by G. Anthony Lopez
The Securities and Exchange Commission earlier this year reiterated its support for a single set of high-quality global financial reporting standards. Currently, more than 110 countries use or allow International Financial Reporting Standards (IFRS), or a national variant based on IFRS for at least some portion of their financial reporting.
While moving to IFRS may sound like just an exercise for the accounting department, it’s much more than that. If the SEC decides to allow or require U.S. issuers to use IFRS, the shift for Virginia-based public companies would require thorough planning and effective project management and will involve many different departments, from accounting to IT to legal to tax.
But first, a bit about the process. The SEC is expected to make a decision sometime late next year on whether to allow or require some U.S. companies to leave U.S. Generally Accepted Accounting Principles (GAAP), currently the required financial reporting standard, and switch to IFRS. If the SEC decides to move ahead with a conversion to IFRS, companies likely wouldn’t be required to use it before the reporting years 2015 or 2016.
Interestingly, a poll of executive-level webcast participants conducted by KPMG’s IFRS Institute indicates that if the SEC decides in favor of IFRS, almost half of the respondents would like the option to adopt IFRS before 2015 or 2016. Most respondents (59 percent) also indicated that potential implementation in 2015 or 2016 would give them enough time to prepare, but a large percentage said they would like more clarity about the SEC’s plans.
The SEC staff will provide periodic updates on the progress of its work plan beginning this fall, which the SEC believes will address clarity concerns.
But for area executives wondering what to do now, here are some steps:
• Follow the progress of joint projects involving the international standard-setter (IASB) and the U.S. equivalent (FASB). The SEC has indicated that completing these projects successfully will be a key part of its consideration of whether to permit or require the use of IFRS. Incidentally, these joint projects are likely to significantly affect U.S. GAAP regardless of how the SEC rules on IFRS.
• Monitor the periodic SEC staff updates to the work plan, which will be available beginning no later this October.
• Consider the implications of IFRS on the statutory reporting of your foreign subsidiaries. Many U.S. companies with a global footprint may find that an increasing number of their foreign subsidiaries are required or permitted to use IFRS or national standards substantially equivalent to IFRS for their local statutory reporting.
• Consider the impact IFRS could have on your financial statements as a consequence of significant transactions you may be contemplating, especially those with longer-term ramifications (e.g., long-term leases, debt agreements, supply contracts, compensation arrangements).
• Consider how the application of IFRS could affect your company’s reported performance relative to its peers.
If the SEC allows the change, a little preparation can go a long way toward making sure an IFRS conversion goes a smoothly as possible,
G. Anthony Lopez is a partner in Accounting Advisory Services with KPMG LLP in McLean.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.
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