The Bruce Column – The route for the largest US corporates
Oct 19, 2011
You could not have had a more persuasive group of senior corporate accountants than the panel at the Deloitte IFRS Summit in New York this week.
The Chairman of the IASB, Hans Hoogervorst, and his Vice-Chairman, Ian Mackintosh, were there to add their views on the virtues of International Financial Reporting Standards, (IFRS), and allay the fears of sceptics. But it was hearing the views from some of the most revered and respected corporations in the US which was the clincher. Ford, IBM, Cisco Systems and the Sara Lee Corporation were very clear in what they had to say.
As everyone awaits the next stage in the lengthy process of the US regulatory body, the SEC, coming to a decision which could align the US with the financial reporting system which is pretty much used by everyone else around the world, some of the largest companies are obviously finding that their patience is wearing thin. Increasingly, subsidiaries of US companies around the world are using IFRS as a basis for their local reporting, while their parent companies back home use US GAAP. It makes less and less sense and it costs them money.
The SEC has long targeted a decision by the end of the year. But Bob Kueppers, Deputy CEO, Regulatory Affairs, and Vice-Chairman of Deloitte LLP cast some doubt on a final decision by then. While he said he expected an SEC staff recommendation before the end of the year, he thinks that would then be subject to a comment period, which would mean a bit more delay. In any case, a decision by the SEC to move forward with incorporation of IFRS into US GAAP — as was suggested in their staff paper in May — may not include a voluntary use option that would allow the largest companies to choose to move swiftly to IFRS while others could take more time to adjust.
Aaron Anderson, Director IFRS Policy & Implementation at IBM, summed it up. Referring to the SEC paper issued earlier in the year he said: 'I have read the SEC proposal but I still don't know what it says', suggesting that the devil would likely be in the details of a long-term path to incorporation of IFRS into the US reporting framework. For the largest companies all this means delay. And delay at a time when corporate US is not having the best of times is hardly helpful for those companies that see the benefits of IFRS adoption.
Anderson talked of the winds of change. He talked about the creation of a centralised team. He talked of consistent adoption of IFRS with 'access all countries', the ability for executives to have access to information freely and easily. He talked of 'eliminating local flavours' and spoke of a focus on the here and now'. IFRS was at the heart of all of this.
Susan Callahan, Manager, Global Accounting Policy and Special Studies at the Ford Motor Company, pointed out that the company was 'a strong advocate of early adoption' and of how they had strong support from senior executives.
This is the story from the senior level of large companies in the US. Meanwhile the US markets are in decline. Companies around the world are increasingly raising money on stock markets other than those of the US, traditionally the largest and strongest in the world. But as Susan Callahan pointed out, US GAAP knowledge is no longer useful in other countries. Large US companies which need to raise serious money on the stock markets find that because they cannot produce accounts in a universally accepted form they cannot raise money from a wide enough pool.
This is why Hans Hoogervorst was in New York speaking at the Summit. He accepted that it was a difficult decision for the SEC. US GAAP had served the US well, he said. But the enthusiasm of the rest of the world for IFRS meant that change was needed. IFRS 'has spread like wildfire', he said. And for US investors looking to emerging markets it was a huge benefit. And he soothed those who felt that the US would be losing influence by following the rest of the world to IFRS. 'I am sure US influence will remain very strong', he said.
So it was back to the leading corporates. 'The benefits of moving to IFRS far exceeds the cost', said Susan Callahan. And Aaron Anderson pointed out the obvious 'structural benefits of having a single set of accounting standards around the world', giving one specific example of the value of a central goodwill and impairment testing model within the company.
The Summit provided an opportunity for an overall review and assessment of where the issue of IFRS in the US is at present. Everyone awaits news from the SEC, especially, it seems, some of the large multinationals, that can see a tangible benefit.
Robert Bruce October 2011