In the 1970S, Sony Corp. introduced the Betamax system, an innovation that allowed the taping of TV shows and the production of home videos. Two years later, the Victor Co. of Japan Ltd. (JVC) introduced a competing product, Video Home System (VHS), so the choice was up to consumers. Over time, VHS proved more popular.
Accounting rulemaking has a similar story. In 1973, the Financial Accounting Standards Board was established to promulgate high-quality accounting standards in the United States. Since then, the profession has used these standards for financial reporting in the U.S. and for subsidiaries of U.S.-based companies.
Meanwhile, following its predecessor, the International Accounting Standards Committee, the international Accounting Standards Board was established (in 2001) to develop high-quality world-wide standards, which resulted in International Financial Reporting Standards. Now, all of the major industrial countries have adopted or scheduled the adoption of full or partial IFRS, with the exception of the U.S.
Can the world support two different sets of accounting standards, or will U.S. generally accepted accounting principles go the way of Betamax? If a company has foreign investors, lenders or subsidiaries, it may already need IFRS. Those business partners have their own reporting needs, which may trigger requests for IFRS statements.
In order to get ahead of conversion issues, here are 10 areas to consider:
* Research. Learn about the similarities, differences and issues. The major accounting firms have published many papers on IFRS and its differences from U.S. GAAP as has FEI.
* Staff. Assign someone on staff to become the "resident" expert. This person should stay current on articles and attend seminars. The CPA exam has added IFRS to the content, so staff members studying for the exam would be another resource.
* Convergence. FASB and ISAB have been working on convergence topics that will move the standards closer together. Review the exposure drafts to understand these proposals.
* Assess. Examine the differences that affect financial statements. The accounting firms have checklists available to guide this endeavor. A rough quantification of the impacts can help identify risks and set priorities.
* Systems. Consider the company's information systems. Knowing the data and process changes that will be necessary for IFRS can help planning future systems projects.
* Contracts. Review loans, contracts and leases. Do...