Leadership

IFRS Works, Despite Quirks: SEC Panel

By Peter Galuszka

Updated on: August 5, 2008 / 10:03 AM EDT / MoneyWatch

A new accounting system that most of the world is shifting to isn't that hard or costly to implement but it does have its little quirks.

That seemed to be the consensus today at a roundtable discussion at the U.S. Securities & Exchange Commission which is expected to move swiftly to let U.S. firms use the International Financial Reporting Standards (IFRS) instead of the tried-and-true U.S. GAAP (Generally Accepted Accounting Principles) used by all U.S. firms

Personally, I have heard a lot of good things about IFRS in the public realm and from personal friends, one of whom is a CFO. They complain that GAAP is too cumbersome compared with IFRS which is more intuitive and principles-based and doesn't require that accountants follow a strict, rules-based template that U.S. GAAP does.

SEC Chairman Christopher Cox thinks so too and one of his lame-duck efforts before he leaves next February is to push U.S. adoption of IFRS as far as possible. To that end, Cox invited 13 participants from U.S. and European corporations and advocacy groups such as the Council of Institutional Investors and the Chartered Financial Analyst Institute to chew over the pros and cons of IFRS adoption.

Here are a few highlights:

Charlotte Jones of Deutsche Bank said that her German company switched to IFRS several years ago (the European Union has adopted it) without much fanfare. "We made the transition and I don't believe it has made a difference in how we are judged." IFRS and GAAP have some areas where "playing fields are unequal" but in general they are merely "a little bit of noise."
Paul Boyle of the U.K. Financial Reporting Council said that Great Britain's adoption of IFRS over the past three years has been generally smooth, with a few exceptions. Section 7 of IFRS which covers the disclosure of financial instruments has been hard for companies to interpret. Some have gone overboard, such as adding 250 pages to their annual report of financial details. "A man in one company advised me that I didn't have to read all 500 pages in their new annual report, that reading only 300 pages would give me a good idea of their industry," Boyle said. There are rumors that some annual reports in England have become so page-heavy that post office officials have balked at mailing them. Boyle says that the problem will be worked out with more experience.
Trevor Harris of Morgan Stanley said that the SEC's initiative to record documents digitally and make them easier to retrieve will make IFRS easier to adopt.

At the moment, the SEC's policy is to give U.S. companies a choice between the two systems, but savvy insiders believe that a mandate for IFRS will come before 2013. Ever the politician, former congressman Cox has played those relevant cards closely. But now that he finally has a full staff of SEC commissioners after lacking one for months, look for lots more activity on IFRS in the short term.