FASB Forum Outlines IFRS Challenges in U.S.

FASB Forum Outlines IFRS Challenges in U.S.

By Colleen Lutolf, Trusted Professional Staff

NEW YORK—America’s financial regulators seemed to have already sealed the fate of hundreds of thousands of CPAs practicing in the U.S. by promising them that the United States will forego the use of U.S. generally accepted accounting principles (GAAP) in favor of a single, global set of standards, sometime within the next few years.

But what many U.S. companies may not understand, said several financial regulators and professional association representatives at a Financial Accounting Standards Board (FASB) forum at Baruch College in Manhattan on June 16, is that accountants aren’t the only ones who will be affected by the move toward International Financial Reporting Standards (IFRS).

“American businesses need to develop a global mindset,” said Michael Cangemi, former CEO and president of Financial Executives International (FEI), a professional association for financial executives. “By and large they don’t have one.”

Cangemi said companies have to see the transition as a “change in the management process and not simply a change in the books. You can’t just turn on IFRS rules and turn off GAAP.”

There is a need for business leaders to increase their awareness of where accounting standards are headed, he said.

In an effort to make business leaders more aware of looming transition and subsequent implementation issues related to systems requirements, training, standards setting and reporting, FEI formed the Corporate Roundtable on International Financial Reporting (CRIFR), a national coalition of large and small corporations, Cangemi said. Charter members include FEI, Eli Lilly, Honeywell and McGraw-Hill.

But the forum wasn’t limited solely to public companies and how they will implement IFRS. The purpose of the FASB forum was to open a dialogue with all relevant stakeholders on whether and how to move toward a single set of global accounting standards.

During the forum, which featured representatives from the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the IRS, the International Accounting Standards Board, the AICPA, the National Association of State Boards of Accountancy (NASBA), and others, “whether” was less of a question than “when.”

Barry Melancon, CEO and president of the AICPA, said the financial community had to be “careful not to go over the top” when saying the community has a problem with awareness.

He cited statistics from a recent AICPA survey that he said showed 42 percent of respondents reporting they’ve “heard a great deal” about IFRS.

Respondents represented all types of firms, from the Big Four to sole practitioners. A total of 1,240 people responded to the survey, taken this spring over a 19-day period.

The study, Survey Results & Analysis for IFRS Survey, showed that 48 percent replied that they’d heard “a little bit” about IFRS, and 10 percent, nothing at all.

Yet 45 percent of respondents thought IFRS would either not impact their firm directly (31.7 percent) or did not know if it would impact their firm (13.3 percent).

“Our overwhelming feedback is ‘get it done, get a date certain and put it out there,’” Melancon said.

That sentiment was echoed throughout the daylong conference, even by those constituents who had reservations about moving toward IFRS implementation too quickly, such as representatives of smaller firms, educators and the nonprofit sector and private companies.

“Until we have a date, I don’t think a lot is going to happen,” said Steven Rafferty, from the AICPA’s Center for Audit Quality, who was representing smaller firms. “With almost no demand today, you can’t train anybody because they won’t remember it when they need it.”

He added that concentration is also an issue for smaller firms. “If you move too fast, you’ll drive out [smaller] firms.”

Education

Also at issue is education.

NASBA is responsible for licensing the country’s 600,000 CPAs, said Linda Biek, a NASBA director for governmental, international and professional relationships.

She said educators are eager to teach IFRS, but they’re waiting for NASBA to make the standards an exam requirement. Some see this as a problem, Biek said, because NASBA develops practice analysis with practitioners, but since the practitioners aren’t utilizing it, there’s a dearth of development on the exam.

Sue Haka, an accounting professor at Michigan State University, painted a more dire picture of IFRS education in American colleges and universities.

She reviewed what she sees as four challenges for IFRS American education: faculty, curriculum materials, regulation issues and general admission issues.

She pointed to what she called a “frightening” and “very scary” statistic?that accounting faculty at colleges and universities has declined 13 percent in the past 10 years. That is compounded by a “huge increase in the number of students” majoring in accounting. And this isn’t a general trend, Haka said. Other business schools report a 20 percent increase in faculty in areas outside of accounting.

“[IFRS] is a huge addition to our curriculum and we may not have the faculty to do it,” she said. “Fifty-six is the average age of faculty and that is very scary. We have to put a whole new system in place. … These issues are out there and it is a little frightening.

“Is the academic community ready? The answer is no,” she said.

Aside from the faculty issue, it takes two to three years to get new textbooks written and approved. And textbook publishers aren’t going to provide the information in the textbooks until it is required, Haka said. “This is not going to happen until we get a drop-dead date.”

Haka also spoke about the CPA exam issues.

“I’m not happy that the exam drives curriculum, but it is a true fact that if the exam doesn’t get on board, it will be more difficult moving forward,” she said.

When forum moderator and FASB member Leslie Seidman asked participants when they thought that the drop-dead date should be, most said five years. Some respondents looked toward a three- to five-year deadline, and others longer: five to seven years.

George I. Victor, former chair of the Society’s Accounting and Auditing Oversight Committee, attended the forum. He believed five years was a reasonable amount of time.

“They need to make a decision now and let people know,” he said. “I say set a date. It’s like ripping off a Band-Aid. It’s something you have to do. We have to move towards it because it is inevitable.”

However, Victor thought implementing IFRS is a different matter.

“It’s going to be a sight to be seen,” he said.

Ed. Note: This story is part one in a two-part series on FASB’s forum, High-Quality Global Accounting Standards: Issues and Implications for U.S. Financial Reporting. See part two, which will cover IFRS and tax law implications, in the July 15 issue of The Trusted Professional.

Colleen Lutolf, Editor, can be reached at clutolf@nysscpa.org.