A gap persists in the knowledge base of many tri-state area accountants, as a deadline approaches for abandoning Generally Accepted Accounting Principles in favor of new International Financial Reporting Standards already adopted in many other parts of the world.
After multiple delays, the United States is now expected to phase out GAAP in favor of IFRS in 2015, with the new standard appearing for the first time on U.S. certified public accountant exams in 2011.
That has accounting firms and organizations scrambling to ready customers and members for the switch. The Big Four accounting companies all maintain IFRS websites and blogs, and the Connecticut Society of CPAs included a session on IFRS at a daylong accounting and auditing conference scheduled for June 8 in Plantsville.
“There is a complete lack of awareness, I would say,” said Cecil Nazareth, a Wilton resident who runs New York City-based IFRS Partners. “If you come across companies that are more outward focused and doing business abroad, they are more in tune with it.”
Before founding IFRS Partners to provide training on IFRS conversion, Nazareth was director of internal audit and strategy for the American Institute of Certified Public Accountants. In an AICPA survey published in late May, 47 percent of accountants polled indicated they have a basic understanding of IFRS.
“We see clear evidence in our tracking survey that CPAs in the U.S. are not only increasingly aware of (IFRS), but also significant numbers are beginning to recognize a need to gain advanced and expert knowledge,” said Arleen Thomas, senior vice president for AICPA member competency and development, in a prepared statement.
IFRS is intended to turn what is currently a tall stack of GAAP accounting regulations into a single tome, in theory reducing the complexity and cost of many transactions.
IFRS offers savings due to greater flexibility it provides companies, some are finding it also has provided some immediate costs: Thomson Reuters, which has a large operation in Stamford, took a $30 million pension expense on its balance sheet last year, which it attributed to the company”™s conversion to IFRS.
Nazareth cited Hartford-based United Technologies Corp. as another company that has been ahead of the curve of other U.S. corporations in readying for the conversion to IFRS.
That conversion process has not been without hiccups, as organizations such as the Norwalk-based Financial Accounting Standards Board continue to craft a final set of rules. Critics protested a draft of lease accounting rules crafted by FASB and the International Accounting Standards Board, saying it could make accounting for such transactions more complex than they are currently, even as IFRS bars leases from being categorized as off-balance-sheet transactions.
If GAAP is at its heart a rules-based system, IFRS is based on principles ”“ and Nazareth notes a principles-system works best only when individuals and companies hew to those principles. Given the shocks of the Enron scandal and myriad others the past decade right up through the credit crisis, that is no given; and IFRS is being readied for U.S. adoption even as legislators in the United States and Europe work to tighten regulations on the financial services sector.
“There will be no standard that will prevent fraud,” Nazareth said. “It”™s like the Madoff scandal; if you were on U.S. GAAP, IFRS ”“ it would have happened. But is there flexibility in IFRS? There certainly is, and there will be a lot of Monday-morning quarterbacking, a lot of second guessing.”
