A June forum on International Financial Reporting Standards (”IFRS”) held in New York saw some urgency around getting the United States aligned on timing and action steps for making a transition to IFRS.

For those new to the topic, migrating to IFRS will mean US companies will begin using the same reporting and disclosure guidelines that more than 100 financial markets around the world, such as Australia, the European Union, New Zealand and Israel, currently permit or require. While there are a number of similarities, there are also significant differences between IFRS and US GAAP (Generally Accepted Accounting Principles) — more on the finer points in this related audiocast and Perspectives article (click on the image above).

Assuming that the SEC continues its onward push toward convergence with IFRS, US companies may quickly find themselves unprepared unless they and their auditors begin to educate themselves now. Even the uniform CPA examination in the US is considering an exposure draft [PDF] that would incorporate new testing requirements of IFRS in the future.

For some, IFRS is the source of optimism for global growth, according to a study by the International Federation of Accountants (IFAC). The organization found that a move to IFRS is expected to boost business, as “approximately 50 percent of respondents said convergence to a single set of international standards…for [Small to Mid-Sized Enterprises] is important to economic growth in their countries.”

The American Institute of CPAs (AICPA) has been one of the most vocal proponents of raising awareness of IFRS. The AICPA recently launched www.ifrs.com as an information resource on the transition, and in April conducted a poll of CPAs to gauge expectations. While 55 percent of 1,240 respondents said that they expect the move to IFRS to directly impact their work, 59 percent said they have not begun to prepare for adoption. Most felt that three to five years was a reasonable time frame to ramp up. However, even more time might be necessary when one considers that public filers will need to report IFRS-processed numbers for three years of income statements and two years of balance sheets; arguably, one would have to start converting to IFRS now in order to be ready to report IFRS numbers in three to five years.

The SEC is currently reviewing a proposal to allow U.S. companies to file under IFRS voluntarily, with a mandated deadline to be set in the future. With these wheels in motion, CPAs are already preparing for IFRS and companies looking to compete across borders will be better armed for global business by doing the same.

Not everyone is convinced that IFRS will improve financial reporting in the United States. For one, IFRS came into being in the early 1970s and is arguably less developed than US GAAP, which got its start in the 1930s. Further, adoption is expected by many to be more complex than the adoption of the Sarbanes-Oxley Act of 2002, which saw internal and external costs for corporate America rise exponentially, and will require an overhaul of the SOX 404 internal controls to ensure proper alignment of systems with IFRS accounting standards. Given that the US arguably has one of the most dynamic economies and easy access to capital, one must wonder if adoption of IFRS is truly necessary to remain competitive in a global economy.

Despite the potential for controversy and debate, it is becoming more and more apparent that an understanding of IFRS and what it might mean to US companies is imperative. Efforts should be underway now to develop the expertise because it is likely that the ramp up time will be significant. Also, users of a company’s financial statements (e.g., Board members, audit committees, investors, bankers, etc.) should begin developing an understanding of what IFRS could mean to financial reporting. There are many resources available, such as the AICPA’s “IFRS Primer for Audit Committees“, that will provide support. Of course, you should work with auditors that are well versed in IFRS to help support your own educational development.

If you haven’t heard of XBRL before, don’t worry, many others haven’t either. Unless you enjoy following the actions of the SEC and their worldwide counterparts, XBRL doesn’t exactly come up at your usual dinner party. However, if you’re responsible for financial reporting at a SEC registered company or are planning to register your company’s shares with the SEC, then you should be familiar with XBRL and it’s potential impact on your financial reporting processes.

For the uninitiated, XBRL is an acronym for eXtensible Business Reporting Language. XBRL is not a new technology, but is a standards-based way to communicate business and financial information. There are a number of resources on the web to help educate yourself and your staff on the topic, such as the AICPA’s XBRL site. Whether you’ve heard of XBRL or not, one thing is for sure: whether you’re the director of financial reporting, a corporate controller, or the CFO for your organization, what you need to know about XBRL is that it will require planning and forethought and will certainly involve change to your existing systems and financial close processes.

Currently, the SEC does not require registrants to submit filings in XBRL format, though they did issue a proposed rule [PDF] on May 30, 2008 and are currently soliciting public comments until August 1st. This proposal may soon change things for registrants and investors alike. For registrants, there are a number of ways to tackle the implementation of XBRL reporting; some may opt to outsource the effort to their financial printers, others may convert their data ‘manually’ with easy-to-use software tools for each reporting period, and others may implement software solutions directly into their general ledger or ERM packages. Regardless of how one gets there, it is apparent that it will involve support from your IT and financial experts, and will likely require Section 404 considerations relative to the internal controls within the organization.

It is worthwhile to note that most major financial markets are are moving in this direction, and XBRL is now mandated for financial filings in multiple jurisdictions worldwide. XBRL is moving ahead with or without us, and other US agencies such as the IRS and state taxing authorities are considering the merits of XBRL filings. Despite this, according to a June 2008 Compliance Week survey [subscription required] of 236 financial reporting executives, 55% have either just started researching XBRL or are not aware of the subject at all, and less than 20% of respondents have anybody on staff considered to be an XBRL expert.

The time is now to consider the effect of XBRL on your business and planning process. The short term effects of XBRL will likely be limited; just ask the early voluntary filers. However, it is clear from SEC speeches and proposals that XBRL is coming, and coming fast. Long-term benefits are likely to be realized by those businesses that are willing and able to embrace the technological change that XBRL will bring about, such as easier and faster access to competitive information and knowledge. If you haven’t already, I encourage you to learn more about XBRL and prepare for the forthcoming changes.

My inaugural blog for MFA has me thinking about transparency in business. After all, what is a corporate blog if not the embodiment of a transparent means of communication with one’s clients, colleagues, and interested stakeholders. Transparency has been, in part, facilitated by technology, and hence the birth of tools such as this blog. My goal each week is to use this tool, like so many of the technological tools before it, to deepen our relationship with MFA’s core constituencies and encourage open dialogues on a varying degree of subjects over time.

Like business in general, change is ever-present in public accounting. We must remain expert on technical financial reporting pronouncements that are continually evolving; we must continually demonstrate our expertise of complex federal, state and international tax laws; and we must have a solid understanding of the economic environment in which we all live and operate our businesses. One need look no further than to recent FASB actions to understand how the theme of transparency continues to pervade business. More and more, FASB projects are actively addressing the questions of fair value accounting, convergence of US accounting standards with international accounting standards, and simplification of the existing bodies of accounting knowledge – all great examples of how transparency in business and reporting continues to pervade every facet of what we do.

Having grown up in the 80s, my first introduction to the use of technology to speed up business was in the form of fax machines and so-called portable computers that probably weighed fifteen pounds without a modem or network access. Many enterprises did not have local area networks, the internet was barely known to most and the World Wide Web had yet to come into existence – I lived online in the limited world of AOL and couldn’t email someone unless they, too, were an AOL member.

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