As the US grapples with whether to adopt IFRS, the rest of the
world has largely embraced the international standards. The
International Accounting Bulletin investigates the
challenges faced and lessons learned as IFRS spreads through
developed and developing financial markets.

Early preparation is the most stern advice the UK is sending to
jurisdictions working towards convergence with, or adoption of,
IFRS. The global rush to embrace IFRS was initiated by the EU’s
decision to make the use of the international standards mandatory
for reporting in its capital markets from 2005.

Two Big Four partners speaking with the International
Accounting Bulletin
agree it is vital the finance profession
has sufficient time to get up to speed with IFRS before reporting
begins. Ken Williamson, leader of the financial reporting advisory
team at Ernst & Young (E&Y) UK, says the biggest challenge
regarding the implementation is the level of technical competence
in the marketplace.

However, he warns preparing for the transition to IFRS could be
more problematic in the US than it was in the UK. “It was more
within the control of the profession in the UK because we take
graduates from any discipline and put them through training in the
UK,” Williamson says. “In the US… usually you have an accounting
degree before you join an accounting firm. So the colleges and
universities are going to have to get to grips with IFRS first as
well as the accounting profession and the corporates. There is
going to be a massive skills shortage and if the corporate world is
given a very short time to implement, then it is going to be
difficult to get the competency up in time to deal with it

PricewaterhouseCoopers UK head of assurance Richard Sexton adds: “I
think you need to take the changeover very seriously, whenever you
do something as big as adopting a completely new set of accounting
standards, some of the principles may be the same, some of the
disclosures may be the same, but the devil is always in the

The consensus among several US IFRS experts who spoke with the
International Accounting Bulletin is that IFRS is coming
but whether the nation is prepared in time remains to be seen.
Bruce Pounder, president of consultancy Leveraged Logic, says he
believes it is “virtually certain” the US Securities and Exchange
Commission (SEC) will decide as early as this year to allow US
registrants the choice of using either US GAAP or IFRS, with the
change perhaps effective from 2009. Pounder suggests adoption will
be voluntary and interest the largest companies to begin

“Over a period of years, more and more companies will find it
beneficial and they will have gotten philosophically comfortable
with the idea of making the switch from US GAAP to IFRS,” he says.
“For a market as large as the US it will be titanic in scale.
Fortunately, with the concept of the option [to adopt], I think we
will see a classic adoption curve. The good news is not everybody
is going to rush to switch at the same time and the most eager
companies are going to be the ones with the most to gain and most
resources to devote.”

The professional service firms that serve large multinational
clients are invariably members of international networks and can
draw on the resources of international counterparts that already
use IFRS. KPMG US audit department of professional practice partner
Paul Munter says KPMG began training staff on IFRS in 2004. Munter
estimates that the US firm has more than 1,000 audit partners and
managers who have IFRS training.

Mid-tier challenge

Outside the Big Four, however, it is a different
story. Crowe Chizek is one of the largest mid-tier firms in the US
but most of the firm’s clients are domestic entities. Assurance and
financial advisory services executive Hans-Peter Rudolf said he is
a little sceptical whether many clients would voluntarily switch to
IFRS and predicts most clients will adopt a ‘wait and see’
approach. Crowe Chizek recognises the need for IFRS capacity due to
its strategy to push upmarket and is training staff. Rudolf said
inadequate IFRS training could provide a barrier for prospective

Asian demand

China is another nation on a path towards  IFRS
convergence. As it progresses, the demand for qualified personnel
with international expertise is rising exponentially.

lChinese firms, often backed by their global network
partners, professional accountancy bodies, the government and
neighbouring countries, are all providing assistance in
IFRS-related training to the country’s rapidly evolving profession.
Chinese firms also rely on secondees to boost IFRS expertise.

BDO China regional co-ordinator Floyd Chan says the firm has drawn
on BDO International’s infrastructure to provide IFRS resources and
training. BDO established an IFRS resource centre which provides
IFRS tools, technical materials and publications for all staff
members. Chan says: “We have conducted basic training in each
office, event training courses and have tried to update every
training material as the IFRS convergence process continues. We
have also established IFRS country leaders, what we call IFRS
champions. Each country would have one person in some way
responsible for IFRS implementation and its training.”

PricewaterhouseCoopers (PwC) India will also utilise IFRS-trained
secondees from other firms in the international network. Listed
entities in India will be required to use IFRS from 2001 and other
public-interest entities such as banks, insurance companies and
large-sized entities are also expected to be subject to IFRS
following confirmation from the Indian government and other
regulatory authorities.

PwC India expects to draw on the experience of other countries in
its global network that have already made the change to IFRS to
help its transition. A system of training secondments has already
begun at the Indian firm. PwC India, along with the Indian
Institute of Management, is looking to create a special IFRS module
to educate clients. Internally, the firm has nominated its IFRS
experts and their training is due to begin shortly.

The costs

The most significant cost of implementing IFRS in the UK was
training, Williamson and Sexton agree. During the three years
leading up to 2005, E&Y UK put all its auditors through four or
five days of intensive IFRS training annually, which Williamson
says was one of the larger training exercises the firm has
conducted. He estimates the IFRS training investment was about
three times the size of what E&Y would usually invest in
training each year.

Sexton says that while the cost of getting people up to speed is
now defrayed, there is an ongoing cost in maintaining competence
levels for two sets of standards as UK GAAP is still used for
non-public interest entities.

“We have to maintain two languages, and that has a cost because UK
GAAP is, if you like, now the orphan child. It is not the primary
public reporting language,” he says.

The potential of Japan retaining two languages is the greatest
concern of Nexia Japan managing partner Sosuke Yasuda as the
nation’s convergence with IFRS by June 2011 draws closer. Nexia
Japan has already begun engagements that include reviews of
financial statements prepared under IFRS, both for inbound
subsidiaries of foreign companies in Japan and for outbound
subsidiaries of Japanese companies, Yasuda says.

How costly the implementation of IFRS will be, will depend on the
manner in which it is adopted, he adds. If IFRS becomes the only
standard in Japan, it will be easy, however if Japanese GAAP is
retained and the two sets of standards are used, “it will cost too
much for us”, Yasuda says. “In this case we have to not only study
both, but also study all cases of adjustment for converting both

The benefits

Williamson says it is difficult to quantify
specifics on revenues and impacts associated with IFRS, not least
because there were several significant concurrent events affecting
the volume of work the firm experienced at that time, including the
implementation of the Sarbanes-Oxley Act in the US and a buoyant
transactions market in the UK.

One-off work in the year of conversion earned PwC UK about £10-15
million “in the grand scheme of things”, Sexton estimates. There
was also a very significant increase in the amount of work for a
company to produce IFRS-compliant accounts, he adds.

“We think [audited financial statements prepared under IFRS] are
probably about 30 percent longer, given the disclosure
requirements. Therefore, there is necessarily quite an uptake in
the amount of work. That is ongoing and it now gets imbedded
because IFRS rarely takes disclosure requirements away.”

The future

Nigel Sleigh-Johnson, head of the Institute of
Chartered Accountants in England and Wales financial reporting
faculty, predicts the IFRS implementation process could be easier
for jurisdictions adopting the standards now and in the future than
it was to for the EU.

“The standards at the moment are fairly stable, although there are
inevitably changes happening all of the time,” he says. “[In the
EU] people were waiting for the standards that they had to apply
and it made the transition more difficult. So maybe there were some
challenges more acute for 2005.

“I think it was quite a challenge for all concerned to get up to
speed and there were major risks for the credibility of the
profession and for the credibility of financial reporting
generally. [However,] the transition was challenging but
successful… It was generally a success story, but a very
challenging one for everybody and no doubt about that.”