Steven Brice
Steven Brice

Adoption of IFRS and Human Capital Readiness

One of six key areas the U.S. Securities and Exchange Commission will be investigating in 2011. Is your firm ready?

January 6, 2011
by Steven Brice

The successful implementation of International Financial Reporting Standards (IFRS) is reliant on organizations being well prepared, staff being well trained and auditors being experienced. Organizations need to invest time and money into these areas now in order to avoid last minute unexpected costs and delays when IFRS is first applied.

In October 2010, the U.S. Securities and Exchange Commission (SEC) released a work plan report for the consideration of incorporating IFRS into the financial reporting system for U.S. issuers in which it sets out the remaining research and analysis which is due to be done on the transition for the U.S. to IFRS. It detailed six areas that the SEC will be investigating, one of which is human capital readiness.

With respect to human capital readiness, organizations should be identifying the key areas impacted by IFRS and estimating the resources that will be required to ensure compliance with IFRS, which could be in force early as 2015. The successful implementation will be reliant on boards, audit committees, finance teams and accountancy firms across the U.S., being trained, well equipped and ready for the conversion. Success will come as a result of investment in internal training, balanced with the use of external expertise.

Human Capital Readiness

When undergoing such a significant change, education and training of staff is critical. Undertaking a shift in the fundamental methods of accounting will require guidance and support in order to ensure that organizations are well prepared.

Education and Training

Despite some unwillingness in the U.S. to adopt international standards of accounting, the AICPA has realized that there will still be an element of convergence, if not an outright conversion. Hence, from 2011 CPA courses will include a broad understanding of IFRS that will be subject to examination. Those individuals who are beginning their finance careers now will have some exposure during their professional studies but it will take many years for these students to be leading organizations applying IFRS, by which time conversion will likely have already taken place.

But what about those who are already qualified?

If IFRS is required, organizations have a decision to make:

  • They can either develop and train their existing staff or
  • They can use external advisors to help them through conversion.

If internal staff are used on the project this will take some of their time away from their current roles. However, one cannot easily ignore their sound understanding of the current operational and finance structure. This is invaluable when trying to put together a complex conversion plan that will impact various aspects of the business. Bringing in external advisors — perhaps those who have already dealt with IFRS transition first hand — will bring their own valuable experiences and expertise to the table.

The demand for professionals with IFRS knowledge has intensified and, as a resource, these professionals are becoming more important. In order to take advantage of this surge in demand, many institutions (accounting firms, training providers, colleges) are running training courses to help train and guide those who will be at the forefront of any change to ensure that they are well equipped to deal with the task ahead.

In addition, we must not forget about other members of the organization, those outside of finance who are making operational decisions. They may need to have an understanding of the basic concepts of IFRS relevant to their areas of responsibility in order that their organization can continue to make appropriate strategic decisions. Will this come from an internal source or from an external expert? Ultimately, this is for each company to decide, but it needs to be considered at an early juncture.

In essence, a balance between internal training and external expertise will need to be struck to help manage and prepare entities for the transition to IFRS. Organizations need to consider the timing of such education; too early and the skills leant will be lost, too late and the training may be rushed and incomplete in order to meet deadlines.

Auditor Capacity

As IFRS has a more principle based approach to accounting, it has inherently more areas of judgement than U.S. Generally Accepted Accounting Principles (U.S. GAAP). Given this, and the complicated nature of converting to IFRS, constant communication with and guidance from auditors, is essential.

If auditors' guidance is to be sought, it is imperative that auditors are well versed in the application of IFRS. IFRS aware auditors with real practical experience are a comparatively small group given the likely huge demand for IFRS experts. Audit firms need to ensure that their staff is up to speed with IFRS standards and this will require significant investment on their part. Even with this investment, first-time application of IFRS may drive up audit costs as people get up to speed with new requirements. Those firms who have experience in IFRS, especially conversions, may be able to demand a higher price for performing services more efficiently.

European Experience

The U.S. can look to the experience of Europe, in which the transition to EU-IFRS took place for listed companies in 2005. This will highlight the lessons learned by their European colleagues, such as:

  • The unexpected costs incurred due to a lack of forward planning;
  • The importance of timely training; and
  • The potential benefits of conducting an IFRS impact assessment at an early stage.

In early 2005, prior to the introduction of the new standards in the EU, the majority of listed companies considered themselves to be well prepared for the adoption of IFRS even though about half (Mazars — IFRS 2005 European Survey) still considered the cost of implementation was not outweighed by the potential benefits. Overall upon transition, European companies learned that whilst IFRS allows accounting policies to be more in line with the economic substance of transactions, the standards themselves are still complex and a large amount of work is required to ensure that they are applied correctly.


The transition to IFRS, whether it is through convergence or conversion, organizations are going to have to balance the need for internal and external expertise, depending on their specific requirements. Those who are experienced, have the expertise and can offer quality services, should be the ones providing the training. An underestimation of the time and planning involved in changing from U.S. GAAP to IFRS is unwise, given the human capital aspects of the conversion process.

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Steven Brice is a technical partner in the financial reporting advisory group for Mazars UK and provides his views on international convergence of GAAP and whether progress is really being made in light of recent developments. For U.S. IFRS, you can contact Remi Forgeas, CPA, who is an audit and assurance partner.

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