A new survey by Deloitte indicates that U.S. companies' interest in adopting International Financial Reporting Standards (IFRS) is steadily increasing. Thirty percent of CFOs and other senior finance professionals surveyed said they would consider adopting IFRS, if given a choice by the U.S. Securities and Exchange Commission (SEC) within the next three years. Another 28 percent of respondents said they either lacked sufficient information to make a decision about IFRS, or they were simply undecided, leaving room for IFRS use to increase further.
Deloitte asked the same question in a survey six months earlier and 20 percent of respondents said they would consider adopting IFRS if given the choice by the SEC. While there is growing interest in adopting IFRS, the survey results also indicate that companies believe their personnel lack sufficient knowledge of IFRS. Approximately two-thirds of those companies considering IFRS say they currently lack skilled resources in their U.S. operations, while one-third believes they currently lack skilled resources in their non-U.S. operations.
"It's clear to us that a number of companies have an interest in IFRS, and that interest is growing," said D.J. Gannon, a partner with Deloitte & Touche LLP IFRS Solutions Center. "The movement toward IFRS is being driven largely by the markets and we've seen the successful adoption in Europe and Asia. As more companies outside the U.S. report using IFRS, there will likely be increasing pressure on U.S. companies to do the same in order to stay competitive in increasingly global capital markets."
The Deloitte survey also underscores the need for more IFRS-focused preparation and training. Regardless of interest in adopting IFRS, more than 60 percent of companies say they lack an adequate number of personnel in U.S. operations that collectively have a level of IFRS knowledge to address a conversion to IFRS. In November 2007, the SEC also put forth a concept release that identified the lack of experience in preparing IFRS financial statements in the U.S. market as a potential issue.
In looking at the financial statements of the Fortune Global 500 companies, approximately 40 percent currently use IFRS. With the continued movement toward IFRS, companies, auditors, regulators and users are having to adapt to an accounting and financial reporting framework that requires greater use of professional judgment and is less reliant on detailed rules and bright lines, as is found in U.S. Generally Accepted Accounting Principles.
"As analysts and investors continue to accept IFRS as a reporting basis, the conversion to IFRS will impact the accounting industry both at the professional level and at the universities," said Gannon. "It is important that professionals are in place and are equipped with the right education and training to support this industry event." Deloitte recently announced its IFRS University Consortium as a collaborative effort with the academic community to accelerate integration of IFRS into college curriculums.
In weighing the decision to adopt IFRS, companies need to develop an implementation roadmap well in advance of the anticipated adoption date to assure a realistic and viable timeline for a smooth transition. Assessing the effects of implementing IFRS requires looking beyond technical accounting. For example, the movement to IFRS may affect a company's tax structure, treasury and cash management function, internal controls and processes, technology and financial reporting systems, human resources and compensation, and asset valuation. According to the survey, of those companies that would consider adopting IFRS, approximately 35 percent have not yet considered a plan for adoption.
"IFRS goes beyond accounting," said Alfred Popken, a principal in Deloitte & Touche's Global IFRS and Offerings Services group. "It affects many aspects of a company's business. IFRS will have ripple effects throughout the organization including accounting systems, the internal control environment, and training of personnel."
Regarding potential obstacles, the survey asked what companies see as the most significant obstacle to adopting IFRS. Forty percent of companies indicated they would not consider adopting IFRS due to the potential complexity of conversion. "The costs of converting to IFRS will vary for each company. To understand how IFRS will impact the organization, companies will need to assess the costs associated with, among other things, education and training and systems changes, and weigh those costs against the potential benefits of future cost savings and improved access to capital markets," Popken concluded. Deloitte is currently assisting companies to develop cost-effective implementation plans.
A copy of Deloitte's 2008 IFRS Survey, "Where Are We Today," is available on the Deloitte Web site at http://www.deloitte.com/us/ifrs/2008survey. D.J. Gannon and Alfred Popken are available to discuss the survey results and the potential implications for U.S. and non-U.S. based companies. Please contact Daniel Mucisko at 212-492-2870 or [email protected] to schedule an interview.