Warning: U.S. GAAP likely headed for extinction.

• Author: Cangemi, Michael P.
• Position: President's page - Generally Accepted Accounting Principles in the United States.

The term "paradigm shift" is very much overused, sometimes when change is really not that apparent. That said, I do think it is appropriate to use the term in context of the rapidly advancing shift away from U.S. GAAP to international accounting standards.

Early last year, we at FEI identified this trend--and the need to position FEI to understand the developments--as one of our most important goals. It now appears that this train has not only left the station, but is barreling along. In the past five months, we responded to the U.S. Securities and Exchange Commission's (SEC) proposed rule allowing foreign private issuers to file their financial statements in accordance with International Financial Reporting Standards (IFRS) without reconciliation U.S. GAAP. This was approved by the SEC in December. Following that, FEI's Committee on Corporate Reporting (CCR) commented on the SEC concept release potentially allowing a choice by U.S. filers to report in either IFRS or U.S. GAAP.

If you still are not convinced that U.S. GAAP may be headed for extinction, consider that the Financial Accounting Standards Board (FASB) and the SEC have supported the transition to international standards and the convergence projects are progressing rapidly. If you need more evidence, more than 100 countries have switched to IFRS or have given a timeline to do so. In recent discussions with FEI members, Sir David Tweedie, chairman of the International Accounting Standards Board (IASB), commented that the U.S. is not only the last piece of the puzzle, but also one of the most important pieces. I am beginning to think there is a great deal of inevitability to this paradigm shift.

FEI members I have talked to fall into one of two categories. Many companies have a significant number of subsidiaries already reporting in IFRS and would welcome the opportunity to file their consolidated financial statements in IFRS as well. Other companies have no real understanding of IFRS and little or no expertise, with few if any subsidiaries reporting in IFRS. This group needs to understand there is a significant chance that a timeline will be set and that the U.S. will be switching to an entirely new set of accounting standards in three to five years.

This means that all of the GAAP books you own, everything you learned in college and in your entire career will change. Think of a subordinate entering your office and asking you a question about the accounting treatment for a...