Global Business

CFOs Don’t Want GAAP Love Affair to End

But they may have to, as regulators consider giving U.S. companies the choice to use IFRS before it's fully converged with American accounting prin...
Sarah JohnsonOctober 31, 2007

A majority of finance executives born and bred on U.S. GAAP and its many iterations would be reluctant to let it go, according to recent surveys.

Only about 20 percent of CFOs would consider adopting International Financial Reporting Standards if given the choice, according to a Deloitte & Touche poll of 300 companies. Another study by the Controllers’ Leadership Roundtable found that more than half of corporate controllers would be opposed to such a switch.

However, Deloitte predicts this reluctance to ebb as more companies familiarize themselves with the international standards, which are considered more principles-based than U.S. GAAP.

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Of course, any added interest in adopting new rules would be a boon to the audit industry. Deloitte has already been answering clients’ inquiries about IFRS, and the firm expects to further be of service by offering educational workshops about the standard in the future, according to partner D.J. Gannon. “Companies that make the decisions to change over to IFRS would be an opportunity for us and for all the firms,” he said. “That’s an obvious outcome in terms of what’s happening.”

Still, it does seem like an opportune time for CFOs to ponder what they would do if the Securities and Exchange Commission allows the existence of a dual accounting system in the United States. The commission recently raised two IFRS-related proposals, one that would allow overseas companies to use the standards in their U.S. filings and another that would allow U.S.-domiciled companies to do the same.

If the proposals move forward, they raise the possibility of bringing IFRS-prepared financial statements into the United States before the convergence project between the Financial Accounting Standards Board and the International Accounting Standards Board has been completed. The regulator’s momentum in this area also makes some observers worry about the unease such a transition period would create.

Either way, major changes in how U.S. companies account for their financials are afoot. “GAAP is probably going away at some point,” Gannon told CFO.com.

FASB chairman Robert Herz has made a similar prediction. Last month, he said IFRS will be the ultimate version that U.S. companies will have to follow. However, he’s hoping that mandate won’t be made until the standard-setters complete their convergence project to create one set of standards that incorporate improvements to both GAAP and IFRS.

The possibility of an in-between period where both standards are allowed to be used in SEC filings has Specialized Transportation Inc. CFO Rick Burton concerned. As a member of the Institute of Management Accountants and someone who has made the switch from overseeing the finances of a public company to a private company, Burton has paid particular attention to this issue by clipping articles. “When you enter this profession, you realize reading and staying current is going to become a part of your life,” he told CFO.com. “And IFRS is a hot topic right now.”

Burton believes his company will either offer an IPO in the next three to five years or be acquired by a public company. If given a choice to switch to IFRS today, however, he wouldn’t want to because of all the matters that are yet to be resolved.

Rather, Burton would like to see the convergence project completed first. In the meantime, neither his audit firm nor his bank is prepared to accept IFRS-prepared statements, he said. And he worries about the complex issues that would arise in the U.S. market if two accounting standards were floating around simultaneously. At the same time, he believes international standards will become a way of life eventually.

To be sure, many finance executives don’t even want to contemplate the possibility of an IFRS-centric reporting system. They’re apprehensive about the skills their teams lack and question how the integrity of IFRS is viewed by investors and analysts, according to the Deloitte study.

In another survey of CFOs and senior comptrollers, the 221 respondents were split on whether U.S. companies should be given a choice. According to auditing firm Grant Thornton, 56 percent of them don’t believe all U.S. firms should be allowed to use IFRS.

A CFO’s preference on whether to consider a standard switch mostly depends on whether his or her company has international ties. In the Controllers’ Leadership Roundtable survey of 71 controllers, 50 percent of respondents with international operations would consider a move to IFRS, compared to 10 percent of those with only domestic ties.

Avi Alpert, director of the research group and executive network, says those results can be chalked up largely to competitive concerns. U.S. companies with counterparts overseas want to be able to meet their investors’ demands to have comparable financial statements between businesses, Alpert told CFO.com.

“The international public companies are more in favor of early adoption [of IFRS] for the capital markets they’re trying to reach,” added Burton, whose company does not do business overseas. “They’re going beyond U.S. shores to get the equity they need.”

As for CFOs who would consider using IFRS, two-thirds of them think it would take up to three years to make the switch, according to Deloitte.