(The article featured below is a selection from International Securities and Financial Reporting Update, which is available to subscribers of that publication.)

Speakers Focus on IFRS at SEC Institute Conference

Ethiopis Tafara, the director of the Office of International Affairs, addressed the issue of international reporting standards at the recent SEC Institute conference. Although the creation of an international set of reporting standards has been in the works since 2000, globalization has given international standards an increased urgency, he said. He noted that there has been increased issuer interest in IFRS given that many multinational companies wish to save time and money by not having to comply with multiple jurisdictions' different accounting standards.

Tafara cited two important functions of IFRS: conveying information, and allowing for comparison. He also acknowledged the wariness of regulators who are reluctant to give up their own reporting language in the name of universalism. He described two problems facing the International Accounting Standards Board ("IASB"). One problem is legitimacy. Citing John Locke, he said that any governing body must have the consent of the governed to be legitimate. Unlike other standard-setting bodies in the U.S. and the European Union, where there is general consent to the standards by investors, the IASB is a newer and less-understood body which faces legitimacy issues, Tafara said. Similarly, the IASB has an accountability problem, according to Tafara. Because the appointed members of the IASB have no enforcement powers of their own, the Board must be accountable through the regulators that will be implementing the standards.

Tafara listed quality, accuracy and universality among the important goals of IFRS. He observed that the goals of quality and accuracy were somewhat at odds with the goal of universality due to differing evolving standards across jurisdictions. Tafara noted that a language spoken by the same people in different areas will change over time. Since enforcement and interpretation would be up to national regulators, precedents and standards might diverge like language, he said. He stressed the importance of sharing enforcement and interpretive information with other countries' financial regulators. He said that jurisdictional disagreements on enforcement actions would hopefully be mitigated by communication first.

IFRS was also the subject of a panel discussion at the conference. Liza McAndrew Moberg of the Office of the Chief Accountant's International Affairs group discussed the recently-published IFRS roadmap proposal. She said that the roadmap identifies seven milestones for consideration prior to a possible Commission decision. These milestones include improvements in accounting standards, a more dedicated source of funding for the IASB and increased IFRS training and education. Regarding training, McAndrew Moberg said that providing training in the new standards would probably not be a great burden on large accounting firms, but smaller firms and companies without international in-house expertise might struggle.

McAndrew Moberg also discussed the proposal in the roadmap release that would allow for optional IFRS adoption by eligible U.S. issuers for years ending on or after December 15, 2009. To be eligible, issuers must be among the 20 largest companies in their industry and that industry must use IFRS more than any other accounting standards. McAndrew Moberg estimated that approximately 100 companies would be eligible, but it would be up to each company to make its case for the use of IFRS.

John Glynn of PricewaterhouseCoopers urged conference attendees to get involved in the IFRS convergence process. He said that changes "will fundamentally and profoundly affect your financial statements." He noted that major differences between IFRS and U.S. GAAP must be addressed before convergence, including issues dealing with revenue recognition, stock options, liabilities and equity and consolidation. He also said that the new standards would affect not only a company's accounting process, but also how the business itself functions.

Katherine Gill-Charest, vice president and deputy controller of Viacom, discussed IFRS from companies' point of view. She outlined several key challenges that companies will face as IFRS adoption approaches. Companies need to educate management and investors on IFRS, she said. There will be many questions about IFRS, and accountants need to start figuring out now how the new standards will impact the company. Accountants also need to be prepared to abandon the "checklist" mindset of GAAP for the more principles-based approach of IFRS. She also stressed that companies should view IFRS not just as an accounting change, but as a change that will affect all aspects of business, such as information technology systems and human resources.