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IFRS Roadmap Milestones: Part 6

July 6, 2009

This post is the sixth in a series of posts about progress on the IFRS Roadmap milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.

IFRS Roadmap Milestones

  • Improving Specific Accounting Standards
  • Improving the Structure and Funding of the IASB
  • Facilitating the use of interactive data (XBRL) under IFRS
  • Updating the Education and licensing of U.S. Accountants
  • Evaluating the early adoption experiences of a limited group of companies
  • Timing of future rulemaking
  • Sequencing of companies required to use IFRS

The first four milestones are conditions precedent to the adoption of IFRS in the United States. The remaining three milestones are definitely influential to the ultimate decision to adopt IFRS but seem to be less prominent. These milestones pertain to the experience of adopting IFRS and how IFRS should be adopted in the United States.

Timing of future rulemaking

The SEC decision on when to migrate to IFRS has been the topic of much speculation. Under former Chairman Cox, the SEC was a strong advocate of moving to IFRS. During his term the mandatory reconciliation to U.S. GAAP for foreign private issuers was eliminated for those who file with the SEC using IFRS as issued by the IASB. In addition, the commissioners voted to issue a draft Roadmap to IFRS (“Roadmap”) for public comment. The Roadmap envisions migrating to IFRS beginning in 2014 with some companies eligible to adopt early for fiscal period ending after December 15, 2009.

The tone at the SEC appears to have changed under the leadership of Chairman Schapiro. Schapiro commented about IFRS during her senate confirmation hearing by mentioning her concerns regarding the roadmap. “I will take a deep breath and look at this entire area again carefully and I will not necessarily feel bound by the existing roadmap that is out for public comment,” Schapiro declared, adding “I will proceed with great caution so we don’t have a race to the bottom,”. During her confirmation hearing Schapiro made her views clear when she said, “the cost to switch from U.S. GAAP to IFRS is going to be extraordinary” and “we have to think carefully about whether imposing those sorts of costs on U.S. industry really makes sense.”

When the SEC issued its draft Roadmap for public comment, they predicated the transition to IFRS upon seven milestones. Based on the progress made on these milestones, one of which considers the timing of future IFRS rulemaking, a decision would be made about when to transition by 2011. The SEC is hoping to analyze the results of early adopter experiences (see last post). A favorable outcome on early adopter experiences would be a harbinger for earlier (“on-time”2014 adoption) adoption of IFRS and unfavorable experiences would point toward a delay in adoption.

There are risks to adopting IFRS and to not adopting IFRS. The risks of adopting IFRS are relatively intuitive such as cost of adoption, adoption error or omission risk, risk of limited or no ROI on adoption, lack of expertise risk and so on. What is less intuitive is the risk of not adopting IFRS. Some of these risks include lack of access to global capital markets, lack of comparability with international competitors, lack of cost reduction through international efficiencies (elimination of multiple GAAPs, multiple accounting policies, multiple accounting applications, and the like).

Most people agree that having a single global accounting and reporting standard would be a very good thing. With about 120 countries using IFRS and one country using U.S. GAAP, it is clear that there is only one way a global accounting standard will be achieved is if the U.S. adopts IFRS. By 2011 we will be the only major nation in the world not using IFRS. It seems clear that U.S. adoption of IFRS is ultimately inevitable.

I am expecting the SEC to issue a revised Roadmap to IFRS later this year. It would not surprise me if the commissioners delayed adoption a couple of years. We will learn what their thinking is about the timing of future rulemaking then.

Will you be ready to adopt IFRS? How will IFRS affect your company?

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