The time is now to implement global accounting and auditing standards, said International Federation of Accountants (IFAC) President Robert L. Bunting, CPA, in a speech last week at the World Bank in Washington.
In a JofA interview, Bunting, a partner in Seattle-based Moss Adams LLP and a former chairman of the AICPA, further explained what he means by now. The SEC’s proposed road map for the adoption of IFRS is “doable” as are the road maps of Canada, China and Japan, he said.
“The problem in the U.S. is the lack of clear commitment to the road map from the new leadership at the SEC,” said Bunting. “They haven’t come out and said ‘We are committed to the road map; we may move the dates around a little bit, but we know where we’re going.’ So for the United States, the issue is to confirm the destination, not so much the timing, but the destination.”
Market, rather than political, forces will drive the use of global standards in the U.S., according to Bunting. “A significant portion of U.S. companies will be reporting under IFRS no matter what the SEC decides,” he said.
But Bunting cautions that lack of action by the SEC could create a significant burden on U.S. businesses, their stakeholders and the accounting profession. “Unless the SEC commits to a road map, we’re going to be a bilingual country in terms of financial reporting,” he said. “And there’s nothing [the SEC] can do to keep that from happening unless they commit to the same language that the rest of the world will be operating in.”
In his remarks to the World Bank, Bunting also pointed out that small and medium-size entities and micro-entities require special attention. IFRS for private companies (nonpublicly accountable entities) may or may not be adequate today, according to Bunting.
“What’s important is that [IFRS for private companies] represents a commitment that ‘one size fits all’ does not apply in standards and that recognition has to be given to the special needs of smaller enterprises,” he said, further emphasizing that standards should be for accountability and transparency to help the functioning of the markets. “They should not be obstacles to the creation … or the growth of small businesses.”
The U.S. should be more committed to the development of IFRS for private companies, according to Bunting. “I believe that if the Unites States were to commit to this notion and it gains more traction in other markets, that it would become the standard for private entities, not micro enterprises, but private, small-medium enterprises that have a moderately sophisticated reporting need,” he said.
While IFAC—with 158 member bodies in 123 countries and jurisdictions—is known for its work in establishing international standards for auditing, education, ethics, and public sector accounting, Bunting pointed out that the organization has recently changed its strategy in light of the economic crisis so that it can be more involved in driving for quality implementation of standards.
“If you want quality implementation in any country, including the United States, of auditing and ethics standards and even financial reporting standards, there are multiple parties that have to come together in the game plan.” said Bunting. “We’re the only organization in the world that has the kind of structure that makes it possible to set a standard and then obligate multiple participants around the world to use it. That positions us very uniquely to help with the implementation process.”
Bunting identified three key groups that IFAC works with to facilitate the implementation of global standards.
The first group is IFAC’s national member bodies like the AICPA, which Bunting says are critically important because of the training they provide, their support for the standards and the forums they create in order to help the profession deal with the standards and identify problems.
CPA firm networks are also under the IFAC umbrella through an IFAC organization called the Forum of Firms. “Firms have to embrace the standards, and the implementation occurs through the firms,” says Bunting. “The firms that belong to IFAC through the Forum of Firms are committed to implement IFAC auditing standards globally everywhere unless they are required by the country to use another standard. The major global firm networks also have IFAC’s International Standard on Quality Control 1 integrated into their transnational audit manuals and their training. They use IFAC standards for independence globally, and they do that, in part, because it makes sense and, in part, because it’s their commitment as members of the Forum of Firms.”
Finally, national regulators oversee the IFAC standard-setting process through the organization’s Public Interest Oversight Board.
Matthew G. Lamoreaux is a JofA senior editor. His e-mail address is firstname.lastname@example.org.