Global Business

When I Think Back on All the GAAP I Learned in Grad School

A class assignment to vet the plan to bring IFRS to America is met with skepticism.
Marie LeoneApril 30, 2008

Aside from listening to Buckcherry and driving Scion tCs around campus, accounting majors also are asking some pointed questions about international financial reporting standards. On the whole, a class of fifth-year graduate students polled by Securities and Exchange Commission deputy chief accountant Julie Erhardt appeared to be skeptical about the prospects of moving American companies off of U.S. generally accepted accounting principles and on to IFRS within the next five years or so.

While speaking at an accounting conference sponsored by Pace University’s Lubin School of Business on Tuesday, Erhardt told the audience that while teaching accounting courses during the past year, she had challenged a class to come up with a list of pros and cons about mandating the change. Support for the move to IFRS among her students focused on two familiar arguments: that business is now gone global, so the U.S. should switch to IFRS as soon as possible; and IFRS, being a newer set of standards than U.S. GAAP, is not bogged down by rules and guidance accumulated over the years.

Nevertheless, the classroom accountants also identified problems with the move to IFRS. There was a “sovereign issue,” noted Erhardt, who said the students expressed concern about the U.S. giving up its own set of national accounting standards. Further, her class believed that making the switch to IFRS would be costly, and they were not sure whether the U.S. could handle a principles-based accounting system, given its litigious nature — a sentiment echoed by many accounting professionals.

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What’s more, the students said that convergence of global accounting standards would take more than just coming up with a single set of rules. For example, with varied cultural differences coloring the way business is done around the world, how could anyone expect to mesh accounting rules into a single set of standards? In addition, the soon-to-be accountants said that the educational system in the U.S. should be making the IFRS transition at the same time that the professional accounting community makes the switch — but they were not encouraged by what they experienced so far.

Nevertheless, Erhardt was encouraged by the response from one student who said she heard “a number of presentations” about IFRS recently. “I was impressed, also surprised,” to find out that the students were being educated about IFRS, at least to some extent, noted Erhardt.

The SEC accountant reiterated a point that SEC chairman Christopher Cox has been making since February: that the commission’s staff is currently working to develop a schedule to move U.S. companies to IFRS, although no timetable has been set.

Last November, the SEC moved a step closer to bringing IFRS to U.S. companies when it gave foreign private issuers the option to file their financial results using the international standards, rather than reconciling their financials statements with U.S. GAAP. The only caveat is that the foreign issuers must use the IFRS version written by the International Accounting Standards Board, and not a modified version used by some European companies.

Since then, 37 companies have taken the option to report results using IFRS, says Erhardt, who expects the number of companies to more than double by the June 30 filing deadline. Of those companies, 35 decided to provide investors with the IASB version of IFRS, while two were forced to reconcile with U.S. GAAP because they used local versions of the standards.

Of the 35 companies to provide results using the IASB version, 29 decided to also present results in their local IFRS. And of those companies, 18 received dual audits. That is, they received audit opinions on both sets of results.

While the students, like finance executives at many American companies, had more questions than answers for the SEC, Erhardt said they threw her two unexpected queries. The first: “Your job sounds interesting,” one student remarked, “do you need an assistant?”

Meanwhile, another student, clearly focused on his personal income statement, asked: If the SEC forces U.S. companies to adopt IFRS, can I get some sort of refund for all the GAAP I learned?