Are you ready for international accounting standards?
By Linda Cavanaugh, CPA - A few months ago the SEC issued a proposal for US companies to be able to use International Accounting Standards (IFRS). I participated in writing a comment letter on the issue and the committee felt that US businesses should be able to use IFRS instead of US GAAP.
What are the benefits of using IFRS?
1. As the rest of the financial world turns to IFRS, US companies will be left out in the cold in the capital markets if we hang on to US GAAP. Gone are the days that we can try to make the rest of the world use our standard. To remain competitive, the US capital markets need to be on the same accounting standards as the rest of the world.
2. Currently multinational companies have to keep at least two sets of books: one in US GAAP and the other in IFRS (or the country's own GAAP). Letting US companies report in IFRS will reduce costs by allowing companies to keep just one set of books.
3. One international set of accounting standards will allow accountants to move around the world for better jobs or just a different living environment.
4. A principle based system will allow for more common sense accounting to take place.
What are the drawbacks of using IFRS?
1. Most countries do not use "pure" IFRS. They use IFRS as adapted for the UK (in essence UK IFRS instead of UK GAAP). Also, different countries enforce and interpret the standards in different ways, which makes financial statements less comparable.
2. The IASB is dependent on contributions from companies to finance its operations. (The FASB is funded by mandatory contributions since SOX.) This impairs the IASB's independence in creating standards that are good for the investor, but that business doesn't like.
3. If you have to report to a regulating industry, you will probably still have to keep two sets of books until the regulators catch up and switch to IFRS.
4. US businesses and accountants will have to go back to school to learn IFRS.
5. You will get sued by your shareholders more because they will be second guessing your judgments under the principle based system.
I am all for using IFRS for US companies. I like the idea of a principle based set of standards where you can do what makes sense instead of what the rule says. I enjoy learning new things, so I won't mind learning the IFRS standards. And hopefully they will have conferences to teach my IFRS in a fun place like Las Vegas or Hawaii.
What are your thoughts on IFRS? Are you ready to make the switch? Do you think the US system can make the switch?
Share your voice and let your thoughts be known!!