It's not as hard as you think: International Financial Reporting Standards & Convergence.

• Author: Griffith, Peter H.

When I talk to my clients about International Financial Reporting Standards, I'm reminded of a story by naturalist Milton Olsen. Olsen says migrating geese fly in a "V" formation because, as each bird flaps its wings, it creates uplift for the bird immediately following. Working together provides the flock a much greater flying range than each bird would have on its own.

The recent upheavals in the global financial markets emphasize our connectivity and our need to work together to successfully navigate the storm. Like geese, people who share a common direction can get where they are going more efficiently traveling on the thrust of one another.

There's no question that IFRS is the "V" formation that will help us achieve a single, global financial reporting language. And there's little doubt that a single set of globally accepted accounting standards will benefit the global capital markets by simplifying comparisons among investment opportunities, and will benefit companies by eliminating duplicative and costly reporting requirements.

With IFRS as a unifying force, we'll travel in a common direction, with benefits for developed economies, emerging markets and the poorest countries. This, in turn, could promote investment, strengthen the economy and improve people's lives worldwide.

[ILLUSTRATION OMITTED]

And like the geese, it's easier when we're traveling together.

IFRS Adoption: When, Not If

In August, the SEC approved for public comment its long awaited proposed Roadmap related to the eventual use of IFRS by U.S. companies. The proposal foresees mandatory reporting under IFRS beginning in 2014, 2015 or 2016, depending on the size of the issuer. It also provides for early adoption in 2009 by a small number of very large companies that meet certain criteria. And it's possible that the SEC will decide to permit other companies to adopt prior to the mandatory date of conversion.

The Roadmap also identifies several milestones that the SEC will consider in making its decision in 2011 about whether to proceed with mandatory IFRS adoption. If that seems like a long way off, remember that most companies will need to start preparing financial statements under IFRS three years prior to implementation, which means starting in 2011.

Conversion is Not as Hard as You Think

Companies that have converted to IFRS report that adoption is not an accounting exercise--it's a fundamental shift in how they operate that affects virtually every function within an organization. Yet, I always stress that it's not as hard as you think. In fact, through the IFRS conversion experience, you can provide your clients an important opportunity to review, streamline and improve all aspects of accounting, reporting and related compliance and information technology processes.

An effective IFRS conversion process begins with an accounting diagnostic: a high-level analysis of a company's individual systems that assesses the effect conversion may have on all aspects of the business. Among the areas that will require review are:

Management reporting systems: Management reporting is a complex action that involves other business processes and makes use of a variety of information systems--from general documentation and financial control to internal communications. Changes in the processing and summarization of data in accordance with IFRS must be fully embedded in back offices and general ledger systems. This can require fundamental system changes that can reverberate across the company.

Financial accounting and reporting: For some companies, challenges can surface that are related to the previous accounting for transactions under local GAAP. Unexpected differences can arise during the conversion from local GAAP to IFRS due to complex technical issues. Management must understand accounting policies to effectively assess and estimate the impact that applying IFRS will have on the business.

Tax planning: Companies will need to review their tax planning strategies to determine whether they are in alignment with any organizational changes created by the IFRS conversion. As companies begin to assess the potential implications of adopting each IFRS standard, the related tax-reporting and compliance implications should be identified. Each financial statement change as a result of IFRS conversion will most likely have some tax impact.

Companies will need to consider the potential impact on current and future tax positions, as well as how those impacts change the balance sheet and accounting income. Also, the company's information systems that support the direct and indirect tax requirements may require...