Time for the U.S. to to move to IFRS, says this member.

• Author: Ameen, Phil
• Position: International Financial Reporting Standards

The time has come for the United States to move to International Financial Reporting Standards.

Indeed, it is difficult to imagine a credible argument for two accounting regimes in a world in which capital flows freely and investors seek returns globally. The costs of having two such regimes are consequential. Most important, it is presently impossible to compare with confidence two otherwise similar entities reporting under different regimes.

Investors also incur unnecessary costs when multiple systems are necessary to report information about a single event reported under different regimes. For example, it is currently necessary for a U.S. multinational to keep local statutory books in accordance with IFRS in much of the world and to capture those same results in U.S. GAAP for consolidated reporting.

Rigorous academic comparison of information content between U.S. GAAP and IFRS (notably the work of professors Barth, Landsman and Lang) shows the two are essentially equal for similar entities in similar environments. Even if one system were "better" than the other, that superiority should be short-lived, since in competitive markets, superior information is rewarded with a lower risk premium (that is, higher prices), and the inferior standards would be motivated to catch up quickly.

Quality Conversion By Steps

I emphatically believe that U.S. conversion to IFRS must not be attempted in a massive "big bath," the approach employed by the European Union in 2005. This conversion must be step by step, standard by standard, with the utmost care for transition and effective dates.

Accounting changes in the U.S. have become almost routine, with literally hundreds of such changes in FASB's four-decade history. Every accounting change is costly, requiring the reporting entity, overseen by the board of directors, to evaluate to understand the new requirements; to investigate its affected practices; to select among any alternatives in a new standard; to educate those who will be affected in preparing, auditing and using the affected financial statements; and to implement, a step that always affects the accounting and audit functions and usually affects one or more nonaccounting functions.

Changes to pension accounting, for example, generally are implemented by a very small cadre of specialists, often from outside the enterprise. Changes to revenue recognition usually affect a significant cross-functional group of front-line employees in many countries...