Thursday, September 30, 2010

IFRS - Convergence or Adoption? Part 1

WebCPA recently published a survey of responses on IFRS adoption, quoting people of influence in the accounting profession on their thoughts on moving to IFRS.

Below is Part 1 of some of their comments.

Full convergence on rules will take time -- especially as the economic factors continue to shift (like regulating derivatives), but there needs to be general agreement on the guiding principles in the meantime.
-- Mark Albrecht, CEO, XCM Solutions

Many have underestimated the degree to which the "concepts-based" IFRS standards will migrate toward the "rules-based" structure that exists in GAAP today. In fact, the SEC issued comment letters that speak to uncertainties of this transition. We have "rules-based" standards in the U.S. today largely because of our financial reporting environment, and a change to IFRS will not necessarily change that dynamic.
-- Charles Allen, CEO, Crowe Horwath LLP

...the burden and cost of implementation during the current economy is a large hurdle for some companies. In the long term, I believe a single set of global accounting standards will be very positive.
-- Jordan Amin, Chair, National CPA Financial Literacy Commission, AICPA

The concept is good. But there are a couple real-world issues to resolve. The first is that many countries that have already adopted, or are expected to soon adopt, International Financial Reporting Standards have "country modifications" -- if this is prevalent, we do not really have common standards. A second issue is that standards must be relevant and useable -- currently, there is a legitimate question as to whether one set of standards can meet all needs of public companies, private companies, etc. and that must be resolved.
-- Rick Anderson, Chairman and CEO, Moss Adams

There seems to be worldwide consensus surrounding the need for one global set of high-quality accounting standards and that IFRS is currently best positioned to fulfill that need. However, there is much to be gained from U.S. GAAP and, as such, the convergence of U.S. GAAP and IFRS may very well best serve the needs of the global community.
-- C.E. Andrews, President, RSM McGladrey

We have indeed reached the point where global businesses, financial and capital markets are interrelated. Without a single set of standards, we will become like the Biblical Tower of Babel.
-- August Aquila, President and CEO, Aquila Global Advisors

As proposed, (IFRS is) more principle-driven than our rule-driven U.S. GAAP accounting, and thus more open to interpretation. But I think that interpretation and flexibility are necessary. The differences in the cultures and business practices of each nation have to be considered and that requires flexibility. I think that convergence will likely be the best vehicle for migration and eventual international adoption because it will allow the standards to evolve as they are practiced.
-- Andy Armanino, CEO and managing partner, Armanino McKenna

The creation of a single set of high-quality standards will benefit U.S. financial markets and public companies.
-- Erik Asgeirsson, CEO, CPA2Biz

The process is too much and too fast, especially considering the state of our economy, legal system vs. global, and the need to assure the U.S. public of due process and independence in accounting standards promulgation. The process of accounting standards convergence must slow down and acquire the broad support of the U.S. public, financial statement users, preparers, practitioners and regulators.
-- Billy Atkinson, Chairman, NASBA

I think that the political, cultural and governance challenges associated with getting global adoption of a uniform set of high-quality accounting and financial reporting standards accomplished are far more difficult to deal with than the technical accounting issues, and will likely prevent the achievement of that goal. Still the convergence goal should be pursued to the extent feasible, and any remaining differences should be identified so that financial statement users can better consider the impact of such differences.
-- Robert Attmore, Chairman, GASB

Comparability is overrated, and it's not going to happen anyway. This idea would be far superior to the status quo. All financial statements are lagging indicators anyway -- similar to timing your cookies with your smoke alarm. We have to compare any change to GAAP to the status quo, not some perfect Utopia that's never going to exist here on earth.
-- Ron Baker, Founder, VeraSage Institute

...the move to create one set of global standards recognizes that we are operating in a borderless, i.e., seamless, business environment.
-- Sheri Bango, Vice president of practice mobility and state regulatory & legislative affairs, AICPA

A single set of standards is imperative given global markets today, and IFRS is a reasonable path. With the impact of globalization and large developing economies such as China, Brazil and India, effective, meaningful comparisons between entities are absolutely critical.
-- Jon Baron, President - Americas, Workflow & Service Solutions, Thomson Reuters Tax & Accounting

U.S. GAAP was the gold standard for so many countries for so long because it was considered the highest-quality set of accounting standards anywhere. U.S. GAAP may not be flawless, but the words "prepared in accordance with U.S. GAAP" send a message to the financial statement user that the methods under which the financials were prepared have been tested and are trusted. U.S. regulators must demand that "prepared in accordance with IFRS" -- or "U.S. IFRS" if it

comes to that -- guarantees the same level of trust and reliability.

The roadmap as currently proposed does not enhance the comparability of financial information that would be achieved through convergence.
-- Joanne Barry, Executive director, NYSSCPA

While the objective of global accounting standards seems obvious and noble, there exists far too much deep and long-lasting disagreement in many basic accounting theories to make this practical and useful. For instance, "fair value accounting" has serious regulatory and financial consequences to a company and its nation, and its application may have serious unintended economic consequences. However, I am afraid that the genie is out of the bottle and continued enormous effort will still be devoted to its ultimate realization. Nevertheless, adoption of those standards will be difficult.
-- Tony Batman, Chair, CEO and president, 1st Global

Though the transition will be, and is, troublesome and costly, a single set of global accounting standards is necessary, particularly as the world is moving closer and closer to a global economy. This is clearly evident in the current recession we are experiencing in the U.S. because the entire world has been affected. Whether it will be the convergence of accounting standards or adoption of IFRS, one or the other must ultimately happen and if not now, sometime down the road.
-- Parnell Black, CEO, NACVA

While I don't think a single standard is a prerequisite for growth and prosperity, it could facilitate markets and the deployment of capital in ways that would support growth and prosperity. That is, as long as standards are not sought as end in itself -- which it sometimes feels like -- but because they would improve transparency through better disclosure and data availability, investor insight into company performance, and management accountability to markets.
-- David M. Blaszkowsky, Director, Office of Interactive Disclosure, SEC

Globalization is a reality, but a single set of global standards will take significant effort and time because of politics and world economic conditions. IFRS requires leadership, relationships and creativity in order to succeed.
-- L. Gary Boomer, CEO, Boomer Consulting Inc.

I believe that a single set of standards for publicly held companies and companies doing business worldwide is long overdue. For many years now we have been a global economy. Technology has been the single biggest contributing factor to this phenomenon. Technology has allowed companies to reach further to sell products and services than ever before.
-- James C. Bourke, Partner, WithumSmith+Brown

The accounting standard-setting process must be robust, transparent and independent, free from political interference and underpinned by appropriate due process that gives all stakeholders an opportunity to provide input.

It's important that accounting standards are not politicized but focused on providing relevant, timely and transparent information for investors and other users.
-- Beth Brooke, Global vice chair, Ernst & Young

The SEC needs to recognize that IFRS is the quality global standard and that trying to maintain a separate U.S. GAAP will not serve investors or other public stakeholders.
-- Robert Bunting, President, IFAC

The economy is definitely global in nature, and as such, it is imperative to have global accounting standards. One of the primary roles of the accounting profession is to attest to fairly presented financial statements. I believe that once a universally acceptable IFRS evolves, it will be easier for accountants to fulfill this obligation.

At this stage, once the IFRS are adopted, I believe the value generated will exceed the cost of compliance. We will be operating for a consistent framework for evaluating the health and performance of a business.
-- Peyton Burch, Director of partner programs, Deltek

Thus, in brief, the primary reason for moving toward IFRS is competitiveness. I think it will become increasingly difficult for the U.S. capital markets and U.S. organizations to compete in a world in which potentially we're the only country operating under a different set of accounting standards -- and therefore a different financial language. My concern is that if we do not now accelerate our move toward adoption, we will increasingly be less influential in the development of IFRS. There remain myriad unresolved issues related to the standard-setting process, the governance and funding of the standard-setting process, as well as serious and valid concerns about government intervention in IFRS standard-setting.
-- Stephen M. Chipman, CEO, Grant Thornton

Given the continuing evolution toward a world economy, globally recognized accounting standards are becoming more and more essential moving forward. In my opinion, this is an important development and rapid adoption is as important as ever.
-- David M. Cieslak, Principal, Arxis Technology Inc.

The shift to a global economy calls for the development of standards that make financial statements comparable across borders. The organizations involved in the process, such as the SEC, will need to take steps to ensure that companies and accounting professionals are provided with the tools to make the proper adjustments accordingly.
-- Scott Cook, Founder, Intuit

I think the goal of a single set of high-quality, fully vetted, global standards for publicly held companies is appropriate and should be pursued. However, the effort to over sell IFRS under the guise that, "Every country except the U.S. is doing it" is missing the mark and hurting the attainment of an appropriate goal of one set of standards.

The misinformation and outright hype and exaggeration of the acceptance worldwide of IFRS is not helping to convert federal and state regulators. It seems to me that before the "big sell" was made on IFRS in the U.S., much elementary work was and is required: Who is covered? What are the standards and what about the carve-outs? Why is IFRS superior to GAAP? Which entities should use IFRS? How should IFRS be developed, promulgated and monitored (there are grave sovereignty issues related to a foreign standard-setter)?
-- David Costello, President and CEO, NASBA

A single set of standards will be crucial to world commerce as our globe morphs into one overarching super-economy. I believe it's our leadership responsibility as accounting professionals to drive the effort. I'm disappointed the SEC is distracted and not setting a steady pace. The initiative has huge implications on not only the technical side, but the market dynamics of our profession. The initiative will create significant demand for our services, and cause further specialization of our profession.
-- Gale Crosley, President, Crosley+Co.

I think a single set of global accounting standards would be very good because it would bring uniformity to an already-confusing set of standards. Most companies that rely on CPA services cannot discern the differences between U.S. GAAP and global standards. A CPA promoting his or her services can more easily communicate the one set of standards to clients and prospects, especially if the client does business internationally.

I think is also incumbent on everyone who works in the accounting profession to take an active role in helping clients and the public understand the single set of standards, instead of relying on larger entities to solely communicate the information. Of course, the regulatory organizations will have to help the accounting professional understand "what" to communicate, but I think everyone should participate in this discussion.
-- Scott H. Cytron, President, Cytron & Co.

As the activities and interests of investors, lenders and companies have become increasingly global, it is crucial for the continued health of our global capital markets that a globally accepted, high-quality financial reporting framework is developed at both a domestic and international level. This is the only way to achieve fair, liquid and efficient capital markets worldwide by providing investors with information that is comparable, transparent and reliable. Given the unique concerns of the U.S. markets and standard-setters, convergence is the most likely method by which the implementation of a single set of global accounting standards is likely to occur.
-- Bob Dias, Vice president of marketing, CCH

I think that this is an important goal, as it creates a level playing field across continents and markets, which becomes more important as investors and their advisors look at investing and diversification with a more global view. Knowing that financial information is standardized makes it easier for investors to make more informed decisions.
-- Michael Di Girolamo, Managing director, Investment Advisors Division, Raymond James Financial Services

I support the creation of a single set of global accounting standards -- and truly believe IFRS is way overdue. A single set of standards will not only simplify the way companies conduct themselves, but encourage 100 percent adoption of ethical behavior. In addition, any time somewhat-disparate regulatory bodies can come together for a common cause -- even though the rules may be somewhat complicated to follow in the short term -- the public will appreciate the effort because it builds long-term trust and a much stronger economy.
-- Anton Donde, CEO, SpeedTax

A standardized set of global accounting standards is inevitable. I believe that eventually, through convergence, it will happen. It is just a matter of time. The broader concern is the potential variances based on size and type of business involved. With this consideration, I believe that there will be a difference in the development and implementation of global standards.
-- Loretta Doon, CEO, CalCPA,

To achieve the objective of a single set of global accounting standards will likely require an independent and well-funded standard-setting body that, while suitably accountable to the world's capital markets, is insulated from political interference and has an investor focus to its standard-setting activities.

There's no doubt that this is challenging -- both within a global network like KPMG's and more broadly across the profession -- but it's clearly the path we need to pursue to facilitate more efficient allocation of capital resources around the globe.
-- Timothy Flynn, Global chairman, KPMG

…there are many benefits to American investors and the markets. Such benefits include facilitating more efficient capital allocations by both companies and investors, promoting increased transparency of financial information given the principles-based nature of IFRS, reduced costs for companies (especially those operating in multiple jurisdictions), as well as protecting the long-term capital market competitiveness of U.S. capital markets.
-- Cynthia Fornelli, Executive director, Center for Audit Quality

Arriving at a single set of accounting standards is imperative; inconsistency breeds uncertainty, which in turn discourages investment and business activity.

The most obvious approach is to adopt IFRS -- after all, it's just U.S. GAAP against the rest of the world, at the moment. We would then work within the IFRS structure to get change. While IFRS is not perfect, it's better than the current uncertain standoff.
-- Christian Frederiksen, Chairman, The 2020 Group

As capital markets become increasingly global, U.S. investors have a corresponding increase in international investment opportunities. In this environment, I believe U.S. investors would benefit from an enhanced ability to compare financial information of U.S. companies with that of non-U.S. companies. The Securities and Exchange Commission has long expressed its support for a single set of high-quality global accounting standards as an important means of enhancing this comparability. Therefore, International Financial Reporting Standards will potentially provide the best common platform on which companies can report and investors can compare financial information.
-- J. Russell George, Treasury Inspector General for Tax Administration

The idea of a single set of global accounting standards is nice, especially as business today isn't and shouldn't be limited by geographic boundaries. And more principles-based than rules-based is probably good. But standards imposed by regulatory authorities for comparability aren't all that helpful to stakeholders as would be, say, reporting that meets the true needs of these stakeholders: assurance of accuracy and relevance specific to the purpose. With something as complex as accounting, judgments are almost always necessary and exceptions seem to be the rule (captured minimally, at present, in footnotes). An approach that clarifies the judgments applied and assures transparency of the judgment process is, in my humble opinion, the more important objective. Does IFRS accomplish this any better than GAAP does?
-- Michelle Golden, Founder, Golden Practices blog

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