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The IFRS Debate Is On!

March 10, 2009

The SEC has issued an IFRS roadmap for public comment (the comment period ends April 20, 2009). Foreign Private Issuers may now file form 20-F with the SEC using IFRS standards (as issued by the IASB) without reconciling to US GAAP. The SEC is seeking up to approximately 110 optional early IFRS adopters beginning as early as fiscal periods ending after December 15, 2009 so that early adoption results may be analyzed as part of the seven IFRS roadmap milestones, the FASB and IASB are working to complete convergence efforts by 2011. Clearly these are early steps to a transition in accounting standards.

The SEC made plans, researched public opinion, announced its roadmap to IFRS and began seeking comments. Now a short time later the economic environment has changed dramatically. IFRS critics are speaking out and some are suggesting that IFRS adoption dates need to be delayed (or eliminated). Prepare for a long debate over the merits of IFRS versus the merits of US GAAP. But don’t doubt that the SEC’s ultimate goal is a single high quality global accounting standard. It is doubtful that US GAAP can become that one high quality global standard since only one country uses US GAAP and almost 115 countries require or allow IFRS. Adding fuel to the IFRS fire are (i) US market pressures to remain competitive as a global capital market, (ii) IFRS standing as a principles based standard (principles based is believed by most to be better than rules based), (iii) the opinion by most large public accounting firms that IFRS is already a high quality standard, (iv) US GAAP and IFRS convergence being pushed through by the FASB and the IASB, and (v) foreign private issuers who already file IFRS financials with the SEC.

It’s clear that the IFRS ship has left the dock. It seems to me highly unlikely that that the ship can be turned around now (even if the SEC says that turning the ship around has to be an available option when they ultimately decide on the fate of IFRS & US GAAP in 2011). Over the next few years you may hear a debate on IFRS, but make no mistake, you should begin analyzing the impact of a conversion to IFRS on your company. IFRS conversion is coming…prepare now for best results.

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