By Rose Marie L. Bukics, CPA, Alaina Masler & Samantha Speer and Dmitri D. Shiry, CPA
International Financial Reporting Standards (IFRS) have made great inroads over the past five to seven years. If an SEC-proposed change to allow IFRS for 10-K filing purposes becomes policy, the accounting lives of CPAs will certainly change, but many others will be affected too.
The SEC has proposed a timetable, open for public comment, that will allow/require listed companies to use IFRS starting in 2014 or earlier. For big and small CPA firms, members in industry, accounting educators, investors, tax professionals, bankers, board members, auditors, and financial analysts, their financial world will change by a magnitude unseen by most who are currently working in the accounting field and related professions. The most significant challenge now is how to get the horse (IFRS-specific knowledge) in front of the cart (financial statement preparation and reporting using IFRS) where it belongs.
The Norwalk agreement, signed in 2002, was the most significant driver in the movement toward one worldwide standard. This agreement established a working agenda between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to facilitate convergence of existing accounting standards and to create a variety of major joint projects. The impetus for the agreement was a desire to align standards and improve transparency of global financial information, thus improving capital market efficiency.
The proposed SEC roadmap for the use of IFRS by U.S. corporations includes several major issues under consideration as well as specific conditions that must be met before the SEC will make a decision. These issues are discussed in detail on the SEC Web site. Not surprisingly, the largest hurdle appears to be the educational piece of the puzzle. The range of groups and individuals who need to be "re-educated" is significant, spanning from those that work for the SEC and PCAOB to financial analysts, CPAs, actuaries, and investors themselves. Much work needs to be done before IFRS becomes a reality for U.S. corporations.
Who Needs Education?
To grasp the magnitude of this issue, consider how many professional lives will be touched by IFRS. The number of professionals who need education in IFRS is significant. Yet, none of these totals include the number in all related fields, such as bankers who need to be well-versed in IFRS to make credit decisions, board members who serve on audit committees that require financial statement competency, tax professionals, and individual investors, just to mention a few.
The logical starting point is to highlight the need to educate those who are currently in the profession, in related fields, or who need knowledge of the specifics of IFRS to fulfill a targeted job responsibility. Second, we need to educate those currently preparing for the field. There are, however, several sub-issues that need to be considered.
For those already in the profession, the preferred mode of education would be to focus on the difference between U.S. GAAP and IFRS since GAAP has been the knowledge source and foundation for their entire professional lives. While the largest CPA firms are training existing staff to various degrees, there is no systematic approach to educating all accountants, auditors, and analysts whose job responsibilities lie outside the public accounting realm.
There are tools available for those who want to begin learning about, and planning for, IFRS implementation now. PICPA’s Web site (www.picpa.org) reports on IFRS under its own Area of Interest header. The section has a plethora of links to articles from a wide range of sources. Such articles cover IFRS from a variety of perspectives, and the site also provides links to other relevant Web sites. AICPA’s IFRS Web site (www.IFRS.com) provides information on the key issues as well as posts training and publications available for those wanting to become more versed in the similarities and differences between IFRS and GAAP. There are also videos posted and an opportunity to sign up for e-mail updates. The site is a good place to begin one’s education if you haven’t been following the development and growth of IFRS. Through its FAQs, IFRS Backgrounder, and Primer for Board Committee Members, a visitor can quickly become conversant with the general aspects of IFRS.
The big-four global CPA firms have recognized a need to help those outside of their immediate firms acquire an IFRS skill set. Thus, each firm has established a Web site to provide information that is helpful in learning about the development and growth of the standards, the similarities and differences between IFRS and GAAP, and short courses one can use to master the specific detailed requirements of individual IFRS.
Deloitte’s Web site, www.iasplus.com, is comprehensive and extensive in its offerings regarding IFRS and related interpretations, known as IFRIC. It offers all of the news details from 2000 forward, IFRS model financial statements, and free e-learning modules on specific IFRS topics.
PricewaterhouseCoopers’ Web site, www.pwc.com/usifrs, offers a broad range of articles designed to educate the business community on the global convergence to IFRS. The Web site offers graphs and timeliness of the switch to IFRS to help with the understanding of the standards, and also provides clear-cut steps that companies should consider before starting a switch. The site offers in-depth information on the changes to tax accounting due to IFRS, which includes how to plan for the change within a company’s tax structure.
Ernst & Young’s Web site, which can be accessed through www.ey.com, offers current news on both the IASB and FASB proposals for IFRS and an archive of webcasts that discuss specific issues. A few distinguishing features of the Ernst & Young IFRS Web site include an extensive amount of information on the implications of IFRS for specific industries and sets of fictitious consolidated financial statements prepared for specific industries. Ernst & Young also publishes an IFRS Outlook each month that offers developments in the IFRS convergence process and advice for dealing with IFRS.
KPMG’s Web site, www.kpmgifrsinstitute.com, offers news, insights, and upcoming events centered on IFRS. The insights page has publications created by KPMG that discuss SEC actions, guidance in implementing IFRS, and briefing documents that describe the new standards. The news section provides SEC news releases, as well as articles that discuss current IFRS information. KPMG has worked directly on IFRS conversions around the world, and it has created a common methodology using the practices developed from these conversions. The firm is working to disseminate this methodology to its professionals across the U.S. Among its efforts, KPMG is developing a Web-based IFRS curriculum that includes modules that simulate working with clients and the implications of IFRS choices, as well as instructor-led and Web-based training that range from basic technical topics to understanding the implications of IFRS and how to articulate those implications to clients within the context of their industry.
The Next Generation of CPAs
Educating the next generation of CPAs will require a different approach, since future professionals, at least in the immediate future, will need to learn both IFRS and U.S. GAAP. Few universities, however, have curricula in place for IFRS. A KPMG-American Accounting Association (AAA) survey conducted in July-August 2008 found that only 22 percent of 535 professors surveyed could incorporate IFRS into their 2008-2009 curricula in any significant way. Sixty-two percent of professors have not taken any action.
If conversion to IFRS is set to occur, why aren’t more educators preparing their students? Three main challenges explain the lag. First, educational materials are not readily available to universities. Seventy-nine percent of respondents said the key challenge to incorporating IFRS is developing curriculum materials. Furthermore, many professors are not well-versed in international standards, according to Donna Street of the University of Dayton in the article",Global Accounting." The second challenge is a lack of understanding and support by university administrations. The KPMG-AAA survey found that 68 percent of professors believe administrators have some or little-to-no understanding of the efforts needed to make the change. Third, textbooks are only now beginning to incorporate IFRS. Dr. Sam A. Hicks, professor at Virginia Tech University, is working with the Deloitte University Consortium on incorporating IFRS into intermediate accounting, and, along with four other VT professors, has written the guide Incorporating International Financial Reporting Standards (IFRS) into Intermediate Accounting. He reports that IFRS is being incorporated into the next textbook revisions, which should be released in the 2009-2010 academic year, but almost half of professors surveyed say texts will not be ready until the 2010-2011 academic year.
There are initiatives to increase IFRS education in accounting programs. The Deloitte IFRS University Consortium consists of 130 schools that are teaching IFRS. Members of the consortium have access to webcasts, educational materials, publications, training sessions, and other resources from Deloitte. Incorporating International Financial Reporting Standards (IFRS) into Intermediate Accounting, the hallmark of the consortium, was created with grant support from the Deloitte Foundation. Information includes an 89-page guide to the differences between U.S. GAAP and IFRS. There are 22 units, each with descriptive information, exercises, and Web sites to find additional information.
Other colleges and universities are showing interest in these materials. Virginia Tech has distributed 200 CDs and has received 419 views on the AAA Commons Web site, where the materials are available. The authors of the guide have been asked to speak at gatherings of educators in seven states over the course of 2009.
Lastly, educators must look at which levels IFRS will be taught and how it will be integrated into the curricula. For undergraduates, Virginia Tech proposes teaching IFRS primarily at the intermediate level, with some issues discussed in advanced accounting. Ninety-three percent of professors surveyed in the KPMG-AAA study reported that they would incorporate IFRS by comparing and contrasting it with GAAP; 33 percent of professors are undecided; and 26 percent of professors said they would teach IFRS alone (professors could select more than one option).
One of the most obvious repercussions of IFRS will be necessary changes to the CPA Exam. There are, however, other related professional certifying exams that will require changes, such as the Certified Management Accounting exam, the Certified Fraud Auditor exam, the Chartered Financial Analyst or Series 7 exams in the financial industry, as well as actuarial exams.
Further, consider the role of FASB. Since it will no longer be the primary standard setter for global accounting, what role might it serve in enhancing and improving the profession, when might this occur, and how will it prepare to transition into another role? Will the role of the SEC change, and if so, how?
One is forced to contemplate whether globalization of auditing standards will be next. The standard setter for auditing in the U.S. is currently under the jurisdiction of the PCAOB, but if U.S. companies begin using international accounting standards, the use of international auditing standards could follow. The framework is already there. As one peruses the International Federation of Accountants (IFAC) Web site, it is interesting to note that the language is often similar to the language of the goals for the development and promulgation of international financial accounting and reporting standards: "As the global organization for the accountancy profession, IFAC is committed to protecting the public interest by developing high-quality international standards, promoting strong ethical values, encouraging quality practice, and supporting the development of all sectors of the profession around the world." One of its four standards-setting boards, the International Auditing and Assurance Standards Board, has a mission of serving the public interest by setting - independently and under its own authority - high-quality standards dealing with auditing, review, other assurance, quality control and related services, as well as facilitating the convergence of national and international standards.
With global capital markets served by global accounting standards for financial reporting, global auditing may not be far behind.
As many around the globe await a decision on U.S. adoption of IFRS by the SEC, the important question to ask is whether the structures currently in place to educate current and future accounting professionals, as well as those in related fields, is sufficient. This is one more pressing issue for the profession in addition to other current issues, not the least of which is the global financial crisis. But preparation for the IFRS ripple effect needs attention, and sooner is definitely better than later given the significance and scope of educating well over a million professionals.
About the authors
Rose Marie L. Bukics, CPA, is the Thomas Roy and Lura Forrest Jones Professor of Economics and Business at Lafayette College in Easton, and is a member of the Pennsylvania CPA Journal Editorial Board.
Alaina Masler and Samantha Speerare independent study students at Lafayette College.
Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.