Ramping up awareness of convergence process.

• Author: Abel, James J.
• Position: President's page

The convergence of International Financial Reporting Standards with U.S. generally accepted accounting principles is rapidly progressing toward becoming a reality. The big question now is the timeline for implementation, rather than a debate over "whether" it will occur.

Confidence in the financial reporting system is a bedrock issue, demanding that it be fair, transparent and trustworthy. While investor confidence in the United States financial reporting system has improved in recent years, there is still a compelling argument that we need to do better as complexities of a global economy emerge and the benefits of having everyone following the same set of financial reporting rules seem to be numerous and obvious.

In the 23 years that I've been a chief financial officer of both public and private companies, IFRS is shaping up to be the most significant change that the business community in the U.S.--and not just the financial community--has encountered. Most of the developed countries around the world have been using many of the IFRS rules for many years. It's comparable to the U.S. beginning to see the dawn breaking, while it's midday in the rest of the world.

Unlike Sarbanes-Oxley Section 404, which was primarily focused on internal control process documentation for U.S. public companies, IFRS will essentially create a level playing field for all companies competing in the global economy--both public and private. In particular, reporting under IFRS should help develop a broader understanding of financial statement comparability. This should be especially useful to companies evaluating acquisition candidates internationally as well as in accessing capital markets. For large public companies with significant operations outside the U.S., this convergence should present significant opportunities for cost reductions and efficiencies in the financial closing process; easier and more consistent evaluations of vendor financial performance; and more comparable analyses of competitors' results.

There are numerous reporting areas that will have to change, and which will likely be extremely difficult to deal with. For instance, the revenue recognition changes promise to be very provocative, as well as tax accounting issues, with LIFO inventory valuation likely an endangered species. Many of these areas are being diligently considered by the Financial Accounting Standards Board and other regulators as they confer with the International Accounting...