Remi Forgeas
Remi Forgeas

Conversion to or Convergence With IFRS

Why U.S companies should start their assessment now.

March 22, 2010
by Remi Forgeas, CPA

Following U.S. Securities and Exchange Commission’s (SEC) recent update on the Roadmap to IFRS, you may be wondering if there is a need to begin the conversion project to International Financial Reporting Standards (IFRS) today. True the SEC confirmed that no decision will be made before 2011, as initially stated in the Roadmap. Moreover, if the decision were positive, the adoption date would probably be 2015 and not 2014 as proposed in the Roadmap. Also, the SEC reiterated the list of issues, some being quite significant — for example the concern on the independence of the International Accounting Standards Board (IASB) — to be addressed and tackled before any decision could be made.

However, the SEC reaffirmed its support “for a single globally accepted standard.” From a U.S.-only standpoint, this statement leaves the door open to U.S. Generally Accepted Accounting Principles (GAAP) and IFRS. Considering that over 100 countries have already adopted IFRS, with Canada moving to IFRS in 2011, it is doubtful that GAAP can be seen as the One.

Notwithstanding all these arguments, CPAs may still share the view that the SEC may finally decide not to move to IFRS and/or that 2015 is far away, even with the two comparative years (i.e. opening balance sheet as of January 1, 2013).

This “we have time” thinking seems logical especially when companies have to deal with the economic crisis, but it is nonetheless flawed because IASB and Financial Accounting Standards Board (FASB) already work together on their convergence project, which should be completed in 2011. Therefore, even if the U.S. kept GAAP as their accounting standards, the changes we have already seen and that we will see within the next 12-month to 18-month period in these standards will force companies to adjust their organization.

The Convergence Already Impact U.S. companies

In 2006, IASB and FASB signed a Memorandum of Understanding (MoU) in which they agreed to work on short- and long-term joint projects in order to converge both standards. At the end of 2009, both boards reaffirmed their commitment to the MoU and to its deadline: 2011.

The convergence project as defined in the MoU does not mean that the IASB will shift to FASB. It simply means that both Boards will work together to adopt converged accounting standards in order to narrow differences that exist. The starting point of the process for any company may be a current GAAP standard, a current IFRS or a totally new envisioned standard (for example: leases, revenue recognition or financial statements presentation).

It should be clear that U.S. companies will be impacted by the objective of having one set of high quality and single globally accepted standards even if the SEC decided not to move to IFRS. Two recent pronouncements illustrate the changes to GAAP and then for U.S. companies, resulting from this convergence project, because of which FASB moved toward the IASB model:

  • Business combination with the recognition of the goodwill on non-controlling interest; (readers should note, however, that the original IFRS did not require goodwill on the non-controlling interest.) and
  • Presentation of non-controlling interest as part of the equity

The Plan for Conversion/Convergence Should Be Laid Out

Companies should prepare themselves for this convergence/conversion to IFRS the same way they would for the adoption of new standards. One could argue that the conversion to IFRS is not different in nature from the adoption of new standard. The difference being significantly more new standards.

In addition, companies will need to ensure the process they follow does not create weaknesses or deficiencies in their internal control.

Until the SEC has issued its final decision, companies see little value to allocate a lot of resources to this project. But at the minimum management should lay out a plan that ensures the awareness of major impacts created by this transition early on in the process and that the organization is prepared to move forward as soon as needed.

The work-plan could be structured as is:

  • Identify and set up the IFRS project team, including the project leader and the contact persons in various departments (finance, HR, IT, operations and more) and assess if external resource will be necessary. Once the project starts, the team has to be fully dedicated to the project. This is key to the success of the transition because it is critical to identify “back-ups” for positions people considered to be part of the IFRS project team currently hold.
  • Review the current accounting policies, in order to ensure they are still up-to-date and identify what changes will be necessary due to the new standards, but as well due to past changes in operations, which may have been overlooked.
  • Perform a high-level assessment of the impacts (nature and rough estimation), the starting point would be the financial statements, but expect changes in the organization to gather the proper information should be highlighted.
  • Analyze IFRS 1 on first-time adoption and assess which options could be elected along with their impacts.
  • Identify what data are to be obtained and where they are located, in order to be able to meet new requirements, including disclosures (information on credit risks in accordance with IFRS 7 for example).

Involve IT, HR, Legal and Operations Early on in the Thought Process

The work-plan suggested above is not presented in a chronological order. Except for the identification of the project team, which has to be done at the kick-off stage, other parts are more or less to be conducted together. Based on the past experience in European countries, the full transition to IFRS, with the required changes in the organizations, takes between two and four years depending upon the complexity of the operations and the size of the organization.

The completion of this plan will allow companies to save on resources and draw a work-plan that will be fully implemented once the SEC issues its decision. By doing so, it will be in a better situation to complete a transition to IFRS as smoothly as possible.

US companies have a major advantage compared to foreign companies: They can evaluate the past experience of the transition abroad and implement best practices. For multinational companies, internal resources with past experience of the transition exist and it should not be difficult to leverage on their expertise. Another source of best practice/experience is to look at Canadian companies, which are currently going through the process. Compared to countries with accounting standards very different from the GAAP, Canada applies accounting standards close enough to GAAP, especially for some industry-specific issues, such as regulated activities.


U.S. companies can expect an easier conversion process, as a result of the convergence process. Standards on share-based payment has already been converged, to mention one standard and the impact of the conversion would be limited to the financial statements, obviously, but, also, on the organization of the companies for these topics.

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Remi Forgeas, CPA, is an audit and assurance partner for Mazars in the U.S. For U.K. IFRS, you can contact Steven Brice, who is a technical partner in the financial reporting advisory group for Mazars UK.

* The views expressed in this article are the author’s own and do not necessarily reflect the views of the AICPA or AICPA CPA Insider™.