Switching to IFRS: An Interview with Deloitte

The United States is the world's last country that does not use the International Financial Reporting Standard (IFRS). Instead, it uses accounting based on the U.S. Generally Accepted Accounting Principles (U.S. GAAP).

But that's going to change in a big way. The SEC is pushing for U.S. firms to switch to IFRS in a staggered fashion. If final rules are adopted early next year, a timetable will be presented for the mandatory switchover.

To learn more, Financial Services talked with D.J. Gannon, a partner at Deloitte who is leader of its Washington-based IFRS solutions center.

BNET: What's the schedule so far?
D.J. Gannon: The SEC is expected to come out with documents later this week that will start a 60-day comment period. It will go into the next presidential administration, but it seems the commission will adopt a staggered mandatory implementation. It will be by the end of the fiscal year 2014 for large, accelerated public company filers (firms with market capitalizations of more than $700 million); then 2015 for accelerated filers (firms with market capitalizations of between $75 million and $700 million); and then 2016 for everyone else.

BNET: Anything else?
DJG: Yes, a number of early filers might come from firms that earn a lot of revenue overseas and might be using IFRS already. These 20 or so companies could go to IFRS by the end of the fiscal year 2009.

These firms haven't been identified yet but could include food, heavy construction, banks, insurance companies, paper products, shipping and communication.

BNET: What about private companies?
DJG: The vast majority of companies are not public. What do you do with them? They shouldn't be left out of this debate. There is a program targeted for private companies. More should be known by the middle of next year.

BNET: Isn't it true that few business schools teach IFRS?
DJG: That was the case but it is changing. More business schools are teaching IFRS and Deloitte has a consortium of 130 schools that teach it. Other firms do, too. There's a plan to have IFRS questions on CPA exams by 2011.

BNET: How different are IFRS and U.S. GAAP?
DJG: IFRS is more principles based and GAAP is more rules based. GAAP has something like 25,000 pages of sheer volume. Our mindset as accountants is to go look up the paragraph in all the guidance put out by the Financial Accounting Standards Board on GAAP.

In IFRS, we've got one tenth the size of standards. You have something like 2,000 pages. That's a lot less detail, so the issue isn't figuring out what paragraph to go to, it is applying the principle of what you are trying to do. The challenge is the mindset.

BNET: What about the impact of the global finance crisis on applying IFRS?
DJG: There's been a lot of debate on this. We have seen how the capital markets and markets are much more interconnected than we ever thought. The credit crisis has demonstrated the need for more transparency in financial statements and how we need to have accounting outcomes more closely to the economics of what is happening. All signs point to changing our model in the U.S. to a more globally-focused one.

BNET: Will this also involve going to a single global securities regulator?
DJG: I used to work at the SEC and one thing that IFRS has facilitated is regulators working much more closely together. [But] I'm not sure we will have a single regulator. The best you can hope for is regulators worker together. I don't ever think we'll see a world regulator but a lot more alignment of values.