Debate: The impact of IFRS on Sarbanes-Oxley

A bit of a debate has broken out about International Financial Reporting Standards (IFRS) and Sarbanes-Oxley. You won't hear about it on "Good Morning America" or anything, but in the industry, it is an issue.  

On one hand, there are those who doubt that the coming of IFRS will have a deep on impact on Sarbox controls. Says Kevin Roberts, VP of Business Development at CODA Financials, "Some people seem to believe that the arrival of IFRS will conflict with SOX controls and generate huge amounts of work around changing processes. They are wrong! From CODA's experience in the UK and Europe, where IFRS is already in place, this new regulation will require minimal process changes."  

One could certainly argue that the controls check the processes that create the financial data that end up being reported. They will still do that. The resulting data will merely be repurposed for IFRS.   

But not so fast says D.J. Gannon, Partner at Deloitte & Touche, who maintains, "A shift to a judgment-based framework, such as IFRS, requires that not only the accounting policies, but also the internal processes and controls be adjusted."  

An example: lease accounting. "Under U.S. GAAP, there are a number of rules governing how leases should be classified," Gannon says. "Company controls are designed to ensure compliance with those rules. IFRS takes a more holistic approach to classifying leases looking to the substance of the agreement. Therefore, a company's control structure may need to be fine-tuned to focus on applying principles consistently to reflect the economic substance of the transactions with more extensive disclosure."  

Other areas companies may need tweak controls around include "consolidation policy (the application of the 'control' concept), the recognition and measurement of provisions, and the capitalization of development costs (the determination of whether or not 'technical feasibility' has been established)."  So what do you think? - Jim