Last Updated Sep 2, 2008 4:08 PM EDT
The U.S. Securities & Exchange Commission recently approved a roadmap for switching to a new accounting standard called the International Foreign Reporting Standard (IFRS) which is used by most countries. Firms based in the U.S. still use the U.S. Generally Accepted Accounting Principles (GAAP) standard.
SEC has already freed firms trading in this country from having to reconcile their reports done in IFRS with GAAP. Companies soon will be able to decide which standard they prefer and could be forced to use IFRS by 2014, according to the SEC plan.
Jeff Mahoney, CII general counsel, told me that there are concerns about whether IFRS protects U.S. investors completely. Issues include whether information from IFRS is at least as useful as that from GAAP; whether enforcement is just as stringent; and whether the needs of investors are paramount to the agency that controls IFRS.
The SEC also needs to make sure that the group that vets IFRS is truly independent and is free from voluntary contributions from companies or their audit firms.
There are some differences between IFRS and GAAP. The former, for instance, is more principles-based and can allow companies to report higher net income. The SEC will meet in 2011 to see if efforts to smooth over such differences are successful.
"There's some question about whether or not these all can be worked out by 2014," Mahoney told me.
The buzz about switching to IFRS so far seems to have been mostly positive. Mahoney and CII may be wise to sound some warnings, however.
More on IFRS and GAAP from The Corner Office: