Global accounting firm CEOs on challenges--transitioning from GAAP to IFRS, and more.

• Author: Heffes, Ellen M.
• Position: Financial reporting

CEOs of major accounting firms (alphabetically) respond to this question: What major challenges do you envision within the next 3 to 5 years--for both your clients and your firm--related to financial reporting, auditing and likely moving from U.S. generally accepted accounting principles (U.S. GAAP) to International Financial Reporting Standards (IFRS)? How can these challenges be overcome?

Timothy P. Flynn, Chairman, KPMG International

The question about whether the world is going to operate under global standards is no longer "if," but "when."

U.S. multinational companies must think about converting to IFRS from two perspectives. First, from a regulatory perspective, by ensuring they are prepared to respond to any regulatory mandate to adopt IFRS. Second, from a competitive perspective, with the global IFRS conversion already underway, U.S. companies must consider whether to convert earlier than required to ensure comparability and competitiveness with peer global companies using IFRS. Thus, IFRS adoption, by at least some U.S. companies, appears equally certain.

Conversion from U.S. GAAP to IFRS will be much more than an accounting exercise--it will be a massive undertaking. Accountants will need to be trained to understand the implications of the new reporting standards and how they affect the preparation of their financial statements. Academia will need to adapt its curricula to reflect the move to IFRS. Most importantly, investors must be able to comprehend the new financial reporting product that will result.

Moving to IFRS will impact more than accounting and reporting; it will affect a company's business, systems and processes and people. Companies will need to assess business implications such as contractual terms, risk management practices, treasury operations and even management compensation metrics. Systems and processes related to data collection and financial reporting controls must be evaluated and revised so that IFRS becomes ingrained in companies' processes.

The availability of IFRS-trained professionals will be a critical success factor. Companies will need to train employees in the finance function regarding new accounting policies and procedures, and prepare them to operate in an environment where there will be less detailed application guidance and fewer "bright lines." In many cases, hiring will be necessary to bring in additional employees with the requisite skills and temporary workers and service providers may be needed to help complete the conversion.

Audit firms similarly will be challenged to develop IFRS-related skills to help ensure both compliance and transparency. At KPMG, we have developed a strong cadre of experienced audit, tax and advisory professionals who have assisted our global clients with their conversions to IFRS and have audited their IFRS financial statements. We are leveraging their skills to help educate and support our U.S.-based clients, and to train other professionals within our firm. We're also committed to educating the auditors and CFOs of tomorrow, and recently held a webcast to familiarize business and accounting professors with IFRS and the issues around conversion.

Finally, communications to key stakeholders...