Friday, May 8, 2009

Public Companies Oppose IFRS Roadmap

Below is from a blog at the Controllers’ Leadership Council by Joey Borson

The comment period for the SEC’s proposed IFRS roadmap closed two weeks ago, and Controllers’ Leadership Roundtable analysis shows respondents remain divided on whether IFRS should be adopted in the United States. 44% of comment writers broadly support the Roadmap’s view of IFRS conversion while 38% support convergence between IFRS and US GAAP without formal adoption of IFRS; 18% did not clearly express an opinion on whether IFRS should be adopted in the United States.

Roadmap opinion cleaves along predictable lines. Companies currently applying multiple accounting standards internationally tend to support IFRS, while those only on US GAAP see no real benefit to the transition. As a result, large, global companies generally support IFRS conversion, while smaller, domestically focused companies oppose IFRS adoption in favor of a more gradual convergence between IFRS and US GAAP.

The average revenue of companies that generally support IFRS adoption via the Roadmap is $52.52 billion. The average revenue of companies supporting convergence without IFRS adoption is $18.13 billion.

Overall, more public companies opposed the Roadmap than supported it, 57% to 43%.

The industries most supportive of the Roadmap were: health care companies (67%); energy companies (60%); information technology (56%); and financial companies (56%).

The industries least supportive of the Roadmap were: utilities (none); consumer discretionary companies (17%); consumer staples companies (25%); telecommunication companies (33%) and industrial companies (38%).


Accounting firms and professional organizations (e.g. accounting associations) supported the Roadmap (89% and 86% respectively) while trade groups were less enthusiastic with only 40% supporting.

Proposed Roadmap Changes:

Even those who generally support the Roadmap are critical of some of its provisions.

Set an IFRS ‘Date Certain’: The current Roadmap does not provide a clear IFRS adoption date. Instead, it sets a series of milestones, and commits the SEC to make a final adoption decision sometime in 2011. This is too late for companies who plan to adopt in 2014, as the lead-time for a responsible IFRS adoption requires at least three to four years of planning, and companies are unwilling to spend significant resources on preparation without a firm SEC commitment to IFRS. 56% of all respondents (including those who did not support the Roadmap) called for the SEC to set a clear ‘date certain’ for IFRS adoption in the US.

Reduce Comparative GAAP Requirements: The Roadmap requires US companies to provide three years of comparative US GAAP numbers before switching exclusively to IFRS. This is several years longer than required by European and Canadian companies, and will create significant technology costs. Instead, 32% of respondents call on the SEC to reduce this requirement to only one or two years.

Broaden Early Adoption Criteria: Currently, only very large companies in a limited subset of industries would be permitted to early-adopt IFRS. Other companies would like the opportunity to early-adopt, especially those who have foreign parents or significant overseas operations already using IFRS. 27% of respondents call on the SEC to expand early adoption eligibility.

In addition, 10% of respondents asked the SEC to place a moratorium on future accounting changes for a year or two before IFRS adoption. This would prevent companies from navigating changes to US GAAP while attempting to adopt IFRS. 10% of respondents also called for the SEC to increase safe harbor provisions for forward looking information in financial statements, thus limiting company’s legal liabilities when reporting future managerial assumptions.

IFRS Concerns:
There are a series of frequent complaints about transitioning to IFRS:

Cost Concerns: By all accounts, transitioning to IFRS is costly. Roundtable research indicates that it will be at least as expensive as Sarbanes-Oxley implementation, and other companies fear it may be far more. 39% of respondents are concerned about the high costs of implementation, especially in the economic environment, with most fearing that the potential benefits will not equal the almost certain costs.

Specific IFRS Standards: 38% of respondents dislike existing IFRS standards. They either fear the consequences of existing standards (IFRS does not allow LIFO inventory accounting, which will cause the tax bills of many companies to increase) or because specific topics that are relevant to them are not well developed in IFRS (included Rate Regulated accounting, government contracting, and investment and insurance accounting).

Principles Based Accounting: IFRS is more ‘principles-based’ than US GAAP, with less detailed guidance and specific rules. This concerns 34% of respondents, who fear that it will lead to IFRS being applied differently by different companies, thus hindering financial statement comparability.

Other concerns include the current IASB governance structure (33%); the capability of other regulatory authorities (including the IRS, SEC, and state agencies) to deal with IFRS (19%); training issues (15%); and a view that IFRS was not necessary in the US (8%).


This survey includes 146 comment letters published on the SEC’s website. Only respondents speaking in an official capacity were included.

Check out the amazing Controllers' Leadership Roundtable .



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