CFOs on IFRS: Forget about It

When the U.S. economy went into a tailspin last September after big financial institutions faltered and the credit markets seized up, many a project was put on the back burner. One was the Securities and Exchange Commission's proposal to move all publicly traded U.S. companies to international financial reporting standards by 2016.

The so-called roadmap — outlining the various deadlines for getting to the point where companies would no longer use U.S. generally accepted accounting principles — was first introduced by then–SEC chairman Christopher Cox last August before Lehman Brothers collapsed. But it wasn't formally released for public view until November.

Now, nearly eight months after Cox declared IFRS could become a "uniter of the world's capital markets and investors everywhere" and its adoption necessary to keep U.S. businesses competitive globally, CFOs are pressing his successor, Mary Schapiro, to table the IFRS project, focus on the financial crisis, and keep the convergence work between the United States and global standards-setters. "I don't get the impression that the new Administration has made IFRS a priority in the same way the last Administration did," concludes William Stocker, an audit and accounting partner with Marks Paneth & Shron, a regional firm.

Moreover, many of the nearly 40 finance executives who have commented on the SEC's proposal worry about the cost of switching accounting systems and doubt many companies will consider the change worth the trouble. "Conversion to IFRS could lead to confusion and reduced marketplace confidence in financial statements at a time when confidence in the U.S. financial markets is already low," wrote Patrick Mulva, controller for ExxonMobil.

Under the SEC's proposed time line, all publicly traded U.S. companies would be required to use IFRS within five years if the SEC votes in 2011 to push its plan forward. Large accelerated filers (those with a market capitalization of $700 million or more) would begin using IFRS in 2014, followed by accelerated filers (those with a market cap above $75 million) in 2015 and smaller companies in 2016. The proposal would also let about 110 companies use the international rules as early as this year, depending on their size and their industry.

However, since the SEC extended the public-comment period for the 165-page roadmap proposal to April 20 from its original February 19 deadline, it's unlikely the commission will stick to those original dates.

Schapiro has also indicated she may have changes in mind. At her Senate confirmation hearing earlier this year, she said, "I will not be bound by the existing roadmap that's out for public comment." She also expressed reservations about the independence of the overseas standards-setter that writes IFRS and the quality of the rules themselves.

Her qualms are matched by some finance executives. In their comments to the SEC, they cited concerns over whether the U.S. legal culture and auditors could handle a more principles-based accounting language, getting their staff up to speed on IFRS, the integrity of the International Accounting Standards Board, and whether the international rules are truly better than U.S. GAAP.

Most of all, these executives are worried about the cost of conversion. The SEC predicts that early adopters of IFRS would each incur about $32 million in additional costs in the 10-Ks they file in 2010. James Campbell, corporate controller at Intel, estimated an IFRS conversion would cost his company $50 million, prompting him to ask the SEC to study the issue more thoroughly before issuing a mandate in 2011.

Health-benefits company WellPoint, which had $61.1 billion in revenue in 2007, estimates it would cost $80 million for the first year of implementation, a number that would decrease to $2 million by the third year. Chief accounting officer and controller Martin Miller doubts investors will want their companies to make such a "significant" investment on IFRS. "Given the state of the current economy, many companies potentially do not have additional funds available to expend on an IFRS adoption project," he warned in his letter.

Indeed, many companies are taking a wait-and-see approach to the IFRS momentum, which seemed to be moving fast under Cox precrisis, but has now hit a standstill. More than two-thirds of financial professionals have not budgeted for converting to IFRS, according to a Deloitte & Touche survey in March of 150 CFOs and finance managers.

That report may come as little surprise to Barbara Scherer, CFO at headset manufacturer Plantronics, who notes the recession has forced her company to cut costs and head count and to focus on cash flow. An IFRS conversion would raise her accounting and legal fees, plus staffing costs to maintain two accounting systems during the transition and for training. "In the current business and economic environment, any resources and funds used on the IFRS implementation would not be the appropriate resources at this time and provide little return or benefit to our business or shareholders," she wrote.

Further, the downturn will likely crimp the SEC's original plan to give the largest U.S. companies the chance to adopt IFRS early. "Given the current economic environment, significant issues challenging most companies, and given the uncertainty regarding the final decision in 2011, it is contrary to sound fiscal management to expend resources on a long-term project that has not been fully vetted and where the final outcome is not readily apparent," wrote Douglas Shuma, chief accounting officer and corporate controller at Telephone and Data Systems.

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