IFRS: yes, no, maybe what US companies need to know.

• Author: Ohlgart, Christiane
• Position: International Financial Reporting Standards

"The world won't wait." That was the message sent by a global investors panel at the U.S. Securities and Exchange Commission's roundtable on International Financial Reporting Standards in July.

The slow pace of decisions from United States regulators and standard setters toward a single set of high-quality global accounting and reporting standards contrasts to the rapid pace in the rest of the world.

In his first speech as incoming chair of the International Accounting Standards Board, Hans Hoogervorst pulled no punches when he directed his comments to U.S. regulators, saying the IASB's accounting standards are the only way to "unleash the full potential of a truly global" capital market.

Today, more than 100 countries use IFRS in some form as the primary reporting standard for listed companies. The IFRS adoption momentum is building with several major and growing industrial countries recently transitioning to IFRS--Brazil for 2010 year end and Canada and Korea for 2011.

In addition, China and India have ongoing projects to converge their local generally accepted accounting standards with IFRS.

The global transition is becoming too strong to ignore. Clearly, the capital markets are the strongest advocates for a consistent set of global accounting, reporting and disclosure standards by which decisions about capital allocation and investments will be made.

As companies of all sizes expand and connect through global operations, the lack of a single global accounting standard imposes the need for dual reporting processes, for instance--supporting both U.S. GAAP and IFRS--and is becoming more common and more expensive.

At least one SEC commissioner, Kathleen Casey, has stated that it would be a mistake for the U.S. to not adopt internationally accepted accounting and reporting standards. She said, "The commission is slated to make a decision on [IFRS] this year and we can no longer kick the can down the road. I believe the choice is clear--the commission must decide to incorporate IFRS for U.S. issuers."

The following discusses several IFRS transition scenarios, the steps that lead to an IFRS transition and adoption and strategies used to complete an IFRS transition while minimizing disruption to operations. This is based on the experience gained by Waldorf, Germany-based SAP A.G. with its own migration to IFRS, which was successfully completed in 2010.

Historical Perspective

For more than a decade, the capital markets have shown significant interest in a single set of robust, globally accepted accounting standards. Many multinational companies, national regulators and readers of financial statements support IFRS because the use of a common set of standards makes it easier to compare the financial results of reporting entities from different countries. For multinational companies with subsidiaries in multiple jurisdictions, it also lowers the cost of preparing those statements.

In December 2010, SEC Chairman Mary L. Schapiro confirmed that the SEC will be in position to make a decision on IFRS for U.S.-registered companies by the end of this year. If the decision is made to incorporate IFRS into U.S. reporting standards, the SEC will allow at least a five-year transition period.

With the appointment of Hoogervorst as its chair, IASB has announced that it will prioritize the completion of the remaining ongoing convergence projects with the Financial Accounting Standards Board, begin developing a post-convergence agenda, work to bring significant countries like the U.S. on board, strengthen the institutional relationships and further its independence.

The notion of a single set of global accounting and reporting standards has been gaining momentum over the last few years. In a survey conducted in late 2007 by the International Federation of Accountants (IFAC), 90 percent of the senior executives...