Influencing the Future of IFRS in the United States

The future of international financial reporting standards in the United States may be uncertain, but it is not simply a matter of chance.
Bruce PounderOctober 22, 2010

There are three techniques that enable CFOs to plan intelligently for the future despite the many unknowns associated with the use of international financial reporting standards (IFRS) in the United States. In previous columns (see Related Articles, below), I gave an overview of all three techniques and explored the first two in detail. In this column, I will focus on the third technique, proactive influence.

The proactive-influence technique assumes that an enterprise can influence, to a significant degree, the circumstances it faces in the future. Unlike scenario planning, risk analysis, and other techniques that assume a company will react to whatever circumstances may come about, proactive influence involves determining the possible future scenario that would most benefit a company’s stakeholders and then developing a plan of action to increase the likelihood of it happening. Proactive influence is an especially important adjunct to reactive planning techniques when the most-beneficial future scenario is unlikely to happen on its own.

Targeting a Specific Decision Outcome

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To illustrate how proactive influence works in practice, let’s say your company is based in the United States and falls under the jurisdiction of the Securities and Exchange Commission (SEC). Let’s also say your executive team has determined that it would be beneficial for your company to prepare its financial reports using IFRS instead of U.S. generally accepted accounting principles (GAAP).

In all cases of proactive influence, you must first identify the decision-maker who is capable of making a difference in the future circumstances your company faces. In our example, the key decision-maker is the SEC.

The next step is to identify the decision alternatives that are realistically possible. Certainly the SEC could decide to maintain the status quo, continuing to prohibit domestic registrants from using IFRS for statutory financial reporting purposes. But what about requiring domestic registrants to use IFRS instead of U.S. GAAP? Such a decision is highly improbable, for the reasons I have explained in previous columns. What is left, then, is the possibility the SEC could grant domestic registrants the option to use either IFRS or U.S. GAAP. The viability of this decision alternative is supported by the fact that the SEC already granted foreign registrants such an option three years ago.

Pounder Oct 2010

Between the SEC’s two realistically possible decision alternatives, only a decision to grant domestic registrants the option to use IFRS or U.S. GAAP would be consistent with what we have assumed would be beneficial for your company. In targeting a specific decision outcome of a key decision-maker, we conclude the first phase of the proactive-influence process.

Developing a Plan of Action

The second phase of the proactive-influence process is developing a plan of action to increase the likelihood of the decision outcome you have targeted. To do so effectively, you must identify the factors that will have a significant influence on the key decision-maker.

As is often the case with regulatory issues, the factors that will most influence the key decision-maker in our example are quite transparent. The SEC’s published work plan regarding the possible incorporation of IFRS into the public company financial-reporting environment explicitly identifies and explains each influential factor. (Reportedly, a work-plan update will be released by the SEC this week.) Any party seeking to influence the SEC’s decision should read the work plan from cover to cover. Those who do will find that not only are the influential factors spelled out in detail, but many of them are reasonably actionable, which is critical to successfully exercising proactive influence.

For example, one of the factors in the SEC’s work plan is “Investor Understanding and Education Regarding IFRS.” The SEC will clearly be more inclined to allow domestic registrants to use IFRS if investors are — or can readily become — educated about IFRS.

If your first reaction is “That’s not our responsibility,” then you still have a lot to learn about proactive influence. You must be prepared to do what it takes to improve the odds of an outcome that is favorable to your company rather than just whining about the uncertainty of the situation.

To address this factor through proactive influence, your company would need to assess the degree of IFRS knowledge among its investors and prepare to educate them as needed. Bottom line: the more effectively companies address this influential factor, the more likely it is that the SEC will allow them to use IFRS.

Another factor cited in the SEC’s work plan is the degree to which standard-level convergence is attained between U.S. GAAP and IFRS. To address this factor through proactive influence, your company should participate as much as possible in the due process by which the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working to develop common standards. The faster and more completely the boards attain standard-level convergence between U.S. GAAP and IFRS, the more likely the SEC is to allow companies to choose between the two sets of standards.

In every case, the thrust of proactive influence is to make sure the key
decision-maker has compelling reasons to make the decision that would favor your company — reasons that the decision-maker cares about, not necessarily the reasons your company wants a particular decision outcome.


Exercising proactive influence in an uncertain situation reduces uncertainty and increases the likelihood of a favorable outcome. It takes time and it takes effort, but as illustrated above, proactive influence is a way for CFOs to deal effectively with the uncertainties of IFRS in the United States.

Contributor Bruce Pounder is president of Leveraged Logic and is the immediate past chair of the Small Business Financial and Regulatory Affairs Committee of the Institute of Management Accountants (IMA). He is also the lead developer and presenter for the Webcast series “This Week in Accounting.”

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