Lack of SEC decision on IFRS turns CPAs’ focus to convergence projects

As the wait for an SEC decision on IFRS continues indefinitely, CPAs can turn their international standards focus to the convergence projects on leases, revenue recognition and financial instruments, some experts say.

An SEC report released Friday did not contain a recommendation on whether U.S. public companies should be allowed or required to adopt IFRS for their financial reporting.

Although the long-awaited, 127-page report provides a thorough discussion of the issues regarding IFRS in the United States, the timing of an SEC decision on IFRS remains a mystery. SEC spokesman John Nester said the staff will make a recommendation on IFRS, but there is no timetable for that project.

Sean Lager, CPA, the lead partner in Frazier & Deeter LLC’s International Financial Reporting Standards Group, said he does not expect an SEC decision on IFRS for U.S. public companies before the end of the year.

But FASB and the International Accounting Standards Board (IASB) are making progress with the three convergence projects, which are expected to be issued as final standards by the middle of 2013.

The leases standard will require lots of attention because it will put assets and liabilities stemming from leases on the balance sheet and mean changes for lessees and lessors. The wide-reaching revenue recognition project, among other things, eliminates certain industry-specific guidance and requires businesses to disclose more information about revenue. The financial instruments standard will have more limited effects but will be of substantial interest to financial institutions.

CPAs need to consider the changes the converged standards will bring in their strategic planning, said David Schmid, CPA, U.S. IFRS leader for PricewaterhouseCoopers. Vivek Mande, Ph.D., a professor of accounting at Cal State Fullerton, said the leases standard will affect many companies in a significant way.

“It’s going to affect their contracts,” said Mande, who performs IFRS training and does IFRS consulting. “They’ll have to collect information, so their IT systems will have to be changed. So it’s going to have a dramatic effect on their balance sheets. They should be paying very close attention to the lease project.” FASB and the IASB are hosting a live webcast Thursday to address frequently asked questions about the leases project and key decisions made at their June meeting.

Companies may have to make changes to point-of-sale systems and/or billing systems to capture the information needed under the proposed revenue recognition changes.
 
Regarding IFRS, some experts say CPAs should remain alert to the SEC’s timeline. But they say CPAs who don’t have international business can hold off on intense training to understand reporting standards that won’t affect them for the foreseeable future – and might not affect them at all.
“I am reluctant to encourage preparers to invest heavily in training or systems development at this time,” said IFRS expert Barry Epstein, CPA/CFF.

Epstein believes IFRS adoption eventually will occur for U.S. public companies. But he said there probably will be several years’ time to master the details of IFRS, train staff and make systems changes needed once the SEC announces endorsement of IFRS or some other variety of adoption, whether it’s elective or mandatory.

But Eva Jermakowicz, CPA, an international accounting expert who chairs the Accounting and Business Law Department at Tennessee State University, said it’s still important for CPAs to remain vigilant regarding IFRS. She said the change to IFRS seems inevitable and requires advance training that should focus on the standards as well as how to understand and apply them.

Jermakowicz said CPAs should provide IFRS training to preparers, investors, lenders and academics, and said dramatic changes are needed at the university level. She said moving from U.S. GAAP to IFRS will increase the importance of professional judgment based on a thorough analysis of all facts.

“It is important for students to be taught this way,” Jermakowicz said.

CPAs with international responsibilities need considerable IFRS knowledge regardless of the SEC’s timeline. Those most affected include:

• CPAs in public accounting whose clients have international operations. When those clients adopt IFRS or file in jurisdictions where IFRS is used, CPAs need to be ready to serve them. CPAs employed by multinationals also must be fluent in IFRS.
• CPAs who perform tax work for multinational clients.
• Financial executives with multinational public and private companies who work extensively with subsidiaries or partners that use IFRS.
• CPAs with public and private companies involved in mergers, acquisitions or divestitures that involve buyers or sellers from outside the United States. Public accounting CPAs who serve such companies also must be savvy when it comes to IFRS.

But Schmid said PwC is not counseling clients, for instance, to do short-term analyses of how to effectively transition to IFRS. Lager said it can be exhausting and expensive to conduct research on the broad-based effects IFRS can have on a business.

“Given how drawn out any sort of movement to IFRS or to global standards will be, that’s probably not the best focus of companies now,” Schmid said.

CPAs working for U.S. domestic companies don’t necessarily need to learn IFRS, said Mande, who performs IFRS training and does IFRS consulting. But he said IFRS training still can broaden CPAs’ skill sets and marketability in the United States and overseas. “For CPAs, it’s like learning a new language. Having an additional skill always helps. The world is getting more global and knowing IFRS will help.”

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.