For those charged with educating the next generation of accountants, the expected shift from U.S. GAAP to IFRS stirs up a host of potentially thorny issues. Professors and college administrators are dealing with questions about the timing of the curriculum expansion and the resources needed to handle IFRS. They are examining how to reconfigure course work to make room for international standards.
The JofA hosted a virtual round table, gathering eight academics by conference call to discuss how IFRS is affecting accounting education. The conversation took place Sept. 29, about a month after the SEC voted to expose a proposed road map that could require U.S. public companies to use IFRS by 2014. For more on the round-table participants, see "Round-Table Roll Call" sidebar.
The professors who took part in the call said their accounting programs, to varying degrees, have begun integrating IFRS into course work. At the University of Missouri, for example, students in a graduate accounting policy course are expected to be able to incorporate IFRS into work on various cases. At the University of Dayton, fifth-year students have spent time in London meeting with International Accounting Standards Board (IASB) officials as part of an international accounting course.
At The University of Alabama, the faculty has agreed to work to integrate IFRS throughout the curriculum, said Mary Stone, director of Alabama’s School of Accountancy. Every student taking introductory accounting receives a common level of exposure to IFRS. That exposure consists of getting an awareness of IFRS, the IASB, the possible transition from U.S. GAAP to IFRS, and certain key differences between U.S. GAAP and IFRS.
However, a recent survey found that few universities have a strategy in place to incorporate international standards into accounting curricula in 2008–2009. The survey by the American Accounting Association and KPMG LLP, conducted in July and August, showed that just 22% of 535 professors surveyed said they could incorporate IFRS into their courses this year in any significant way. Sixty-two percent said they had not taken any significant steps toward integrating IFRS into course work
Seventy-nine percent of respondents said the key challenge for them is developing curriculum materials, and another 72% said making room for IFRS in the curriculum is an issue. In terms of plans to prepare faculty to teach IFRS, 49% said the burden is on the shoulders of the individual faculty member, the survey found. Only 16% said their schools would provide funding to attend training sessions and/or acquire study materials.
"I think that’s something that’s changing very quickly," said Gary Sundem of the University of Washington. "The administrators are getting pressure from the firms, from the (AICPA), and I would guess, even now, things have changed since that survey."
Wayne Landsman of the University of North Carolina at Chapel Hill said, in the short term, deans are focusing on whether teaching U.S. GAAP as well as IFRS might require more staff or man-hours.
The JofA asked the professors how adding IFRS course work on top of U.S. GAAP will affect the teaching of other topics such as management accounting. Mary Barth, a Stanford University professor and a member of the IASB, argued that IFRS can’t simply be layered on top of the existing curriculum.
"And in some sense there’s no reason to. You know, U.S. GAAP and IFRS are very close in concept," she said. "It would be almost silly to have two separate courses at this point, both starting at the same place and just ending up with slightly different details."
Alabama’s Stone said the key to making all of the pieces fit within existing resources is making sure that students have a strong foundation in finance and economics.
The University of Missouri is considering combining fair value accounting and IFRS in a conceptual-based course "because of the need for students to develop more expertise in how to make good judgments regardless of the topical area," said the university’s Loren Nikolai.
"I suspect that we will have a course in valuation, related to fair value accounting, before all this is over," said Bel Needles of DePaul University. "Forensic accounting is another area that’s becoming important. Ethics/professional responsibility is another area. All of these are important areas, and it’s hard to say, ‘OK, we’re going to cut that one back and do something else here.’ So, I think there’s going to be a period of transition over the next several years in which we’ll see a lot of pressure to increase the amount of courses for accountants."
With the future of who sets standards for private company reporting still a question mark, one lingering issue is how much GAAP should remain in the U.S. accounting curriculum. The SEC’s IFRS road map applies only to public companies. The IASB and, in the U.S., the AICPA and the Private Company Financial Reporting Committee, are among the groups mulling possible courses for private companies.
"Could you not imagine that U.S. GAAP or British GAAP would be a sort of specialty course, an elective course, for students that want to go to work in the private sector or the banking sector, or whatever the most appropriate one is for them?" Landsman asked.
"I don’t know whether that’s going to happen, but that certainly would be a plausible outcome," Barth said.
For now, students’ awareness of IFRS is generally low. "For the most part, this (awareness) is being driven not by students, but more by faculty and, of course, the firms," Landsman said. But roundtable participants expect to see that dynamic change quickly.
"I think when the switch gets flipped, it’s going to be very fast," Barth added. "Once word gets out, there is going to be a tremendous demand from the students. For the students it opens up a lot of opportunity, because they realize that if they know about international standards, they can go anywhere in the world."
With most major firms now weaving IFRS into their internship programs, interns are returning to campus with some familiarity with international standards and some questions for faculty, says Frank Ross of Howard University.
The Uniform CPA Examination is also a major driver in the reworking of accounting curriculum. "The minute you start asking questions about it on the CPA exam, then that becomes the impetus for faculty to teach it and for students to learn it," Barth said.
That date may be sooner than many professors expect, said Donna Street, a University of Dayton professor who is serving on a committee advising the AICPA’s Examinations Team on how and when to incorporate IFRS into the CPA exam. "I think educators need to be very, very aware that the AICPA is already working on how the exam is going to be modified. And when you’re teaching sophomores or juniors and the exam may be changed by the time they’re going to take it, we’ve got to get this into the classroom."
The participants in the round table on IFRS and accounting education:
Mary E. Barth, CPA, Ph.D., MBA, is the Joan E. Horngren professor of accounting and senior associate dean for academic affairs at the Stanford University Graduate School of Business. She has been a member of the IASB since 2001.
Wayne R. Landsman, Ph.D., MBA, is the KPMG professor of accounting and the associate dean of the Ph.D. program at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. He is a former FASAC member.
Belverd “Bel” Needles Jr., CPA, Ph.D., MBA, is Ernst & Young Distinguished Professor of Accounting in the School of Accountancy and Management Information Systems at DePaul University. He is past president of the International Association for Accounting Education and Research and of the Federation of Schools of Accounting. He is vice president–elect, education, for the American Accounting Association.
Loren A. Nikolai, CPA, Ph.D., MBA, is the Ernst & Young Distinguished Professor at the Robert J. Trulaske Sr. College of Business at the University of Missouri. He has written several textbooks including Intermediate Accounting. He is past director of education for the AAA and past president of the Federation of Schools of Accountancy.
Frank K. Ross, CPA, is a visiting professor of accounting at Howard University’s School of Business and is director of the school’s Center for Accounting Education. Ross held several positions at KPMG LLP, where he retired as mid-Atlantic area managing partner.
Mary S. Stone, CPA, Ph.D., is the Hugh Culverhouse Chair and director of the School of Accountancy at The University of Alabama. She is chair of the AICPA’s Pre-Certification Education Executive Committee. She is a past president of the AAA.
Donna L. Street, CPA, Ph.D., is a professor and the Al and Marcie Mahrt Chair in Accounting at the University of Dayton School of Business Administration. She is president of the International Association for Accounting Education and Research and serves on the International Accounting Standards Committee Foundation’s Education Advisory Group.
Gary Sundem, Ph.D., MBA, is professor emeritus of accounting at the University of Washington. He is co-author of such textbooks as Introduction to Financial Accounting and Introduction to Management Accounting.
Conversation during the round table, which was held as Congress was working to pass the $700 billion financial rescue package, inevitably turned to the economic crisis. Missouri’s Nikolai asked whether the tumult would fuel concern about IFRS’s reliance on judgment over rules.
From a practical standpoint, the professors wondered if the economic crisis might slow the U.S. transition to IFRS. "I think that there’s going to be a feeling that we shouldn’t call on (managers) to do anything except run their businesses and try to get out of the holes that they’re in," Stone said. "I guess that the implication for us as educators is to somehow keep the pressure on other professors to continue to work on integrating IFRS, because even though there’s a slowdown, I think with a global economy like we have, it’s inevitable that eventually we will be moving to IFRS."
The round-table participants said they’ve picked up on a fear factor among professors about the sheer magnitude of taking on IFRS in the classroom. Getting up to speed on international standards and adapting course work to incorporate the international rules may be too much for some professors, said Howard University’s Ross. "Some of them may just opt to retire early, creating more of a shortfall. I think the requirement of having to learn principles-based accounting probably will make the shortage a little bit more serious of a crisis," he said.
At the same time, an undercurrent of excitement is running through some lecture halls, where professors may find moving away from teaching rules-based GAAP liberating. "I think that for a lot of educators, the principles-based framework approach to teaching is really more comfortable. And the reliance on underlying economic constructs is more comfortable and more consistent" than some GAAP standards, Stone said. "I think in some ways this is actually going to be easier for professors, especially once they feel like they have materials that they can use."
Ross said that an IFRS-based approach to teaching will encourage students to think on their feet and search for the facts. "I think that will make it more exciting."
Kim Nilsen is the editorial director of the JofA. Her e-mail address is email@example.com.
As college accounting departments work to weave IFRS into an already busy curriculum, a separate but related conversation is going on among AICPA members about an expectation that U.S. GAAP will continue to be relevant for some time. GAAP’s lingering presence makes it likely that entry-level CPAs will need to be “bilingual” or conversant in both sets of accounting standards.
Some CPAs are already using both U.S. GAAP and IFRS, and those who work for certain multinational companies have had to be bilingual with respect to accounting standards for several years. A CPA who works in the U.S. for a company that is owned by a foreign parent typically prepares IFRS-based financial statements for its parent and, in some cases, U.S. GAAP-based financial tatements for use in the United States.
The need to be “bilingual” is not restricted to domestic CPAs. International financial professionals may need to be able to work with U.S. GAAP and IFRS. About 10% of the candidates who take the Uniform CPA Examination come from outside the United States, an indicator of the continuing value of competency in U.S. GAAP.
Even if U.S. GAAP remains the primary basis of accounting for private entities in the United States, it will still be important for U.S. practitioners to be fluent in both U.S. GAAP and IFRS. CPAs who work for or audit private companies that don’t adopt IFRS are likely to find themselves comparing their companies’ financial results to those of competitors who have adopted the international standards. Understanding IFRS will also be important in evaluating investment portfolios that include foreign companies whose financial statements are based on IFRS.
As part of its practice analysis project for updating the content of the CPA exam, the AICPA’s Examinations Team has been evaluating the impact of IFRS on the tasks performed by entry-level CPAs. The “bilingual” climate will require careful planning to balance appropriate proportions of IFRS and U.S. GAAP topics in both the CPA exam and academic curriculum. Those proportions will likely change over time as the profession’s use of IFRS continues to grow.
—by Kim Nilsen
Several factors are likely to influence how and when universities fully incorporate IFRS into the accounting curriculum. The SEC road map and the introduction of IFRS material on the CPA exam are expected to drive the transition.
PricewaterhouseCoopers has weighed in with a driver of its own—a recruiting plan that could fuel interest in IFRS among students and quicken the pace of change on college campuses. PwC, which employs more than 1,500 interns and hires more than 3,000 employees from campuses each year, announced that starting in fall 2009 it will weigh IFRS awareness when evaluating students interviewing for full-time jobs or internships.
The firm will expect sophomores who have taken at least one accounting course to be able to explain the general uses of U.S. GAAP and IFRS and to recognize the importance of IFRS in the future.
For juniors, seniors and graduate students interviewing for internships or full-time positions, the expectations will be higher. PwC also wants those students to be able to articulate the sources of U.S. GAAP and IFRS; describe an example of IFRS financial statements; and identify an example of a difference between U.S. GAAP and IFRS. Those candidates would also be expected to explain the current status and likely timetable for adoption of IFRS.
Jean Wyer, a partner who heads PwC’s college and university relations, says the firm will likely raise the bar on IFRS awareness for fall 2010 recruiting.
Faculty members were the primary target audience for the July release of the new requirements. “We understand faculty need lots of warning,” Wyer said. In the spring, the firm will begin a push to raise awareness of the requirements among students.
At the PwC University for Faculty in early July, the firm rolled out a suite of interactive tools, such as IFRS financial statements, and videos and software. The tools are designed to, among other things, allow students at colleges and universities that do not yet offer instruction on IFRS to fulfill PwC’s new requirement.
—by Kim Nilsen