By Mike Arnoldy
September 7th, 2011
By now, many of you have heard of IFRS. But how many have actually given some thought to the profound impact it could have on your consolidation application? This simple acronym has the potential to require as much if not more time and resources then either SOX or Y2K. An IFRS adoption project could take years—most companies who have adopted it have indicated that it took more time and resources than they anticipated.
Did that get your attention?
Looking at IFRS and its potential impact cannot be covered in a single blog, so this is the beginning of several postings on the topic. We will start by discussing the what, why, and when of IFRS. We’ll follow this with a discussion of the impact on the applications that feed your consolidation application. Then we’ll take a look at what everyone cares about: the impact on the consolidation applications. We’ll end with the critical “what to do to start getting ready.”
What is IFRS? It stands for International Financial Reporting Standards. We live and work in a global economy. The shares of multi-national companies are traded on multiple stock exchanges around the world. And today’s investors invest in companies around the world. Traditionally, each country has had its own accounting standards. Companies prepare their financial statements to comply with these local standards. That is where the problem begins.
How do you compare the financial statements of a company in the US that is using US GAAP with a company in India that is using Indian GAAP with company in Australia that is using Australian GAAP? It is not a question of which standards are more correct, or present a fairer picture of the company, it is just a question of comparability. How do you compare an apple and an orange without being an accountant with knowledge of the differences in every country’s accounting standards? IFRS is focused on addressing this by developing “a single set of high-quality, globally accepted accounting standards.”
Countries around the world are or have been in the process of adopting IFRS for some time now. So what is the US doing?
The various regulatory bodies in the US have been looking at IFRS for years. FASB has been working with IASB (International Accounting Standards Board) to address the differences between US GAAP and IFRS. The SEC has been studying how other countries have adopted IFRS and seeking comments on various approaches. These approaches range from complete adoption of IFRS by a certain date to a phased approach where over a period of five to seven years US GAAP is brought into convergence with IFRS. The timeline for deciding on if, how, and when to adopt IFRS was 2011. Will the decision be made this year?
What I do know is the US will be under tremendous pressure to adopt IFRS. There has been speculation that IFRS could fall apart without US adoption. So it is safe to say that IFRS is probably coming, it’s just a matter of knowing the how and when.