Europe's largest professional accountancy body, the Institute of Chartered Accountants in England and Wales (ICAEW), suggests that the global financial crisis has clearly illustrated the need for a global accounting language. It urges the US Securities and Exchange Commission (SEC) to decide quickly on International Financial Reporting Standards (IFRS) transition deadlines to limit uncertainty for US companies.
Dr Nigel Sleigh-Johnson, Head of the ICAEW's Financial Reporting Faculty, said:
"The close scrutiny of accounting for financial instruments during the financial crisis has made the need for comparable financial reporting even more obvious. We believe strongly that the transition by US companies to IFRS would not only benefit US companies, but the whole world, as it will improve transparency and comparability globally."
In its submission to the SEC consultation on its IFRS Roadmap, the ICAEW highlights the importance of technical independence and robust due process in the setting of accounting standards. It goes on to suggest that critical success factors for US adoption of IFRS are early educational programmes for users and preparers of financial reports as well as well-understood transition deadlines towards which companies can work.
"We know from our 2007 study into IFRS implementation across the EU that companies need a significant amount of time to prepare properly. A 2011 decision with potential mandatory use of IFRS from 2014 might be tight.
"However, the most important thing for businesses is certainty. The Roadmap approach to decision-making might result in uncertainty that discourages companies from early adoption out of concern that they might have to revert to US GAAP," Sleigh-Johnson commented.
The ICAEW calls for the SEC to take its final decision as early as possible and set a realistic, fixed, clear and certain timetable for transition. It also suggests that, as far as possible, the number of changes to the standards should be limited during the transition period to help companies get to grips with the existing IFRS requirements.
According to the ICAEW, the best option is to aim for a simultaneous transition as far as possible rather than a multi-stage one, as the market is better able to deal with one big change rather than a complex and protracted process of change.
17 April 2009