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IFRS adoption in the U.S.: why the postponement?

In November 2008, the SEC proposed a "Roadmap for Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards [IFRS] by U.S. Issuers." The SEC road map detailed a process and a set of milestones by which certain larger public companies (those with a public float of at least $700 million) in the United States would transition from financial reporting based on U.S Generally Accepted Accounting Principles (GAAP) to that based on IFRS beginning in 2014, with smaller public companies adopting IFRS in 2015 and 2016.


Based on the timeline contained in the proposed road map, if large public companies make their filings for 2014, they would be required to include balance sheets for December 31, 2013, and December 31, 2014, and income statements, cash flow statements, and statements of changes in stockholders' equity for the years ended on December 31, 2012, 2013, and 2014. In addition, the International Accounting Standards Board (IASB) requires companies adopting IFRS for the first time to present the beginning balance sheet as of the date of transition (i.e., January 1, 2012). Therefore, IFRS adoption by 2014 really means a transition starting as early as January 1, 2012. Is it possible?

After the SEC issued its proposed road map for public comment in November 2008, more than 200 comment letters were submitted from a wide variety of market participants, including those representing investors, regulators, issuers, accounting, legal, and other professions, as well as members of academia, standards setters, and international organizations. Those comment letters, along with survey results, could affect the SEC's decision regarding incorporating IFRS into the financial reporting system by 2014. On February 24, 2010, the SEC published a statement regarding feedback to the comment letters and survey results, and restated the commission's strong commitment to a single set of global standards. The SEC's statement also changed the expectation of the proposed timeline from 2014 to 2015 or 2016, as there is strong opinion that a successful transition needs approximately four to five years of preparation time.

This article analyzes survey results of targeted company executive officers, accounting professionals, and accounting educators to determine the readiness and the possibility of IFRS adoption by the originally proposed adoption date of 2014. The survey results show that most respondents believe that IFRS adoption should be postponed.

Surveys of Executive Officers

Grant Thornton LLP conducts a biannual survey of senior financial executives. Its October 2009 survey obtained responses from 846 U.S. CFOs and senior comptrollers ("Survey of Senior Financial Executives," Exhibit 1 summarizes the results to the questions asked, including the first: "Do you believe the U.S. should require the use of IFRS?" Choices were: "Immediately, "In 3 to 5 years," "In 5 years or longer," and "Never." Responses were presented overall and broken down for public and private companies. The most popular choices were "In 3 to 5 years" and "Never," with financial executives from public companies preferring "In 3 to 5 years" and with those from private companies leaning toward "Never." Combining the responses for the last two choices, over 50% of the respondents selected "In 5 years or longer" and "Never." It is obvious from this survey that there is a great deal of concern about implementing IFRS by 2014.

A second study that the authors examined was completed by Pricewaterhouse Coopers (PwC) ("IFRS Perspectives: An Executive Survey," December 2009, As part of its Barometer Survey program, PwC polled more than 100 CFOs or managing directors at U.S.-based multinational companies to gain their perspectives on IFRS. As for respondents' view on the pace of conversion to IFRS, 41% think that the pace is just right, 26% think it too fast, and 18% think it is too slow (see Exhibit 1). Responses to questions about the priority given to IFRS conversion by their organization indicated that 53% of executives place IFRS conversion as moderate or high priority, while 44% consider it low priority or not a priority at all. When facing the question about their organization's stand with respect to using IFRS, 32% of companies have done an impact assessment or plan to do so, while 51% were at the learning stage or did nothing at ail. This survey indicated that although most company executives were aware of the conversion to IFRS, nearly half of the companies had yet to put a plan into action.

Summary of Selected Opinions of Executive Officers Regarding IFRS

Grant Thornton survey, 2009

Do you believe U.S. companies         All       Private    Public
should be required to use IFRS?   Respondents  Companies  Companies

Immediately                            7%          5%        10%

In 3 to 5 years                       39%         39%        40%

In 5 years or longer                  14%         13%        18%

Never                                 40%         42%        32%

PricewaterhouseCoopers survey,

How do you judge the pace of the
IFRS conversion?

Pace is just right                    41%

Pace is too fast                      26%

Pace is too slow                      18%

Deloitte survey, 2009

When should the SEC implement

2014                                  19%

2015                                  51%

The third survey that the authors examined was conducted by Deloitte in September 2009 with more than 150 financial executives participating ("IFRS Survey Results 2009: Current Issues," Issues_1009.pdf). Its findings were similar to the Grant Thornton and PwC surveys. Asked about the SEC's position, 70% of respondents indicated that the SEC should approve its proposed road map or a modified version of it. Specifically, 51% responded that the SEC should approve the proposed road map, but consider pushing back the mandatory deadline by a year. Nineteen percent said that the SEC should approve its proposed road map "As is" (see Exhibit 1). As for the reason why their company's IFRS assessment plans may have been delayed, 45% of the respondents selected "delay in the finalization of the SEC's road map" as the reason. Only 9% identified "economic challenges or constraints" as the reason for delaying an IFRS assessment. An earlier survey by Deloitte showed that 64% of respondents stated that no budget had yet been allocated for IFRS conversion, in contrast to 25% who had budgeted for assessment, readiness, or all aspects of conversion ("2009 IFRS Survey Results," March 2009,

Although the three main surveys above were not conducted such that statistically significant conclusions could be drawn (e.g., no random selection of participants, no control groups, no consideration of non-response bias), the results reach the same conclusion: The majority of U.S. companies would not be ready for IFRS conversion by 2014.

Surveys of Accounting Professionals

The AICPA conducted an "IFRS Readiness Tracking Survey" in 2008, and again in 2009. The survey conducted in 2008 was based on 1,495 AICPA members who took an online survey between September 22 and October 2, 2008 ("IFRS Preparedness Survey Results," December 2008, The 2009 survey was conducted via an online questionnaire from September 3 to September 28, 2009, and included 1,132 CPAs ("IFRS Preparedness Survey," October 2009,

The survey results for 2008 showed that CPAs were aware that international standards are coming and were beginning to prepare for a change in standards (Exhibit 2). More than 65% of all respondents said that they had some knowledge of IFRS but needed to learn more, while about 35% appeared to have virtually no knowledge of IFRS. More than 90% of CPAs in business and industry said their firms had done little to prepare for IFRS conversion, while about 10% were actively preparing or ready for IFRS adoption.

Key Comparison of 2008 and 2009 AICPA Survey Results

                                                         2008   2009

Q1: Please rate your familiarity with IFRS. (Asked of
all respondents.)

Does not apply--no plans to learn                        4.4%  11.9%

No knowledge                                            30.3%  22.4%

Total                                                   34.7%  34.3%

Basic knowledge--familiar with high-level concepts      38.8%  37.9%

Some knowledge--familiar with some specifics            21.4%  23.3%

Advanced knowledge--very familiar with most of the       3.9%   3.9%

Expert knowledge--very familiar with specifics, could    1.1%   0.5%
train others

Total                                                   65.2%  65.6%

Q2: Please rate the extent to which your company is
prepared for IFRS adoption. (Asked of business and
industry respondents.)

Still evaluating whether to adopt                       31.3%  28.5%

No plans to adopt in next five years                    29.7%  34.7%

Planning to adopt--not yet begun                        15.6%  13.9%

Preliminary discussions                                 14.0%  13.4%

Total                                                   90.6%  90.5%

Actively preparing                                       5.9%   3.7%

Ready to adopt/adopted                                   3.6%   5.8%

Total                                                    9.5%   9.5%

Q3: Please rate the extent to which your firm is ready
to support clients preparing for IFRS adoption. (Asked
of respondents in public practice.)

Still evaluating whether to support                     29.6%  27.9%

Does not apply--no plans to support in next five years  26.7%  31.6%

Planning to support--not yet begun preparing            18.1%  20.1%

Preliminary discussions                                  9.5%   9.8%

Total                                                   83.9%  89.4%

Actively preparing                                       6.8%   6.2%

Ready to support/supporting                              9.3%   4.3%

Total                                                   16.1%  10.5%

When CPAs in public practice were asked whether their firm was ready to support clients preparing for IFRS adoption, only 16% said their firm was ready or actively preparing to support clients.

The 2009 IFRS Readiness Tracking Survey shows results that are very similar to the 2008 survey (see Exhibit 2). Sixty-five percent of all participating CPAs said they had some knowledge of IFRS. There was almost no change compared to the responses to the same question in the previous year. However, the percentage of respondents reporting "no knowledge" of IFRS dropped about 8%.

In the responses from the CPAs who were working for business and industry, only 9.5% said that their firms were actively preparing or ready for IFRS adoption, while more than 90% said their firms were in the planning or evaluating stage or had no plan at all within the next five years. This result showed virtually the same responses to the same question asked the previous year.

Comparing the responses from the CPAs in public practice to the question as to whether their firm was ready to support clients preparing for IFRS adoption, the percentage who said their firm was ready or actively preparing to support clients dropped from 16.1% to 10.5% from 2008 to 2009. It appears that the U.S. accounting profession delayed taking steps to prepare for adoption of international accounting standards after the SEC set aside its review of U.S. plans for adoption during the credit crisis. Many indicated that they were delaying IFRS preparations until the SEC sets a date certain for adoption in the United States.

These survey responses showed that although CPAs were preparing for a change in standards, many firms, whether they were in accounting, business, or industry, had much work to do before adopting IFRS.

Surveys of Accounting Educators

The American Accounting Association (AAA) and KPMG LLP conducted two web-based surveys of more than 500 accounting educators at U.S. colleges and universities in 2008 and 2009. The "KPMG-AAA IFRS Faculty Survey" was conducted during July and August 2008, prior to the SEC's August 27 vote to release its proposed IFRS road map ( According to the survey results, only 22% of the 535 educators indicated that they could incorporate IFRS in a significant way into their curriculum for the 2008-2009 academic year, while 62% said that they had not taken any significant action steps (Exhibit 3). The key challenge for educators was believed to be the development of curriculum materials. Most indicated that the development of textbooks was the highest priority, followed by the preparation of case studies. Many professors felt that appropriate textbooks on IFRS would not be ready until the 2010-2011 academic year.

Selected Responses from 2008 KPMG-AAA IFRS Faculty Survey

Readiness of faculty to include IFRS in curriculum

Currently ready                                                  22%

No significant steps                                             62%

Belief of faculty of the first class of graduating seniors
likely to have a substantial amount of IFRS education

Year 2010                                                        17%

Year 2011                                                        30%

Year 2012                                                        24%

Key challenge to faculty in curriculum development

Developing curriculum materials                                  79%

Making room for IFRS in the curriculum                           72%

Responsibility to prepare faculty to teach IFRS

Falls on the shoulders of individual faculty members             49%

Colleges will provide funding for training sessions and/or       16%
acquire study materials

View of faculty that college administrators understand the
effort needed to make the changes in the curriculum required by

Administrators understand effort needed                          23%

Administrators have some understanding                           30%

Administrators have little or no understanding                   38%

The survey results also showed that there was a need to get many college administrators to consider the impact of IFRS on accounting education. Twenty-three percent of the educators indicated that the college administrators responsible for allocating resources understood the change very well, while 38% expressed the view that college administrators had little or no understanding of the effort needed to make the change. A KPMG press release, "University Professors Weigh In on Building IFRS into Curricula: Small Number of Universities Will Be Ready for 2008-2009 Academic Year," dated September 4, 2008, summarized the findings of the 2008 survey. It stated, "University professors believe that administrators are generally unaware of challenges facing accounting departments." It appeared that, as of 2008, university professors had much work to accomplish in order to integrate IFRS into their curriculum.

The second annual KPMG-AAA Faculty Survey, conducted between July 28 and August 20, 2009, showed that nearly half of the 500 educators who responded believed the United States should transition to IFRS in order to remain competitive and 75% thought that IFRS needs to be immediately incorporated into their college's curriculum ( Furthermore, 83% believed that IFRS needs to be incorporated into their curriculum by 2011.

Seventy-four percent of respondents said that U.S. adoption of IFRS would occur through convergence of U.S. GAAP with IFRS by 2015 or later. Meanwhile, 17% thought that U.S. public companies would be required to adopt IFRS by 2015 or earlier. Nine percent thought that IFRS would not be adopted by U.S. companies.

According to 40% of the accounting educators, the first graduating class of accounting students to enter the workforce with a substantial knowledge of IFRS education will be the class of 2015. That's three years later than the prediction in the 2008 survey. More than half of the educators were still concerned that administrators did not understand the magnitude of the curriculum changes required by IFRS adoption. This number increased from 38% to 55% when comparing survey results of the two years.

Exhibit 4 presents selected conclusions from the 2009 KPMG-AAA Faculty Survey. It appears that some progress has been made by accounting educators since the results of the 2008 survey were published. The findings of the KPMG-AAA surveys suggest that most accounting educators understood that they needed to begin to incorporate IFRS into their accounting curriculum, but that elements such as administrators' support and text-books were not ready. It appears that some colleges are taking a wait-and-see approach before making curriculum changes, as there is an expectation that the United States will not require a convergence of U.S. GAAP and IFRS until 2015 or later.


Selected Conclusions from 2009 KPMG-AAA IFRS Faculty Survey

* Speedy adoption and incorporation of IFRS is advocated based on concerns around disadvantages to the U.S. economy and students.

* Incorporation and teaching of IFRS should be a significant part of the school curriculum by 2011.

* A majority say up to one-quarter of their faculty have more than a superficial knowledge of IFRS.

* There is an expectation that the United States will follow a convergence of U.S. GAAP and IFRS, with substantial equivalence by 2015 or later.

* Making room for IFRS in the curriculum is now the biggest challenge for the academic community versus curriculum development in 2008.

* Schools are providing limited financial support or course release time to faculty members to prepare for any of the relevant courses.

The SEC's Response

On February 24, 2010, the SEC published a statement regarding feedback to the comment letters and survey results, reaffirming the commission's commitment to a single set of global standards ("Commission Statement in Support of Convergence and Global Accounting Standards," In the opinion of the SEC, IFRS is best positioned to be able to serve the role as that set of standards for the U.S. market, and the SEC expressed continued support for the convergence of U.S. GAAP and IFRS. The statement also revealed that the SEC staff has developed a work plan to aid the commission as it evaluates the impact that the use of IFRS by U.S. companies would have on the securities market. In the work plan, the commission staff will analyze six areas of concern that were highlighted by public comments:

* Sufficient development and application of IFRS for the U.S. domestic reporting system;

* The independence of standards setting for the benefit of investors;

* Investor understanding and education regarding IFRS;

* Examination of the U.S. regulatory environment that would be affected by a change in accounting standards;

* The impact on issuers, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and

* Human capital readiness.

By executing the work plan, combined with the completion of the six current convergence projects of FASB and the IASB, the SEC will make a determination regarding incorporating IFRS into the financial reporting system for U.S. issuers in 2011.

The SEC's statement also agreed that a successful transition needs approximately four to five years of preparation time and changed the expectation of the proposed timeline from 2014 to 2015 or 2016.

Surveys, Comment Letters, and Timing

After the SEC proposed its road map for public comment in November 2008, more than 200 comment letters were submitted to the SEC. Those comment letters, along with survey and research results, raised concerns about the readiness for the timeline of the IFRS adoption by 2014. The surveys discussed above addressed three of the six areas of concern that were identified by the SEC (investor understanding and education, impact on issuers, and human capital readiness). The SEC was obviously influenced by the surveys and comments received on its road map proposal, which is reflected in its February 2010 statement on the potential timing of IFRS convergence. It remains to be seen what the SEC concludes in the next year as far as a target date to require financial reporting under IFRS and whether public companies, accounting firms, and educators will be ready for the change.

Qun Liu, MSc, PhD, is a student in the certificate program in accountancy at Villanova University, Villanova, Pa. Kenneth Hiltebeitel, PhD, CPA, is an associate professor of accountancy at Villanova University.
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Title Annotation:international accounting; International Financial Reporting Standards
Author:Liu, Qun; Hiltebeitel, Kenneth
Publication:The CPA Journal
Geographic Code:1USA
Date:Nov 1, 2010
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