preparing and reporting financial information to the public. But with the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) blazing the way, IFRS could become the new kid in town.

Should We Stay or Should We Go?
IFRS differs from GAAP in that the IFRS allows for more choices, elections and alternatives. IFRS also requires greater exercise of judgment than GAAP. This does not mean, however, that GAAP is outmoded or antiquated. In fact, many practitioners believe that GAAP is king and shouldn’t be altered.

Wayne Kerr presents IFRS information at a webinar earlier this year.

And for companies that don’t have a global presence, there may be little incentive to transition to IFRS.

For those late to the game, there will be consequences, and until IFRS has had time to build history, there will be a limited number of experts qualified to train others, such as statement preparers, investors, investment managers, pension plan trustees, actuaries, attorneys, financial analysts, CPE instructors and developers and sureties.

“IFRS is a principles-based system, as opposed to the U.S. GAAP rules-based system.  Accountants and auditors in the United States are accustomed to having accounting rules spelled out in detail with ‘bright lines’ that often make application of accounting rules a quantitative exercise,” explains Wayne Kerr, senior consultant with Thomson Reuters. “While there is still a lot of room for interpretation and judgment in U.S. GAAP, IFRS usually requires much more judgment because there are fewer bright lines and the rules are more objectives based. “

He says this is a change in the way accountants and auditors approach accounting rules.

“It raises issues about how accountants and auditors work together, how accountants develop and document the rationale for certain positions, how accountants and auditors defend themselves against lawsuits, etc.,” he says. 

On the other hand, there are reasons why a switch could be beneficial. First, a core set of accounting practices across the globe would serve as a basis for cross-border activity. Second, under IFRS, financial statements can be presented on the same basis as foreign competitors, allowing for easier comparisons. Third, companies with subsidiaries in various countries would have one standard from

which to operate, regardless of geographic location.

Adopting IFRS standards has the potential to rev up global competition for U.S. companies, allow for greater efficiencies, and it may help with raising capital abroad. For all U.S. companies, the adoption of IFRS would affect subsidiaries of public companies, foreign companies, potential acquisition targets and any company considering an initial public offering.