Global Accounting; Q&A with IASB member Mary Barth sheds light on Accounting reg convergence.

• Position: Internationalregs - Interview

for Stanford University professor Mary Barth, being a member of the International Accounting Standards Board means the world is her office. With IASB headquarters in London, and the board's charge spanning the entire globe, her modus operandi is not something most of us are familiar with. However, her job shaping global accounting standards is something all CPAs should be familiar with.

Convergence of the global market is moving forward and now is the time to get educated on what that could mean. In that spirit, California CPA spoke with the well-traveled professor to get a status check of international convergence.

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Q: What are some of the challenges in moving toward convergence?

There are many. A key one is to avoid the natural temptation to adapt, rather than adopt, IFRS. That is, avoid the temptation to make some changes to the standards in particular jurisdictions. Several countries that have moved to IFRS have discovered that it is better to use the exact same standards than it is to make modifications. This is because it is unclear how investors and others interpret the modifications.

For example, Korea has decided that the best course of action is to simply adopt IFRS in its entirety--previous attempts to adapt them and adopt them piecemeal failed because investors did not believe the results were the same as IFRS.

When Australia adopted IFRS in 2005, it eliminated options in IFRS that it thought were less appropriate, believing that this would not interfere with Australian companies' ability to assert compliance with IFRS and would promote consistency within Australia. They have since concluded that this was a mistake, and it is more important to be consistent with the rest of the world and they are in the process of reinstating the eliminated options.

The European Commission "carved out" a few paragraphs of IAS 39, which made the hedging requirements less rigorous. Even though only a few companies availed themselves of the carve-out (European firms are permitted to apply IFRS as issued by the IASB), this is now viewed as an unfortunate mistake. Hopefully, the European Commission will eliminate the carve-out. Having even slightly different standards opens the door to the risk that investors and others perceive them to be less rigorous and, thus, the resulting financial statements to be less credible.

Also, investors are coming to understand IFRS as issued by the IASB. Investors are becoming more and more global. Thus, they may not understand modifications made in particular jurisdictions, which creates information uncertainty and the need for investors to assess an information risk premium. The U.S. needs to resist this temptation, just as do other countries.

Q: What will the change to IFRS mean to those affected?

They will incur one-time...