Indeed, the International Financial Reporting Standards (called "Eye for S") is about to become a big part of their lives. Yet few American business schools teach IFRS. They offer instruction instead for the U.S. GAAP (Generally Accepted Accounting Practices) used by most U.S. firms.
With the U.S. being the odd man out, more than 100 countries, including China, Korea and the entire European Union, have adopted IFRS, developed by the London-based International Accounting Standards Board. Even Canada, which has used its own version of U.S. GAAP, is switching to IFRS.
Bowing to global realities, the U.S. Securities & Exchange Commission agreed last year to give up its practice of forcing U.S. firms using IFRS to "reconcile" their data with GAAP. A much bigger step could occur this year if the SEC allows U.S. firms to chose which of the two standards they want to use.
Getting in step could be critical for C-Suite types. Some believe that IFRS will become mandatory worldwide by 2013. There's no fighting it. "The train has already left the station, Jeffrey P. Mahoney, general counsel of the Council of Institution Investors, told me.
Although many of the differences between IFRS and GAAP have been gradually worked out, there are some important, divergent philosophies. In general, IFRS is much more principles-based, meaning that it gives a model but doesn't offer prescriptive template for handling accounting as the more rules-based GAAP does.
Other concerns whether IFRS standards will be applied consistently and who will adjudicate conflicting interpretations of the standards. One area of concern also could be that IFRS doesn't track corporate use of complex derivatives for financing. That could become a big deal since the current financial crisis was caused, in part, by financial derivatives involving securitized mortgages.
The good news for larger companies is that many of them who do a lot of business overseas have been using IFRS in their non-U.S. units for several years. For some, at least, the anticipated switch-over won't be so hard. But if global accounting standards are converging, does it mean the time is coming for one global securities cop to act as regulator?