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April 30, 2008

Grant Thornton predicts IFRS could replace US GAAP

By Nicholas Moody

Grant Thornton predicts IFRS could replace US GAAP

A mid-tier US firm has estimated that a mandatory move for US companies to IFRS could happen within five to six years following a recent US Securities and Exchange Commission (SEC) decision.

The SEC voted unanimously to allow foreign entities to file financial statements in the US using IFRS without reconciling to US GAAP. SEC chairman Christopher Cox said consistent application of international accounting standards would help the two-thirds of US investors who own foreign securities to understand and draw better comparisons among investment options than they could with a multiplicity of national accounting standards. The regulator hopes the allowance to use IFRS in the US would encourage the use of IFRS as a global standard.

Gary Illiano is national partner in charge of accounting and auditing for Grant Thornton US. He said Grant Thornton’s view is that there ought to be a move towards one global set of accounting standards that are high-quality and widely accepted, now that the decision to allow IFRS filing from foreign entities has been allowed.

“I think the fact that SEC has passed this recent rule eliminating the reconciliation hopefully [will mean] they will move forward to rule-making on the concept release to allow US issuers to use IFRS. I think those things will provide the impetus to have us all converge on accounting standards,” he said. There are more than 100 countries using IFRS and Illiano predicts that eventually the majority of the world, in terms of countries and market economies, is going to be using the international standards.

“So that means you’re heading towards a situation where [US companies] have a choice between two systems, which is IFRS or US GAAP. It wouldn’t make sense for US GAAP to hold out under those circumstances so that means the move towards [mandatory reporting using] IFRS is virtually inevitable if you project out far enough,” he said.

However, a recent Grant Thornton survey of chief financial officers and senior comptrollers in the US found that 56 percent did not agree with the SEC’s proposal to permit foreign firms listed on US capital markets to file financial statements prepared according to IFRS without reconciliation to US GAAP. The survey, held before the SEC announcement, also found the same percentage of respondents disagreed that US firms should be permitted to use IFRS in financial statements filed with the SEC instead of US GAAP. Despite this US-based resistance, the SEC move has received widespread approval from international companies, accounting bodies and firms around the world, including the International Accounting Standards Board and the European Commission.

The chairman of the European Financial Reporting Advisory Group, Stig Enevoldsen, called the removal of the SEC reconciliation requirement for foreign filers to reconcile from IFRS to US GAAP “a grand day for global accounting”. German auto manufacturer Daimler, an early advocate of IFRS, stands to benefit directly from the SEC decision. A Daimler company spokesman said the decision would reduce the complexity of preparing financial statements and provides capital markets with clear information, and will result in minor cost savings.   Nicholas Moody

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