One thing is clear: IFRS (international financial reporting standards) is coming. But almost everything else about the convergence of U.S. GAAP (generally accepted accounting practices) with international standards is subject to debate.
For starters, there's the idea that IFRS doesn't have rules. As Robert Pozen, chairman of MFS Investment Management, pointed out at the recent CFO Rising conference in Orlando, IFRS has thousands of pages of rules — and that's at the tender age of 7. Just wait until it's a mature 35 like GAAP. There's also the prospect that this "international standard" will morph into many variations as each country makes it own modifications.
Closer to home, one major question concerns how hard international standards will be to implement. The accounting firms (for which this could be the next gigantic billing opportunity) warn that implementation will be complex and costly. At a luncheon of finance executives held during the Rising conference, virtually everyone at the table had a different opinion.
Even if IFRS turns out to be as easy to implement as its aficionados suggest, you may not be entirely comfortable with the process. Auditors are notoriously reluctant to advise on GAAP now — how much more difficult will such discussions be when there are fewer bright-line rules? Will you be indemnified for using IFRS, or will it open up a hole large enough for the plaintiffs' bar to drive a truck through? And who will enforce the standards?
As a start on answering these questions, this month we feature two articles on the subject. "One Standard, Many Laws," by reporter Alan Rappeport, examines the different legal underpinnings of GAAP and IFRS. Our cover story, "Goodbye GAAP," by senior writer Sarah Johnson, offers a guide to preparing for the change. But make no mistake: full understanding of the new rules may be years, and many thousands of man-hours, away.