Corporate Governance

Not Minding GAAP

By Fei-Lu Qian

On August 27, the SEC proposed a timetable for transitioning all public companies from reporting their financial statements under U.S. generally accepted accounting standards to international financial reporting standards (?IFRS?) within eight years. Specifically, the SEC estimates that 110 companies will be able to use IFRS by the end of 2009, depending on their size and industry. Based on progress made by 2011, the SEC will then make the decision on whether to require all of its registrants to use IFRS which is governed by the International Accounting Standards Committee Foundation. Under the current proposal, large companies would begin complying with IFRS in 2014 and smaller companies by in 2016.

In announcing the SEC?s 60-day comment period, Chairman Cox noted that ?if we do nothing and simply let trends develop with each passing year, comparability and transparency will decrease for U.S. investors and issuers? because more than 100 countries already require or permit IFRS reporting and more than two thirds of U.S. investors own securities issued by foreign companies that report their financials using IFRS.

However, according to an article by CFO.com, some companies and accounting firms have estimated that it will take large U.S. companies ?two to three years to make the switch IFRS, with smaller businesses needing more time.? In part, one problem is that only 19% of U.S. chief financial officers and controllers have experience preparing financial statements under IFRS.

It is good to see that the SEC recognizes the importance of more transparency in reporting financial statements, but it will be a wait and see game to determine whether financial statements under IFRS will be better than GAAP.

Full post as published by PomTalk on September 03, 2008 (boomark / email).