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April 14, 2008

US IFRS experts predict global standards are on their way

IFRS is coming to the US and many stakeholders are unprepared – that is the verdict of several leading US-based IFRS experts.

While the rest of the world has either adopted or is preparing to adopt the international standards, the largest economy is taking cautious steps towards allowing listed companies the choice of using IFRS.

IFRS debate, which permeates the corridors of the US Security and Exchange Commission (SEC) in Washington, is finally spreading throughout a profession that holds strong allegiances to US GAAP.

Bruce Pounder, the president of consultancy Leveraged Logic, admitted the SEC’s sudden announcement in 2007 to allow foreign issuers to file under IFRS without reconciliation requirements and its current consultation on whether US companies should be permitted to use IFRS “caught a lot of folks by surprise”.

“Things have moved very quickly. I believe it is virtually certain the SEC will allow US registrants the choice of using either US GAAP or IFRS as published by the IASB,” he said, adding the decision could be made as early as this year and be effective from 2009.

On the horizon KPMG’s audit department of professional practice partner Paul Munter believes an SEC decision is on the horizon. “What we are hearing is the SEC is working on rule proposals that are likely to be proposed in the next several weeks, but our understanding is that it may permit a choice [of IFRS] at least initially to very large multinational companies. It also will likely propose an updated roadmap and action steps necessary to cascade IFRS reporting out to a boarder number of [public] companies.”

Pounder suggested adoption will be voluntary and interest the largest companies to begin with: “Over a period of years, more and more companies will find it beneficial to make that switch and they will have gotten philosophically comfortable with the idea of making the switch from US GAAP to IFRS.

“For a market as large as the US it will be titanic in scale. Fortunately, with the concept of the option, I think we will see a classic adoption curve where the good news is not everybody is going to rush to switch at the same time and the most eager companies to switch are going to be the ones with the most to gain and the most resources to devote to the task.”

The professional service firms that serve large multinational clients are invariably members of international networks and can draw on the resources of international counterparts who already use IFRS. KPMG US began training staff in IFRS in 2004. Munter estimated that at present the US firm has more than 1,000 audit partners and managers who have had training on IFRS.

Wait and see Outside the Big Four, however, it is a different picture. Crowe Chizek is one of the largest mid-tier firms in the US but most of the firm’s clients are domestic entities. Assurance and financial advisory services executive Hans-Peter Rudolf said he is a little sceptical whether many clients would voluntarily switch to IFRS and most clients will adopt a ‘wait and see’ approach.

Crowe recognises the need for IFRS capacity due to its strategy to push more upmarket and is training staff. Rudolf said inadequate IFRS training could provide a barrier for prospective clients. Pounder too has witnessed a tripling in demand for his IFRS consultancy work in the past six months.

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