Too Soon for IFRS Testing?

The AICPA should be applauded for being at the forefront requiring U.S. accountants to understand IFRS by including IFRS on the CPA Examination (“CPA Exam to Undergo an Evolution,” May 2010, page 54). The confluence of global and U.S. events is rapidly moving the world into using “a single set of high-quality global accounting standards,” which professional practicing accountants need to understand. Several of these events include:

• The use of IFRS and IFRS equivalents by approximately 40% of the Global 500 multinationals.
• The April 2009 call by the Group of 20 to urgently work toward a “single set of high-quality global accounting standards.”
• The continued worldwide growth of IFRS usage as indicated by more than 120 governments’ mandating or permitting public companies to use the IASB’s global accounting standards.
• The SEC’s policy of lifting the IFRS-to-U.S. GAAP reconciliation process for SEC registrants listed as foreign private issuers.
• The AICPA’s amendment to Rule 203 of the Professional Code of Conduct recognizing the IASB as the international accounting standard setter.

However, the AICPA should delay testing of IFRS until the SEC makes a decision on the adoption of IFRS for U.S. public corporations. It appears that the United States is no longer on the “fast track” for IFRS adoption as evidenced by: (1) the SEC’s recent “Work Plan,” which delays any decision for U.S. IFRS adoption until 2011, and (2) other events in the business environment. Based on a recent Grant Thornton survey, there is some reluctance among CFOs and accountants regarding adoption of IFRS for U.S. public corporations. Fewer than 25% of the 800 respondents thought that the IASB should be establishing U.S. standards. In addition, IFRS dropped from No. 2 in 2008 to No. 5 in 2009 on the list of top challenges facing executives, according to a recent Financial Executives International survey. Also, there is a nagging concern among many accountants as to whether principles-based accounting will work in the United States. The reserved response by the SEC and the concern evinced by CFOs and accountants at U.S. corporations is resulting in uncertainty among accounting faculty at our universities, making coverage of IFRS inconsistent across the curriculums at U.S. universities. Therefore, at this time, our accounting graduates may not be properly prepared for assessment of IFRS knowledge on the CPA exam.

Once the SEC provides a decision on this issue, this will remove the uncertainty that CFOs of public corporations are facing, and this will provide a clearer direction to accounting faculty on how to integrate IFRS into the accounting curriculum. I believe the accounting profession will be better served by holding off on assessing the IFRS knowledge of accountants until the SEC provides the necessary direction.

Alan Falcon, CPA

Professor of accounting, Loyola

Marymount University

Los Angeles

AICPA’s reply: Mr. Falcon’s thoughtful letter provides a good summary of some of the indicators that demonstrate the increased use of IFRS within the United States and internationally. It is important, however, to note that, as an entry-level licensing examination, the criterion for including or excluding content on the CPA Examination (Examination) is whether the topic is reflective of entry-level practice—the cornerstone of the defensibility of any licensing examination. Whether or not the SEC has taken action or IFRS is being taught in the curriculum are important issues, but they should not determine what content should be on the Examination. When assessing entry-level practice, there are two important questions to be answered: Is the topic part of entry-level practice and, if so, when should it be introduced or removed from the Examination?

The decision to include IFRS was the result of an extensive review of entry-level accounting practice and professional deliberation including an exposure draft of the proposed content outlines. The Board of Examiners (BOE) commissioned a practice analysis in 2007 as part of its responsibility to ensure that the Examination reflects entry-level practice. Initial results indicated that IFRS is part of entry-level practice. Therefore, the BOE convened an advisory group comprised of representatives from the Big Four, major firms, academia, and business and industry. The advisory group confirmed that IFRS is not only part of entry-level practice, but also that it is sufficiently important to be included in the Examination. Based on these results, proposed content outlines were exposed for comment in May 2008. Responses were mixed regarding the inclusion of IFRS, but more respondents were in favor of including IFRS. The final content outlines were issued in December 2008, followed by the announcement to include IFRS in May 2009. Inclusion of IFRS was discussed at the American Accounting Association (AAA) meetings in both 2008 and 2009 and communicated to review course providers in the same time frame. This timing was judged to provide sufficient lead time for candidates, review course providers, and educators to adjust to the change.

While inclusion in the curriculum is not a determinant of whether content should be on the Examination, there is increasing evidence that IFRS is incorporated into the curriculum. For example, a review of the AAA Annual Meeting programs for the past several years indicates that IFRS has become a significant topic. Further, the recent edition of the textbook Intermediate Accounting (Spiceland, Sepe, Tomassini and Nelson, 2008) addresses IFRS including exercises and case studies. Therefore, we believe that IFRS is being taught in many colleges and universities.

We recognize that there is no absolutely correct date for when IFRS should be included on the Examination. In the judgment of the BOE, the practice analysis results and the subsequent deliberations concerning IFRS and entry-level practice justify the inclusion of IFRS on the CPA Examination starting in 2011. We respect the fact that there can be disagreements about the timing and inclusion of IFRS; however, we believe that the process undertaken by the BOE and its decision to include IFRS are sound.

Douglas Warren, CPA

Chair, AICPA Board of Examiners