International Accounting Standards Board Chairman Sir David Tweedie

(This is an expanded version of the interview that appeared in the September issue of CFO.) Make no mistake: the International Accounting Standards Board is poised to become the world's accounting-standards setter. When its chairman, Sir David Tweedie, spoke with CFO in late July, rumors were swirling that the Securities and Exchange Commission was about to release a timetable for U.S. companies to adopt international financial reporting standards (IFRS). That would put an end to the accounting principles used in this country since the end of the Great Depression (and set, in their modern form, since 1975 by the Financial Accounting Standards Board). Instead, companies from every developed economy in the world would report their financial results according to standards set by a multinational IASB based in London. To assuage fears that such an organization could become a supranational lawmaker answerable to no one, IASB's parent organization has begun to create its own overseer, a global monitoring group made up of regulators around the world, including the SEC. Meanwhile, Tweedie and his U.S. counterpart are rushing to replace some of America's most critical accounting standards, accelerating what was once called "convergence" but which now looks a lot more like conversion.

Some 112 countries now use IFRS, with Korea, India, Japan, Canada, and Brazil set to start by 2011 or sooner. That's quite a success for a seven-year-old organization.
It really has spread very rapidly. Far more quickly than we were expecting, to be honest. There is one major economy still standing out, and that is the United States. Of course, for six years now we have been working with FASB to bring our standards closer together. The United States — that is, the SEC and FASB — actually wrote our objective, before we were even formed, to create one single set of high-quality standards. Both organizations have really pressed to get there, so I think it will happen.

Meaning that the United States will switch?
Clearly it would be a massive cost savings for multinational companies, so that pressure is there in the United States. Also, if your competitors are being judged under IFRS, people start to wonder about the differences between your reporting and theirs. The markets would like everyone to be the same.

Do you have any idea if, as rumored, the SEC will choose 2013 as the date for U.S. adoption?
I literally don't know. I wouldn't be able to tell you if I did, but I don't.

It almost seems as though companies in America don't think this is really going to happen. Do you get any sense that U.S. companies are engaged in IFRS?
It's quite interesting. We have been quite well observed by Europe and others, and we find the letters are coming in even as we are debating. That tends not to happen, FASB tells us, in the United States. Once FASB starts issuing draft standards, the letters start to come.

But I suspect that will change in the United States. And that's not a bad thing, because if we've got a big flaw in a proposal, the sooner we hear about it the better. Once the SEC says something [about a date for U.S. adoption of IFRS], then I suspect attention from the United States will focus very much more on us.

What should U.S. CFOs know about IFRS?
During the next three years, FASB and the IASB will make some major changes to financial reporting. So CFOs really want to get engaged, especially in the next 12 months, because that's when the discussion papers and early exposure drafts will come out. And we want the right answer; we don't want to do something stupid. So please, please tell us what you think of what we're doing. Even if the date for the U.S. is not crystal clear, my view is that before too long, the U.S. will make the decision to go to IFRS. So don't take a chance. Don't have these standards hit you and then say, "Oh my goodness, we should have said what we think." Now's the time.

A July New York Times article said some critics worry that IFRS would "put American investors at the mercy of overseas regulators who enforce weaker rules and may treat investment losses as a low priority." How do you respond?
It is absolute nonsense. The SEC is going to look at the accounts that are coming in. Countries around the world aren't just going to throw away their own accounting standards if they think we are bringing out standards that aren't very good. We have been looking at disclosures on IFRS and U.S. GAAP, and, actually, you get far more disclosure under IFRS.

Will U.S. adoption be followed by a moratorium on new accounting standards, like the four-year moratorium put in place after the European Union adopted IFRS in 2005?
We really want to try to do that if we can. We had quite a problem in 2001, because Europe didn't consult us about switching over. It just picked 2005, which forced us to do a sort of cut-and-paste [on many standards]. We didn't finish that until March 2004. That gave Europe only nine months before it started. The United States won't have to go through that. But we do believe, with people putting in all the new systems [required by a change to IFRS], the last thing they want is another series of changes.

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