Farewell GAAP, hello IFRS

We're a lot closer to an IFRS road map.  

Until now, people were vexed by the lack of actual implementation dates for International Financial Reporting Standards, which has loomed as a reality (albeit an uncertain one) for years now. But the SEC proposed a timetable last week--and it looks reasonable. Under the proposed road map, all companies would be transitioned within eight years. Larger accelerated filers would generally begin using the new standard in 2014, followed by accelerated filers in 2015, and non-accelerated filers in 2016. Some big companies can start using it as early as next year. Of course several multinationals already use the standard for foreign subsidiaries.  

We're now in a 60-day comment period.  

This is a monumental change for all public companies and the audit profession--in some ways, it is Sarbanes-Oxley-like in its sweep and scope. Most agree that harmonizing accounting standards makes sense in a global economy, but that doesn't lessen the implementation hurdles one bit.  

Which brings us to Sarbanes-Oxley. There has been some debate as to whether IFRS poses any Sarbanes-Oxley challenges at all. Some say they are minimal, but others have noted that it will require some rethinking and some tweaks. Danita Ostling, an audit partner at Ernst & Young, tells the Financial Times: "U.S. companies will have to make sure internal controls are documented and tested as they are for GAAP financial statements. It won't be starting from scratch, more looking at what you have and seeing how that needs to change. But companies can't gloss over it." That puts it very well.  

We've noted that certain tweaks may be necessary in, for example, lease accounting. Under GAAP, there are various rules governing how leases should be classified, and control maps to those rules. IFRS takes a more holistic approach to classifying leases, looking to the substance of the agreement, which may require some re-thinking. There are likely other areas where some rethinking will be necessary. What do you think? - Jim