Sun Setting on the World According to GAAP
from March/April 2008
by Peter Galuszka
Somebody should write IFRS for Dummies. Or dummy directors, maybe. Explaining international financial-reporting standards to board members and top managers would be a surefire bestseller. The story line should detail the convergence of international financial-reporting standards (that’s the IFRS) and generally accepted accounting principles (or GAAP). It’s a subject that is about to become a big part of boardroom discussion.
Launched formally in 2001, IFRS (pronounced “eye for S”) has swiftly become the standard in most countries, including China, South Korea, and the entire European Union. Japan will have a version of it by 2011. The U.S. is about the only country where companies still use GAAP. Foreign outfits that trade on U.S. exchanges and use IFRS at home are required to put out a GAAP version of their numbers. But this year the Securities and Exchange Commission is expected to let those companies choose which of the two accounting standards they want to use.
The SEC is now looking into whether it should apply the same rule to U.S. companies and give them the right to pick either accounting system. If this happens, it will stick directors with lots of new work. Among other things, they’ll need to understand how moving to IFRS might affect their companies’ balance sheets and reported performance.
Some believe that IFRS will become the single world accounting standard by 2014. Jeffrey P. Mahoney, general counsel of the Council of Institutional Investors, recommends that directors get up to speed fast. “The train has already left the station,” he says. Kenneth Daly, CEO of the National Association of Corporate Directors, while advising directors “not to be afraid of IFRS,” adds, “I would educate myself about what the potential changes might be.”
Getting that education is a challenge, as Conrad Hewitt, the SEC’s chief accountant, notes. The University of California at Berkeley will hold an IFRS workshop in March, for $2,900. Look for more institutions to launch such courses. Directors have a lot of studying to do.
