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The big question: IFRS and US adoption

Tuesday 23 August 2011 - by Robert Hodgkinson


If the US and Japan do not join 'the IFRS family' by adopting international accounting standards, the dream of a single global accounting language may remain just that, writes Robert Hodgkinson, executive director of the Institute of Chartered Accountants in England and Wales.

With the eyes of the world on the US economy, and a decision expected by the end of 2011 by the US Securities and Exchange Commission as to whether it will adopt International Financial Reporting Standards, it is no surprise that this is one of the hottest topics in the world of accountancy.

What will the SEC decide? And what are the likely implications of that decision for the future of IFRS around the world?

In November 2008, the SEC issued a 'roadmap' for the possible adoption of IFRS by US publicly traded companies. Since then the SEC has done considerable work, including holding public consultations, to assist its decision on how and whether the US should adopt IFRS for public companies.

Most recently, in its May 2011 consultation document 'Exploring a Possible Method of Incorporation', it floated the idea of 'condorsement', by which IFRS would gradually be adopted into US GAAP through the progressive adoption of individual IFRS standards by the US Financial Accounting Standards Board (FASB).

Many heavy-weights are arguing hard for a positive US decision. The EU's internal market commissioner Michel Barnier is one.



But despite the positive signs, there are still many sceptics in the US. Some are suggesting US GAAP is not broken and should therefore not be fixed. The uncertainty is doing little good for the continued spread of IFRS around the world.

Currently, there are around 120 countries that permit or use IFRS and this number is likely to increase to around 150, according to the IASB

In this climate, the SEC decision is critical. For the world's largest capital market to decide to adopt IFRS would clearly have a profound effect on the global financial reporting environment, especially if that decision were to prompt Japan - another significant global capital market - to do likewise.

There are also several other countries currently sitting on the fence that would most likely also adopt IFRS if the US does. Whilst there is an economic component to the decision - adoption might mean short term costs, but would lead to increased international comparability and long term savings - this is ultimately a political decision.


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READERS' COMMENTS
2011-08-24 20:06:22 | Anonymous
What do IFRS and the metric system have in common?
Answer: Both of them will have wasted a lot of time and money in the atempt to adopt them and both will have failed being accepted in the US.
2011-08-24 15:20:20 | Anonymous
IFRS would be a step backward for US GAAP. GAAP should still be the law of the land with a GRADUAL adoption of IFRS into US GAAP if the standards are consistent with existing US GAAP.

US GAAP is THE MOST well established set of accounting standards on the planet and should not be thrown out the window to appease globalization efforts.