How executives perceive convergence.

• Author: Kaiser, Jim

The anticipated convergence in financial reporting standards will have a substantial impact on companies' reporting and accounting systems. Are they prepared? Financial executives can minimize disruption by starting now to raise organizational awareness and evaluate exactly how convergence will affect them.

The Financial Accounting Standards Board and International Accounting Standards Board are pursuing a dozen joint projects with the goal of converging within a couple of years and improving U.S. generally accepted accounting principles and International Financial Reporting Standards.

Three of the projects--leasing, revenue recognition and financial instruments will have the biggest impact on businesses regardless of industry or size, according to a new survey of 1,400 finance and other executives conducted by PwC. Respondents said the changes to leasing will have the greatest impact of the three, and will also take the longest amount of time to implement.

Accounting and reporting systems, for example, will likely need substantial updates to accommodate convergence-driven change. With leasing, where the new rules are expected to affect an estimated $1.2 trillion in gross lease obligations., more than 60 percent of respondents currently track their leases manually with spreadsheets. This is likely to prove insufficient under the new standard, given that all leases will need to be recorded on the balance sheet.

When asked about the pace of standard setting, 43 percent of respondents said it is too fast and 28 percent said it is just right. Surprisingly, 15 percent think the pace is too slow. These responses may stem from recent changes reducing complexity that FASB appears ready to approve.

Companies may also expect that the boards will allow ample time for implementation. Only 10 percent of respondents said they have deployed resources and begun to actively plan for implementation of the convergence standards. This is not cause for grave concern, as final standards are still a ways off. But companies should monitor the discussion around these standards, and should start to assess, at least at a high level, how the proposed changes will impact their company, and then form a point of view on the level of impact.

The survey showed how companies anticipate each of the "big three" projects will cause substantial changes:

Leasing

* Almost half of respondents have already performed an inventory of their lease portfolio in advance of adoption of...