November/December 2009 / Governance
Making the Transition to International Accounting Rules
International Financial Reporting Standards – the IFRS – are becoming widely accepted and are currently used in more than 100 countries, including the European Union, and may be in the offing for the United States. Last year, the SEC published a so-called “road map” for the potential use of IFRS by U.S. public companies.
Adoption of IFRS, the authors write, would have advantages for the capital markets and could simplify and standardize reporting, but the transition would need to be managed carefully.
Compared to U.S. GAAP (Generally Accepted Accounting Principals), IFRS relies “more on judgment and principles and less on bright-line rules,” the authors write, with more emphasis on the actual business purpose of transactions in the accounting analysis.
Consequently, any company contemplating the transition should consider company-wide training, from board and senior executives on down; reexamining fraud controls; and establishing a systematic way to analyze and recognize transactions.
The authors also suggest formalized procedures for making changes in accounting policies, including senior level reviews.
