The proposed roadmap to the adoption of International Financial Reporting Standards (IFRS) by the U.S. Securities and Exchange Commission (SEC) in November 2008 was the most recent indication that the U.S. will not stay away of the IFRS, when the rest of the world is fully embracing them. The recent declarations of the newly-appointed SEC commissioner indicates potential delays in the adoption of IFRS by the SEC and, at least, until 2011 (as it is currently drafted in the proposal), no decision will be made on this matter. With such delays and uncertainties, you may wonder why now there is still a need to train and educate people on IFRS. Such a view is shortsighted because not only does training take time, but also 2011 is not that far, and a lot of companies are already using IFRS on a regular basis: consolidation of foreign subsidiaries, cross-border M&A activities, benchmarking with the competition and others.
Who Needs Training on IFRS?
In a nutshell, the answer to this question is: all market participants. Obviously, CPAs, auditors, CFOs and accounting departments need to master these standards. In addition to this “core team” the list of people who will interact with IFRS is quite extensive, even if the level of their required expertise may be quite different.
Within the companies, besides the accounting and finance department, IFRS understanding and knowledge will be necessary for at least these departments:
- Internal Control: identification of any modifications required by the transition to IFRS, scoping methodology, use of new standards.
- Information and Technology: IFRS data conversion, chart of new accounts.
- Tax department: change in the starting point for tax position.
- Planning and Budgeting departments: research and analysis of competitors, strategic plans and initiative.
- Communication to investors.
- Human Resources: develop the training plan on IFRS.
Outside the companies (i.e. financial services), investors, lenders, financial analysts, rating agencies, audit committees, specialists (actuaries, valuation experts) will also need to understand IFRS.
The last, but not the least, population that needs an extensive training on IFRS is not on the market yet: students in accounting and finance fields, along with their professors and future CPAs.
How Do You Prepare for IFRS?
- Preparers’ accounting and finance department. The implementation of IFRS will require accounting and finance department to handle two sets of standards during the transition phase: IFRS and Generally Accepted Accounting Principles (U.S. GAAP). The change from one set of standards to another is not similar to a change in accounting policy when a new standard is issued. Despite the convergence process between the two standards, training will be required.
The timeframe proposed by the SEC (2014 for U.S. public companies) is close enough to start the training process and provides sufficient time to develop a scalable and multi-year training approach. The plan should include high-level comparisons between IFRS and U.S. GAAP to progressively gain a deep understanding of individual standards and, as well important if not more, a good grasp of the thought-process to correctly apply IFRS.
- Preparers’ other departments. The impact of the change to IFRS is not limited to the accounting and finance departments and the proper training may make a difference at the time of the transition and going forward.
The main objectives of the training plan for departments other than accounting and finance are to understand the reasons for the adoption of the IFRS, the importance of the transition for the Company, the timeline of this adoption and the potential impacts on each department of the organization.
This awareness campaign should be conducted early in the process to dispel any misunderstanding with respect to this new set of standards.
- Practitioners: CPA Profession. Most of the CPA will be impacted by the transition to IFRS and undoubtedly it will create a need of training. Some of CPA firms have already started the training of their own professionals notably by using the materials and knowledge acquired during the transition to IFRS of other countries.
As an example, within our firm, we leveraged the experience gained by our teams in other offices abroad and developed a training course at the group level to be used locally, especially in the USA.
In addition, professional organizations have developed tools to help CPA in this transition process. In May 2008, the AICPA launched a dedicated Web site, which provides training options for CPAs. As part of that initiative, the AICPA also conducts a regular IFRS Preparedness Survey of members to gauge U.S. CPAs awareness and knowledge of IFRS.
- Other third parties: from investors to lenders. The implementation of IFRS will have an impact on the way these people understand the financial performance and therefore in their investments or lending decisions.
The education and training should focus not just on standards, but on how to understand them. The shift in the thought-process from U.S. GAAP is quite important and it requires from users of financial information the same change in the mind process.
Where Does the Next Generation Come In?
- Dramatic changes for the university. As of today, the exposure of students in accounting and finance to IFRS is minimal. If colleges and universities do not modify their curriculum on this matter, this could impair the value of these students when they reach the job market.
So far, a limited number of universities have been educating students in international accounting standards. Only 22 percent of 535 accounting professors surveyed by the American Accounting Association in 2008 said they would incorporate IFRS into their curricula in any significant way in the 2008 – 2009 academic year and two out of three (62%) admitted they have not taken any significant steps toward doing so. The survey found that the first class of graduating seniors likely to have a substantial amount of IFRS education would be the class of 2011, followed by the class of 2012.
The shift from GAAP to IFRS will increase the importance of professional judgment based on thorough analysis of fact patterns and it is critical for students to be taught that way. But before teaching to students, the faculty must be trained. According to an American Accounting Association study, the average age of accounting professors is 56, and a significant number of these professors may decide to move on or to retire instead of learning the new accounting system.
The teaching of IFRS will require an initial and major investment since accounting textbooks will have to be revisited: instead of the annual update to include SEC and FASB new pronouncements, textbooks will have to be re-written in full.
The AICPA is currently reviewing the possibility to incorporate questions on IFRS to the CPA exam. The completion of this project will provide universities with the incentive to include IFRS to their curriculum and to modify textbooks accordingly.
- Uniform CPA examination. The AICPA view on the need to incorporate IFRS to the curriculum is clearly stated on its website: “The bottom line is that CPAs need to begin to prepare for the day in the not-so-distant future when the SEC could designate a date for voluntary, or even mandatory, adoption of IFRS by all U.S. public companies.”
Coverage of IFRS on the CPA examination is expected by the year 2012, but possibly sooner and would become eligible for expanded testing in the exam.
Experience of the implementation of IFRS in other countries should help the U.S. realize that the training and teaching process has to start as early as possible and that it cannot be limited to people dealing directly with accounting matters.
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Remi Forgeas, CPA, is an audit and assurance partner for Mazars in the U.S. For European IFRS contact, you can reach Steven Brice, who is a technical partner in the financial reporting advisory group for Mazars in the U.K.
* The views expressed in this article are the author’s own.