Sir David Tweedie Takes On IFRS

Despite a U.S. plan to adopt IFRS by 2014, the head of the IASB says global, economic and political pressures may force the U.S. to adopt by 2011.

June 4, 2009
by Sukanya Mitra

With his dry wit and spunk, Sir David Tweedie, chairman of International Accounting Standards Board (IASB) entertained and educated over 1,500 professionals and Hofstra University students at a recent KPMG-hosted Webcast on the current status of IFRS and the not-so-looming convergence deadline.

“Regardless of when the United States decides [to converge], you have Canada moving, Korea, India and Japan — and they all want us to finish in 2011, so this not just a U.S. thing,” said Tweedie. “They’re going to finish. Brazil goes in 2010.” He also said that this year Chile and last year Israel had completed convergence, while Mexico and Argentina will have completed convergence by 2012. China completed in 2007. Altogether 117 countries are currently using the system. “There’s one big economy missing … and that’s this one,” he quipped, “In 2011, we’ll be pretty close.” Tweedie expects that the U.S. will finish convergence by mid-2011.

On the issue of the cost of convergence, Tweedie said that looking from a large company’s point of view, the costs “especially for the multi-national” are quite huge because they have to undergo so much reconciliation. That said, he also pointed out that the benefits outweigh the costs drastically, “you have easier communication, easier IT, easier training and you’re understood outside.” He said that what’s happening with IFRS is not so much accounting, but that it has more to do with microeconomics and the fact that the world is shrinking. In the long run, he said it would be easier for companies to come to the U.S. and vice versa when U.S. changes over to IFRS.

What is the best way to adopt? Tweedie thinks it’s best to follow Japan’s subtle steps and then go with EU’s big bang method. While the transition costs will be there, bringing the standards closer similar to what Japan is doing with the JGAAP and running it parallel with IFRS for sometime may work, “and then just go for it.”

Tweedie admits that there are no intermediate pressures from the SEC (U.S. Securities and Exchange Commission), which has set the conversion deadline to 2014. He does think that the immediate call to action for the U.S. is to deal with turning the economy around. However, since all the major economies are in using IFRS except the U.S., and Japan will be adopting within the year, he did not think the U.S. could hold out much longer. He said this was especially so because U.S. presence is on a lot of the boards and its role would diminish if they were authoritative about the standards without converting themselves and “the SEC would not want that either.”

There’s a list of conditions in the SEC roadmap that need to be met, such as “progress on the convergence and funding,” among others, but all-in-all he thinks eventually most, if not all of them will be met and Tweedie predicted that the U.S. will come around by 2011.

In terms of a unified standard board, Tweedie didn’t foresee an end of FASB (Financial Accounting Standards Board) because of its close ties with the international standard setters. “All it needs is a partnership between the two.”

Any notion that private companies will have to convert to IFRS?

Because there are many countries with small firms in Europe, Tweedie said that a shorter version of IFRS will be coming out in July for smaller and mid-sized enterprises. “This [standard] is about 270 pages and has all the main issues that we think smaller companies deal with. It is not a standard number but set up more like a textbook derived from the IFRS and we think that is going to be used by millions of companies worldwide.” He expects the same standard could be used for private U.S. companies.

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Sukanya Mitra is Managing Editor of the Insider™ e-newsletter group.