
US and in the past two months he has spoken to more than 2,000 US
accounting professionals about IFRS and convergence.

Firms have also noticed a recent spark in interest from clients,
which could create a new revenue stream.

“It certainly did put the spotlight on IFRS. I spoke to a client
this morning and he said ‘we signed up for two-day training because
we feel like we need to understand what some of the key issues are
to be able to make some of these judgements’,” says BDO Seidman SEC
director Wendy Hambleton.

Gannon says he thinks it will take between three to five years
for most companies to convert to using IFRS.

“We are getting more requests from companies and I think we are
at the front end of this process. I think companies have had an
interest in understanding what they have to do. We are in the
stage, with the road map coming out, where it will spur a lot more
interest in starting to do things,” he says.

Dohrer is not aware of any RSM clients that would fall within
the first 110 companies to qualify. However, he suggests
second-tier firms have a significant opportunity to assist some of
those companies with their conversion process as consultants.

But Gannon warns that the implications of a change to IFRS run
far deeper than just understanding technical accounting.

“The biggest challenge here is really taking the effects of
those accounting differences and then trying to figure out what
that means in terms of systems, controls, tax – what does it mean
for a [client’s] organisation as a whole? I think as companies
start to understand that, and I think they are, they are realising
that this is not an overnight project, it is a much more involved
initiative. That’s, in part, why you are seeing a 2014 mandate
because companies are going to need the time,” he says.

Dohrer says there are two aspects of convergence that will be
particularly difficult – addressing the funding and structure of
the International Accounting Standards Board (IASB), education and

Unlike the FASB, the IASB receives most of its funding from
public accounting and audit firms. However, this structure is
currently being reviewed by the International Accounting Standards
Committee Foundation.

Dohrer says that one aspect that came out of the Enron and
Worldcom scandals was the importance of public accounting and audit
firms not appearing to be in a position to exert any influence on
the standard-setting process.

“I think pragmatically the IASB will have some challenges in
that we were able to fund our FASB in the US essentially by the SEC
dictating that its filers would pay fees to fund the FASB,” he
says. “I don’t think it is a situation that can’t be accomplished,
but I think it will take some work to bring it around all the
different regulatory bodies across the world and figure out where
the money to fund the IASB will come from if you take the public
accounting firms out of that picture.”

Getting ahead

Many firms are already well advanced in planning IFRS training,
although several concede a full firm-wide roll-out is several years

Dohrer says RSM is quite well positioned, despite describing
education and training as a “big hurdle” for the US.

“We need to accelerate the pace of our IFRS training and we are
on track with that. We will be training a number of additional
auditors in October of this year to get into the technical details
of the differences between US GAAP and IFRS, so as to be able to
help our clients with conversion,” he says.

Hambleton hopes IFRS preparation will not be as painful as the
introduction of Sarbanes-Oxley.

“This is giving a much longer time frame to start with. So
hopefully what companies will do, and I know accounting firms are
going to do, is use the time to plan [and] to do training in a very
logical, methodical way that will then be able to build upon
itself, rather than just trying to get someone to be an expert
tomorrow,” she says.

While much of the initial publicity has focused on the effect of
IFRS conversion on large public companies, Gannon says the impact
of IFRS conversion on private companies had “gone under the radar

“I think one of the things that is missed is what does this mean
for the vast majority of US companies, which are private
companies?” he asks. “I think that is a whole other issue. You are
certainly going to see those companies gravitate to IFRS. This is
not just about public companies; it is about private companies too.
There are a fair amount of US private companies starting to ask
these questions. They will have to deal with IFRS at some point

Before any long-term plans are made, however, firms will be
eager to see the full text of the SEC’s proposing release, which is
yet to be published.

Dohrer notes that the devil is in the detail but thinks it is a
real call to action.

“If we truly are looking at a 2014 mandate for the initial
filings to be required, that is only really five or six years out.
With so much infrastructure work and things to be accomplished in
the convergence process we all need to sit up and pay attention to
this and get started here in the US,” he says.

The clock is ticking.