Global standards: shift to new accounting rules is on the horizon.

• Author: Hromadka, Erik
• Position: ACCOUNTING

INDIANA COMPANIES and their financial advisors may be well served to learn a new accounting language. According to Barry Melancon, president and CEO of the American Institute of Certified Public Accountants (AICPA), fluency in International Financial Reporting Standards will be required skill in a few years.

"They are coming to America," Melancon told Indiana accountants during a recent meeting of the Indiana CPA society. He notes that during the last 10 years virtually all other countries have moved toward greater use of the international standards as a common financial language.

International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB), an independent accounting standards body, based in London. They differ from the United States Generally Accepted Accounting Principals (GAAP) that historically have been used for reporting financial information in domestic public and private companies and other organizations.

As head of the accounting profession's largest association, Melancon serves as a member of the AICPAs delegation to the International Federation of Accountants, whose broad objective is the development and enhancement of a coordinated worldwide accountancy profession with harmonized standards.

Melancon says the interconnected financial markets underscore the need for consistent standards and predicts the move to IFRS in the United States will likely be led by the Securities and Exchange Commission (SEC), which began encouraging an international set of standards in 1988. Although the commission is likely to undergo changes under a new presidential administration, it recently called for a roadmap that could lead to IFRS being used in the United States by 2014.

"The world's capital markets have long searched for a single set of high quality accounting standards that can be used anywhere on earth," notes current SEC Chairman Christopher Cox. "The proposed roadmap is cautious and careful. It's a proposed multi-year plan."

Already widely used in Europe, the standards are expected to take hold in Canada and India by 2011 and Japan is also slated to have eliminated major differences between Japanese GAAP and IFRS by that time.

Here in Indiana, use of international accounting standards means businesses can present financial statements on the same basis as their foreign competitors, making comparisons easier. Companies that have subsidiaries in other...