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US adopting global accounting standards?

Friday 22 May, 2009

I attended the International Issues Conference sponsored by the Illinois CPA Society.  Lou Longo of Plante Moran kick-started the day by introducing the complexities & means for going global.  Larry Harding of High Street Partners followed up by pointing out the issues in hiring for world-wide operations.

The meat of the day, for me at least, was spent with Marian Powers, an adjunct professor @ Kellogg & partner in the firm Needles & Powers, who discussed at length, IFRS, International Financial Reporting Standards.  IFRS originated years ago when the Brits started putting together a way for developing countries to do accounting.  Now the rest of the world (100 countries now & 150 by 2011) is gravitating toward IFRS, & therefore we probably will too. Foreign filers using IFRS no longer have to reconcile with Generally Accepted Accounting Standards (GAAP) for the SEC.  The advantage is, for firms with global operations, there will be efficiencies & cost savings with world-wide accounting standards.  Benefits should be higher quality standards, more comparability, & better transparency.  Each of these is open to question.  From a US perspective, more issues will be left to judgement, so there will be more interpretation.  There are already differences in cultural impact, i.e. Australians are unhappy about losing their “accounting sovereignty,” some countries are “naturally” more conservative & others more secretive in their accounting, & translation is an issue because IFRS is issued in English only up to this point.  The SEC has proposed a road map for implementation, but according to an AICPA poll, 50% of firms are actively preparing for IFRS, while 45% are waiting until it’s 100% certain they have to make preparations for it.

Differences between GAAP & IFRS include

  • while GAAP measures differences in measurement in revenues & expenses in the income statement, IFRS measures changes in assets & liabilities in fair value
  • business income=changes in assets & liabilities
  • concepts/approaches
  • details
  • industry specific guidance
  • scope
  • converged standards
  • revaluations
  • impairments
  • intangible assets R&D
  • revenue recognition
  • inventory
  • income statement format
  • other comprehensive income
  • consolidation

Some concerns about IFRS are:

  • no LIFO
  • undermines the US regulatory system?
  • convergence plans have been dropped
  • comparability a myth?
  • genesis for litigation?
  • it’s younger/principles vs. old/tested
  • won’t solve US reporting problems
  • >50% of Americans are in stock markets, while it’s far less in the rest of the world

Conversion can’t happen until

  • IASC stabilizes funding & international oversight
  • SEC ensures stability & independence
  • international monitoring group of securities regulators comes together
  • SEC has input into IASC trustees

Challenges will be

  • 2009 deadlines
  • GAAP/IFRS duality for a time
  • training CPA’s, analysts, investors
  • need to revamp the educational system
  • IT changes will require 18-24 months

resources to consult

My take-this is bigger than is being reported & will be a sea-change when it happens.  Companies converting their reporting to IFRS have resulted in changes from 9-530% changes in reported earnings.  Basically it’s US acquiescing to the rest of the world.  My concern is the US has the most transparent disclosure system in the world.  I don’t like that we’re moving to the lower standard of the rest of the world rather than the rest of the world rising to our standards.

David Zydek of KPMG hosted a session on Foreign National & Expatriate Taxation.  Since I lived & worked abroad for a couple of years, I had to deal with these issues, so it was helpful to get an update.

There were other concurrent sessions on world-wide corporate tax strategies, M&A trends, global supply chains, cross-border banking & finance issues, & transfer pricing.

Over lunch, we were schooled in learning “Global savvy,” by Nonnie Owens of At Ease, Inc. I’ll be blunt-these presentations on etiquette irk me.  They are offered in the guise of addressing cultural issues, but few deals have been lost over using the wrong fork @ a meal.  The real cultural issues are much deeper, such as not understanding business values & decision-making, etc.  By promoting these kinds of presentations, we emphasize the wrong issues in international business.  Learn about the history, economy, & language of a country before you do business there.  Be courteous & defer to your hosts & mirror what they do, & in most cases you’ll be fine.

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