One advantage U.S. accountants could have over Europe's experience is GAAP itself. It is apparently much easier to transition from a more prescriptive set of standards to one that allows more judgment. "The differences tend to be idiosyncrasies, which makes it easier to switch from GAAP to IFRS than the other way around," says John Ramsay, CFO of Syngenta, a Switzerland-based agribusiness that uses IFRS and was filing GAAP reconciliation reports until this year.

It Never Stood a Chance
Accounting experts wax nostalgic about the days when the concept of converged accounting standards was first introduced. Initially, the expectation was that rulemakers would take the best aspects of GAAP and IFRS to create the highest-quality standards possible — no matter how long it took. "We seem to have lost patience somewhere along the line," says Charles Niemeier, a member of the Public Company Accounting Oversight Board.

The truth is that U.S. GAAP never stood a chance of prevailing as the global standard, according to Herz. "We do have the best reporting system, but the rest of the world will not accept it," he says. "It's too detailed for them."

If the rulemakers have given up on GAAP, then timing is the major issue facing the SEC. Institutional investors and analysts have criticized the commission for what they consider its premature allowance of IFRS for foreign companies, before those standards are fully converged with GAAP. They're wary of letting U.S. companies adopt IFRS within three to five years, as has been projected. In response, SEC chairman Christopher Cox has said that GAAP will stick around for many years.

IFRS is much less voluminous than GAAP, lacking the incrustations that GAAP has acquired through years of interpretation. Accounting experts will simultaneously praise the international rules for their brevity and deride them for giving companies too much leeway. That discrepancy could undercut the comparability that regulators tout as a benefit of IFRS. Under the footnote-lite international rules, "you don't really know what the differences [between companies] are," says H. David Sherman, an accounting professor at Northeastern University and a former SEC academic fellow.

Indeed, opinions are split over whether convergence has progressed to the point that both standards are interchangeable today. Says Grant Thornton's Illiano, "If you think that the accounting standards in the U.S. and the accounting standards in IFRS are going to match up word for word, they're never going to get there."

Sarah Johnson is a senior writer at CFO.

Not If, But When

2001: The International Accounting Standards Board (IASB) is established to work on international financial reporting standards (IFRS).

2002: U.S. and international standard-setters issue the Norwalk Agreement to make their current rules compatible.

2002: The European Union (EU) announces its member states must use IFRS for their 2005 financial statements.

2005: SEC chief accountant Donald Nicolaisen releases a road map for allowing IFRS filings without GAAP reconciliation for foreign firms by 2009 (or earlier).

2006: The IASB and FASB agree to work on all major projects jointly.

2007: In April, President Bush announces IFRS will be recognized in the United States within two years as part of an agreement with the EU. In November, the SEC makes that prediction a reality.

2008: The SEC will vote on a proposal mapping out a timeline for moving U.S. companies to IFRS.

2009: The IASB will end its moratorium for when companies need to adopt its new accounting standards. The board had frozen its rules while more countries adopted IFRS.

2011: The earliest that accounting firms and U.S. multinationals estimate large U.S. companies could begin to use IFRS rather than GAAP. Canadian, Indian, and Japanese companies are slated to begin using the global standards.

2013: The earliest projection by accounting firms for mandating that U.S. companies convert their financials to IFRS, with 2015 being the first year smaller companies could follow suit.

Switching Systems

Accounting experts say companies should start thinking now about whether to use international financial reporting standards (IFRS) instead of U.S. GAAP, so they could act quickly if given the option. Their advice:

• Gather a team to analyze the issues involved. Large multinationals are using their controllers as their point person and turning to their IT, investor relations, and treasury departments for input.

• Look over the International Accounting Standards Board's agenda (on www.iasb.org). Decide which of its critical projects need to be finished before you would begin taking on a new accounting language, suggests Mary Tokar, head of the IFRS group for KPMG International.

• Compare IFRS and GAAP. How will your balance sheet, financial-reporting process, and disclosures be affected? Tokar recommends you identify your 10 biggest issues, rate each of them by its impact, and divvy them up to project teams that can forecast how much work each would take.

• Expect more disclosures, especially during the transition. To make up for the move from a more rules-based system to one that allows more judgment, companies will need to make up the differences with footnotes.

• Take a new look at contracts and debt covenants that require the use of GAAP and may need to be renegotiated.

• Evaluate your people. Who would need to be trained, and how long would it take?

• Look over your shoulder. What are your competitors doing?

• Don't forget investors. The investor-relations groups at EU companies spent late nights scrambling to get stakeholders up to speed, Tokar says. When that first round of IFRS financials comes out, you want to "focus on the operations of the company and not have an accounting training session," she adds. — S.J.

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