Worth Reading…IFRS

by Gary Larkin, for The Conference Board, January 5, 2010.

While many of my posts have focused on corporate governance reform and executive compensation, I thought it made sense in the new year to touch upon an issue all public U.S. companies will have to deal with sooner than later: international financial reporting standards.

A piece in the December edition of CFO magazine (IFRS: Convergence vs. Conversion, December 2009), points out that no matter what the SEC decides on mandating the switch from U.S. GAAP to IFRS, U.S. companies are going to move toward “overarching principles and away from more easily manipulated rules.” Quoting Financial Accounting Standards Board (FASB) Chair Robert Herz, the CFO article goes on to differentiate between convergence and conversion. For the most part, convergence allows some form of U.S. GAAP rules to exist in a hybrid form that is similar to IFRS. However, most of the convergence (FASB-IASB convergence project) is done on a rule by rule basis (i.e. lease accounting, fair value measurement). Conversion is the adoption of principles-based IFRS by companies using rules-based U.S. GAAP.

Since the height of the international financial crisis in late 2008, many U.S. companies (including the Big 4 accounting firms) have stopped exploring efforts to adopt IFRS for the time being. In fact, a survey of CFOs at oil and gas exploration and production companies by BDO Seidman released Tuesday found that 59 percent of respondents are “not thinking about IFRS at all” in 2010 and 33 percent intend not to do anything with IFRS until things become clearer or a changeover from U.S. GAAP is mandated. By the way, 3 percent are actively planning a transition to IFRS…(continue reading)

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