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