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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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November 16, 2008 12:01 AM ET
Buck Ennis
BONING UP ON IFRS Masako Darrough of Baruch College
The change is being driven by the Securities and Exchange Commission. Under SEC proposals, about 110 big companies would begin using international standards in 2010. If that transition goes well, all companies could be required to adopt international financial reporting standards by 2014. At this point, the SEC is still weighing comments on its proposal. Barring any last-minute hiccups—credit crises included—the move to begin implementing the new rules could take place by the end of this year. An inevitable move While the dates may yet shift, most accountants believe the move is inevitable in part because of the belief that adopting IFRS will help U.S. companies compete more effectively in global markets for capital and customers. “The rest of the world is switching to IFRS, so there is pressure on us to join,” said Masako Darrough, chair of the accounting department at Baruch College. For the big firms, which have worked with overseas subsidiaries of their American clients as well as with foreign companies, IFRS is old hat. For many medium-size firms and virtually all small ones, the switch to the new rules will be painful and expensive, especially as it must occur in the midst of doing everything else. To start training, small partnerships may need to hire consultants or send employees to outside seminars. “Many firms will be spending tens of thousands of dollars to retrain their entire staffs,” said Ehud Sadan, associate managing partner of Anchin Block & Anchin, a New York accounting firm, which began holding three-day training programs a year ago. At Amper Politziner & Mattia, the process began nearly two years ago when three partners in the New York office hit the books. The partners, with a total of several decades of experience in accounting among them, went back to basics, boning up on the essentials of IFRS. Since then, the partners have been periodically holding daylong classes to educate other members of the firm. “We are trying to prepare our people gradually,” said managing partner Peter Bible. “If you wait until the last minute, you could spend weeks training someone to prepare for an audit.” A thinner volume The good news is that by most accounts, the international standards are simpler than GAAP. In the hyper-litigious United States, GAAP is codified in a 10-inch-thick book crammed with minutely detailed rules. In contrast, IFRS is a principles-based system summed up in a two-inch-thick volume. The rub is that while most accountants agree that IFRS is simpler, it also differs substantially from GAAP in key respects. In fact, the differences between the two systems are numerous and large. Under GAAP, for example, companies can account for inventory using last-in, first-out valuation. This assumes that any sale recorded came from the last inventory purchased. Because the last item is typically more expensive than earlier purchases, LIFO often results in thinner profit margins—and lower taxes. Under IFRS, the LIFO method is barred. The two systems also take opposing views on how to treat write-downs that occur when the value of an asset drops. Under international standards, the value of a building can be written down. Then if the value rebounds, it can be changed to the higher level. Under GAAP, the value cannot be marked up after it has been written down. To help bridge some of those gaps, a variety of industry groups are already beginning to offer help. The American Institute of Certified Public Accountants provides a monthly online report on IFRS. The New York Society of Certified Public Accountants began offering daylong seminars in October. No one has any illusions that such sessions will suffice. “In one day, you can just touch the surface,” said William Stocker, a partner at Marks Paneth & Shron and chair of the New York Society's committee on international accounting. “We are going to have to increase training programs exponentially.”
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