By Anne Rosivach
Executives from small public companies and auditors representing regional firms participated in the second panel during the Securities and Exchange Commission's (SEC) recent roundtable in Washington that explored the benefits and challenges of adopting International Financial Reporting Standards (IFRS). The small public companies panel generally supported the goal of a single set of high quality global standards but expressed concern about the cost of transition, particularly the cost and availability of consulting resources.
A final roundtable panel addressed issues in the regulatory environment. Under the SEC's workplan, one of the transition options the SEC is considering, U.S. GAAP would continue as the statutory basis for financial reporting, but hurdles would remain.
Some participants in the small company panel saw no benefit to their companies from the adoption of IFRS, either because they were not operating outside of the U.S. or because their investors, lenders, and analysts would be focused on cash flow analysis and other data rather than financial statement information.
SEC Chief Accountant Jim Kroeker, who moderated the three-panel roundtable, asked if a company would be at a disadvantage with competitors if their financial statements were not comparable. Panelists said no, because analysts would be looking at cash flow and other information.
What does this mean?
The small public companies panel isn't opposed to IFRS but is concerned about the cost of transition, particularly the cost and availability of consulting resources. Most panelists indicated a concern about the need to operate for a time under two sets of standards. David Grubb, partner at Plante and Moran, reminded panelists that many things in the tax code default to U.S. GAAP.
Kroeker asked panelists if there were ways to mitigate costs. "In estimating costs, the devil is in the details," Charlie Rowland, CFO of Viropharma stated. "They are hard to estimate. Will I have to change my systems? We really need to have things stop moving. We do not have a lot of money to go before the board and ask for resources while it is still moving." Other panelists countered that there would never be a time when it stopped moving.
David Grubb, partner at Plante and Moran, stressed the "value of reaching out to clients who have been through this." Input from industry groups could also be helpful.
Most panelists viewed the costs of transition in the context of the co-endorsement approach of the SEC workplan, and they were concerned about the need to operate for a time under two sets of standards. There was no agreement about the benefits of a "Big Bang" approach to transition rather than a more gradual approach, but some saw a gradual approach as contributing to the cost, as in "death by increments."
Bill Yeates, partner at Hein & Associates, said that he was worried about the governance and infrastructure problems at the International Accounting Standards Board (IASB) that were discussed during an earlier panel. The IASB will become the global standard setter. The Financial Accounting Standards Board (FASB), which has been the standard setting body for U.S. companies, would have several potential roles depending on the SEC's decisions. Yeates said that the SEC should proceed slowly and wait until some of the IASB's problems had been solved.
Some panelists thought the option to adopt early would lead to lack of comparability. Daniel Beck, controller of Bank of the West, which is reporting under both sets of standards, advocated for companies to adopt early if they could, because companies that are already filing in both can realize some savings.
Leslie Seidman, chairman of the FASB, who was an observer, asked if the panelists saw themselves as participants in the process. "We do not have the resources to make a formal response," Rowland said. "We keep track, and, when we feel strongly, we comment through an organization like Financial Executives International (FEI).
Kroeker asked whether there were multiple arrangements like leases or business combinations that could tie a company to a specific set of accounting standards. Panelists suggested that that would depend on the industry. Grubb said that many things in the tax code default to U.S. GAAP. "This is an area that really needs to be evaluated."
Gaylen Hansen, Partner at EKS&H, and director at large of the National Association of State Boards of Accountancy, who participated in the Regulatory Environment panel, was the only panelist who opposed the adoption of IFRS by U.S. companies of any size at any time. Hansen rejected the premise that IFRS were an improvement over U.S. GAAP. He takes the position that the adoption of IFRS would create problems for professionals in education and training, and state boards, which are responsible for discipline and enforcement, would be investigating issues related to U.S.GAAP.
Kathy Murphy, chief accountant, Office of the Comptroller of the Currency, said that her agency was reviewing their position on the adoption of IFRS and was waiting for further memos from the FASB -- in particular concerning accounting standards for private companies. Regulators representing the insurance industry said they were awaiting a converged standard on insurance contracts.
For some regulators, the issue could be the best fit. Bryan Craig, chief accountant and director of audits, the Federal Energy Regulatory Commission said that his agency as a rate-making agency was dependent on FAS 71 and that this should be a concern for the SEC.