The Universal Language of Accounting

When Securities and Exchange Commission Chairman Christopher Cox lifted the requirement that foreign companies filing in the United States use generally accepted accounting principles (GAAP), a giant step toward embracing International Financial Reporting Standards (IFRS) was taken.

In fact, some accounting experts say it is now a forgone conclusion that the United States will convert to IFRS. “It is not a matter of if, but when,” says Glenn P. Koennecke, a partner at KPMG.

While Bob Herz, chairman of the Financial Accounting Standards Board, says a time-frame around 2011 is possible, he admits it feels aggressive. “It’s a huge change in mindset that will impact everything from the auditors, to training, to the universities, to the legal system,” he says. One of the biggest changes is that IFRS is based more on broad principles, while GAAP has more detailed interpretive guidance. Herz says FASB is already moving away from issuing heavily detailed rules. “Here there’s been the idea that every question should have an answer. We are trying to get away from that.”

So far, the accounting world has been receptive to the move. “There is an appetite for change,” says Herz. “A common set of standards across major capital markets will be a great thing.”

And, it’s not too soon for audit committees to begin thinking about what the conversion will require. “They want to make sure the company has a process in place to do a reasonable analysis of the impact a move to IFRS might have,” says Paul Munter, a partner at KPMG. Advantages for companies in some industries would make them want to be among the early adopters, he says.