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GAAP to IFRS
The Inevitable Change






Accounting Research Paper
2
Table of Contents

GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 3
IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS 4
IMPACT AND BENEFITS OF IFRS 5
DIFFERENCES BETWEEN GAAP AND IFRS 7
CONVERGENCE 10
TRANSITION MANAGEMENT 14
RESPONSE TO CHANGE IN ACCOUNTING PRINCIPLES 18
ACCOUNTING PROFESSORS AND CURRICULUM 19
CONCLUSION 26
BIBLIOGRAPHY 28
APPENDIX I 29
APPENDIX II IFRS READINESS TRACKING SURVEY MAY 2011 N/A
APPENDIX III PROGRESS REPORT ON CONVERGENCE N/A



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GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Different countries have different requirements for their accounting systems and
as a result accounting standards in each country have developed differently. These
standards are dependent on the type of market that exists in a country (a capital or credit
market). The US market has always been a capital market and this capital market shaped
the accounting principles in place in the US (U.S. GAAP). Accounting principles and
standards came into place after the crash of 1929. The Securities and Exchange Act of
1933 established The Securities and Exchange Commission (SEC). Since the
establishment of the SEC it has been working closely with accounting standard setting
bodies that have been established such as FASB in setting and enforcing U.S. GAAP.
The Generally Accepted Accounting Principles (GAAP) is the accounting
standard used in the United States. GAAPs development was influenced by the local
culture, educational system, religious beliefs, and such other factors relevant to the
country. Before the International Financial Reporting Standards (IFRs) was created and
adopted or accepted, most nations had their own version of GAAP.
FASB (Financial Accounting Standards Board) is the standard setting body in the
US for financial accounting and reporting for companies listed on the stock exchange and
private companies. FASB is an independent standard setting body and the SEC
recognizes its standards as the authoritative figure for accounting and reporting for public
companies (not companies owned by the government) and private companies. In many
cases the financial reporting and accounting requirements have originated from the
Generally Accepted Auditing Standards (GAAS), and the American Institute of Certified
4
Accountants (AICPA) has established the ethical requirements in place for accountants.
In 2009 the structure of the U.S. GAAP changed with the launch of the FASB
Accounting Standards Codification (ASC). The codification was developed as a result of
reported difficulties with applying guidance under the four-tiered GAAP hierarchy. In
addition with the FASB standards, SEC registrants are required to comply with the SEC
financial reporting requirements. (Grant Thornton)

IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS
The International Financial Reporting Standards (IFRS) are a set of standards
developed by the International Accounting Standards Board (IASB). The IASB is an
independent organization, based in London, which sets accounting and reporting
standards. The Board consists of 15 members from 9 countries including the United
States. The AICPA was a founding member of the IASBs predecessor, the International
Accounting Standards Committee (IASC). However, it is not associated with the IASB.
IASC issued standards during its reign, called IAS, which are accepted by the IASB as
legal standards in addition to any standards issue by IASB. Around 120 countries require
or permit domestic companies to use IFRS for their accounting purposes. However, only
90 countries have fully adopted and conformed to IFRS. (AICPA)
European Union (EU) companies with stock listed on the exchange are required to
prepare consolidated financial statements in accordance with IFRS. Australia, New
Zealand and Israel have essentially adopted IFRS as their national standards. Brazil
adopted IFRS in 2010 and Canada adopted it in full on January 1
st
2011. Japan is working
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on the convergence and permits certain domestic companies to use IFRS. A decision
whether Japan is going to make IFRS mandatory will be released in 2012. China is also
converging with IFRS and Hong Kong has adopted national standards equivalent to
IFRS. (AICPA)
The IFRS standards are principle based and allow accounting professional to use
their own judgment while determining what action needs to be taken while preparing
financial statements. They differ from the Generally Accepted Accounting Principles
(GAAP), which are a set of rules based accounting principles followed in the United
States of America. There are four sets of codifications for the IFRS standards. They are
the International Financial Reporting Standards (IFRS), International Accounting
Standards (IAS), International Financial Reporting Interpretations Committee (IFRIC),
and Standing Interpretations Committee (SIC). (Grant Thornton)
There are a few reasons why IFRS can be beneficial for the US economy. One of
them is that IFRS allows for intercountry differences as it gives professionals the space
to determine how a principle should be applied or how it should be interpreted. This
concept is referred to as carve outs. (Miller and Becker)

IMPACT AND BENEFITS OF IFRS
Its important to understand the impact that the shift in accounting principles will
have. In order to understand whether the impact will be positive or negative what needs
be analyzed is whether the benefits will exceed the costs or vice versa. The SEC
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estimates the cost of conversion to be $5 billion. However, though the cost can be
calculated quantifying the benefits is not feasible. 71% of the responders in a survey
conducted by Mr. Langmead and Mr. Soroosh for their article Mapping the Road to
IFRS: A Survey of CPAs in Public Practice believe that the resources needed to prepare
IFRS represent a substantial burden on their clients. Also, 57% believe that IFRS
financial statements will be much more difficult to audit than GAAP financial statements
and 41% of the biggest supporters of IFRS agreed that auditing IFRS statements will be a
difficult task. In addition 71% of the responders also stated that they would find
understanding the financial statements based on IFRS difficult. (Langmead and Soroosh)
The impact of the adoption of IFRS differs for private and public companies as
well as for domestic and international companies. The benefits and drawbacks differ
depending on a companys size, operations and its ownership. IFRS is already available
in the U.S for small and medium sized companies. It can be implemented at any time for
these private companies. A sufficiently comprehensive version of IFRS for SMEs was
finalized recently, and U.S. auditing and reporting standards acknowledge it as a
satisfactory alternative basis of accounting to U.S. GAAP for U.S. private companies.
(Langmead and Soroosh) However, no change for small and medium sized companies
will take place before public companies (not government owned) are required to adopt
IFRS.
The SEC and other organizations that favor the implementation of IFRS state that
there are benefits for companies in the United States if the accounting principles are
changed. There are benefits such as comparability, reduction of accounting costs over the
long term, and easier access to capital. Comparability of financial statements and the
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benefits arising from it are considered primary in the case for IFRS, but such an
anticipated benefit is not widely shared. (Langmead and Soroosh) Such anticipated
benefit is not widely shared, as companies that dont have a lot of international operations
will not benefit from the change in principles. In addition, companies with subsidiaries in
IFRS countries will save on conversion costs, as the subsidiaries and the parent company
will have statements based on the same principles. Also, there might be a reduction in
costs when there are fewer GAAP bases after conversion. (Koehn and Kilmek)
The change from GAAP to IFRS is going to affect tax accounting the most. The
areas its going to affect are revenue recognition, revaluation of property, plant, and
equipment, inventory valuation, sale and leaseback transactions, pension liabilities and
assets, business combinations, and computation of earnings and profits from foreign
subsidiaries. (Koehn and Kilmek)

DIFFERENCES BETWEEN IFRS AND GAAP
The underlying difference between the U.S. GAAP and IFRS is that IFRS is
principle based, where as U.S. GAAP is rule based. However, there are many exceptions
to the rules based standards, which increase its complexity and often lead to problems in
application. The principle based standards account for the exceptions by leaving room for
professionals to apply their own judgment while applying the standards and making
decisions. There are many differences between the two standards. Comparability is one
of the underlying concepts under IFRS because of which single year statements are not
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permitted except for the first year the company is in operation. GAAP, on the other hand,
allows single year statements.
Under IFRS, all subsidiaries must adopt the parent companys accounting policies
in consolidation. Such a determination of consolidation under GAAP is based off of the
Variable Interest Entity (VIE) model under FIN 46. Under FIN 46, consolidation
decisions are based on determining who has the right to incur the income and losses of a
related entity. Determinations are made naming the primary beneficiary of the related
entity and assessing their relationship. IFRS focuses on the notion of control in
determining whether a parent-subsidiary relationship exists. Control is defined as the
ability to rule over the operating assets of an entity in order to obtain the benefits.
(Feeley and Driscoll, P.C.)
Compensations made to key management personnel are required to be disclosed
under IFRS. However, this is not a requirement under GAAP. IFRS also required detailed
disclosure of the nature of each accrued expense and any changes that are incurred in
them. Under GAAP accrued expenses need not be disclosed individually. (Feeley and
Driscoll, P.C.)
The LIFO (last in first out) inventory method is prohibited under IFRS where as
under GAAP its accepted. IFRS requires companies to use either FIFO (first in first out)
or the weighted average inventory method. Both the accounting standards also differ in
the method used to test the impairment of long-lived assets. GAAP uses the undiscounted
cash-flow method where as IFRS requires the use of and entity specific discounted cash
flow or fair value measurement. (Feeley and Driscoll, P.C.)
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When determining the carrying value of an asset, under GAAP the historical cost
of the asset is used with a few exceptions. However under IFRS the historical cost is the
primary basis of accounting, but assets can be revalued to their fair market value. This
can create a big difference between GAAP and IFRS accounting for the carrying value of
assets. (Feeley and Driscoll, P.C.)
The way depreciation is calculated also differs between the two methods. IFRS
requires important or significant components of property, plant and equipment to be
recorded and depreciated separately. Assets must be depreciated in segments rather than
as a whole. In addition, under IFRS the residual value of assets is also evaluated on the
balance sheet date. (Feeley and Driscoll, P.C.)
In order to determine whether a lease if a capital or operating lease there are four
conditions set which a lease may or may not meet in order to determine its character. The
four specific conditions are ownership transferring to the lessee, a bargain purchase
option, the lease term with respect to its useful life 75%, and the present value of the
minimum lease payments in relation to the fair value of the lease asset 90%. However,
IFRS focuses on the overall substance of the lease and the transaction. It looks into all the
risks or rewards of ownership that are transferred to the lessee. (Feeley and Driscoll,
P.C.)
There are several differences between IFRS and GAAPs accounting and
reporting of income taxes. The tax rate used for measuring deferred tax under GAAP is
the enacted tax rate in place when the timing difference is expected to reverse, whereas
under IFRS, the substantially enacted tax rate is used. (Feeley and Driscoll, P.C.)
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Another difference is that under GAAP there is the option of deferring a tax asset for
short or long term depending on the relationship of the asset and liability with the timing
difference. However, under IFRS deferred assets and liabilities are always recorded as
long term. For non-public companies a reconciliation of the expected tax expense to
actual is not required in detail whereas IFRS requires a complete reconciliation including
the nature and amounts. (Feeley and Driscoll, P.C.)
The requirements for construction contract accounting also differ in the two
standards of accounting. Under GAAP the percentage of completion method is preferred
and the completed contract method is acceptable in certain situations. However IFRS
prohibits the use of the completed contract method. Under IFRS the cost recovery method
is preferred to the completed contact method when the percent of completion method
cannot be used. In addition, combining and segmenting contracts is a requirement under
IFRS when certain criteria are met where as its not required under GAAP. (Feeley and
Driscoll, P.C.)

CONVERGENCE
A move towards uniform accounting standards began in the 1970s with the
formation of the International Accounting Standards Committee (IASC), now the
International Accounting Standards Board (IASB). The globalization of businesses
created the need for uniform accounting standards and this need has been increasing since
the formation of the IASC. Common accounting standards allow stakeholders to compare
domestic and international companies to determine which company they prefer
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depending on their interest. For the U.S. the cost for the US companies clinging to GAAP
are growing exponentially.
The International Financial Reporting Standards (IFRS) are principles based
standards where as the Generally Accepted Accounting Principles (GAAP) are rules
based standards. Its important for accounting principles to understand the differences
between the two standards in order to ensure that there is not a lot of confusion and
insecurity when the switch takes place and when professionals are required to prepare
financial statements following IFRS. Its also essential that investors, managers and
employees of all companies understand that the change in the accounting principles is
going to impact not only the financial statements of a company but also other operating
areas of the company. There is also a need to understand how the change is going to
impact the company as a whole. (Miller and Becker)
Convergence means that the U.S Financial Accounting Standards Board (FASB)
and IASB continue working together to develop high quality, compatible standards
overtime. Adoption will occur when the SEC sets a specific timetable regarding when
publicly listed companies will be required to adopt IFRS. (AICPA) The first step towards
convergence that the United States took was dropping the requirement for foreign private
issuers in 2007 that required them to reconcile their Securities and Exchange Commission
(SEC) filing to the U.S. GAAP. The next step was the proposal of a roadmap, in
November 2008, for the adoption of IFRS in the US. This proposal included allowing
around 110 U.S publicly trading companies to adopt IFRS earlier than the others. The
original map that was proposed by the SEC was issued for comment on November 14,

2008. It identified 2014 as the date for adoption for the largest U.S. public companies to
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convert to IFRS. Smaller public companies had an additional two years for conversion
according to this proposal. The proposal date was later moved from 2014 to 2015.
(Langmead and Soroosh)
The SECs proposed roadmap depends on continued progress in the conversion
process. It does not depend on complete convergence before the companies are required
to adopt IFRS. (Langmead and Soroosh) The work plan issued on November 14
th
2008
by the SEC contained six areas of critical study; 1) the development of IFRS for the U.S.
domestic reporting system; 2) independence of standard setting; 3) investor
understanding and education regarding IFRS; 4) examination of the U.S. regulatory
environment potentially affected by the change in accounting standards; 5) the impact on
issuers, such as accounting systems and contractual arrangements; and 6) human capital
readiness. (Koehn and Kilmek) However, this strategy was modified after taking into
account the input of stakeholders. As a result, there is a possibility that the time when its
decided whether IFRS will be authorized in the U.S. may be postponed.
Even though the adoption timeline states that the earliest mandatory adoption date
will be in 2015, companies should prepare IFRS based statements beginning 2013 as the
SEC will require three years of comparative data in the first year of mandatory adoption.
Though the companies will be issuing public reports using GAAP for 2013, 2014 and the
first three quarters of 2015, they will also have to prepare financial statements using
IFRS. The companies will have to run parallel systems of reporting from 2013 to 2015.
(Koehn and Kilmek)
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The Financial Accounting Standards Board (FASB) and the IASB have been
working together to bridge the gap between the U.S GAAP and IFRS for some time. The
two committees formalized their commitment towards convergence in 2002 and this
commitment has been renewed since then. Many standards have been modified in order
to reduce the differences between GAAP and IFRS. Many standards have been also been
replaced or new standards have been developed jointly while others are in process.
(Langmead and Soroosh) The leaders of the Group of 20 (G20) have known this project
to be the convergence project, and the FASB and IASB have been called upon by the
G20 to work on this project in order to develop a single set of high quality global
accounting standards. (Miller and Becker)
The AICPA teamed up with the Financial Accounting Foundation (FAF) and the
National Association of State Boards of Accountancy (NASBA) to establish a panel in
order to address the issue of accounting standards for private companies and how these
standards can meet the needs of U.S. users. The panel was also called upon to evaluate
how standard setting for private companies in the United States compares to standards
setting in other countries, including those that have adopted IFRS. (Langmead and
Soroosh)
The statement made in 2010 by the Securities and Exchange Commission (SEC)
identified six areas that need to be analyzed before any decision is made regarding the
switch from U.S. GAAP to the IFRS. Of these six, two are primary considerations and
four are important implementation considerations that need to be analyzed before any
decision is made. The two primary areas of consideration consist of sufficient
development and application of IFRS, and the independence of standards setting for the
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benefit of the investors. The other four considerations, referred to as the transitional
issues by the SEC address, investor understanding and education, existing U.S laws, the
systems of large companies, their contracts, governance, and litigation, and the
preparedness and concerns of those who will implement the change.

TRANSITION MANAGEMENT
In order to manage the transition from GAAP to IFRS in the most cost effective
and obstacle free path, companies will need to find the right people and teams to manage
the process. The teams will need to establish the scope, time frame, and methodology of
the transition. The management needs to understand that the transition from GAAP to
IFRS will be an all-consuming project demanding full attention, (Koehn and Kilmek)
and therefore the management will need to relive the team members from duties that
would hamper their ability in completing this project. One area from where the
management can recruit staff from for this project is the internal audit department.
Internal auditors offer a good fit for the challenges that the members will face in the
transition to IFRS. They have the skills required for such a project as they routinely
perform functions such as the evaluation of business processes, testing new controls and
processes, assessing risks, formulating communications and training others. (Koehn and
Kilmek)
Its also important to educate the Board of Directors and the audit committee
about the transition and what it entails. The internal audit department serves the audit
committee and therefore the team, if formed of auditors from the internal audit
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department, will not incur any additional cost in keeping the audit committee informed of
the development in the change process. Companies can hold board retreats in order to
communicate to the audit committee and the Board of Directors (BOD) the impact of the
change from GAAP to IFRS. External auditors can provide additional value to the
transitional efforts, as the opportunity of the board retreat will offer this relationship an
opportunity to leverage their knowledge about IFRS with that of the external auditors. A
close relationship with external auditors can help increase the efficiency of the
transitional efforts and it may also lower IFRS audit fees in the ensuing years.
The move to IFRS resembles a program evaluation and review technique in which
the leaders are required to analyze all tasks that are involved in the transition, develop
sequencing, and provided time for the completion of each task. The leaders must also
realize that a move to IFRS deepens the need to remain in compliance with the Sarbanes
Oxley Act (SOX) and therefore they need to develop testing procedures that comply with
SOX section 404. A comment made by United Technologies in 2010 emphasizes this
issue:
Maintaining dual reporting presents U.S. issuers with a significant burden since all of the
processes, controls, and checks must occur twice for each transaction. Indeed, it is likely that the
Sarbanes-Oxley control testing requirements could nearly double during the period of parallel
reporting. (Koehn and Kilmek)
In addition, companies that outsource or depend on external providers for services, such
as payroll processing, will need to work with these providers during this transition period
and match their transition with the company to whom they outsource such operations.
This effort will ensure that there is a compatible flow of information between the
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companies and help with the transition. Transition leaders must be ready to spend a great
amount of capital on the transition. Research shows that big companies can incur costs of
up to $32 million and other companies may incur costs of up to 0.5% of the companys
revenue. This budget can increase after including the impact on tax that the transition will
have and the need for additional training employees involved in the companys operating
system. (Koehn and Kilmek)
There are a few transitional issues in a few different functional areas that need to
be considered. IFRS will affect systems and processes throughout all the organizations.
All areas will require preparation and will have to be tested before new systems are put in
place. IFRS might require the production of more detailed and more frequent data. In
order to meet such requirements the transition team must examine the companys
technological infrastructure in order to ensure that the company can support both GAAP
and IFRS if required. The team must also ensure that the current software that the
company uses supports IFRS and all new purchases are IFRS compatible. IT expenses
may account for most of the cost of conversion.
The human resources (HR) team will also be required to cooperate with the
transition efforts. The HR department will have to ensure that employees can be trained
and they must develop a cost effective plan to develop IFRS qualified staff. This will
include training both entry level and existing accountants. The HR department will face a
greater challenge in training the existing staff as entry level accountants will have
obtained some training and understanding from their college courses. Its also difficult to
teach the ability to make judgments regarding the proper treatment under the IFRS
principle based standards. Staffing may also prove to be a challenge for the HR
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department during the transition period. Companies that have let staff go may need to
hire additional staff. They may not have the human resources necessary for such a
transition. The transition may also involve consolidating statutory reporting into fewer
locations. There will also be a need to change the recordkeeping and compensation
administration systems. Systems that are based on GAAP need to be evaluated. The
company must also assess and consider the impacts that actions will have on
compensation especially for share based payment systems. In order to keep a track of any
changes in the modification of the compensation packages the transition team could
create a scorecard. The scorecard could be used to keep a tack of where each constituent
stands with respect to IFRS preparedness. (Koehn and Kilmek)
With respect to tax preparation companies need to pay special attention to the
differences between International Accounting Standard 12, Income Taxes, and ASC 740,
which is accounting for income taxes. The change of principles will give companies a
chance to conduct detailed reviews of their tax methods and strategies. This review will
prove to be challenging as the IFRS environment requires standardized accounting
policies to ensure consistent tax accounting throughout the organization. Three of the
most challenging areas in this review process may center on the potential disallowance of
LIFO inventory valuation, the potential revaluation of fixed assets, and changes in
accounting for pension benefits. (Koehn and Kilmek)
The legal department will also face issues and require readjustments. Attorneys
may need to renegotiate existing contracts if required by the new standards. Contracts
relating to joint ventures such as profit sharing agreements will require modification due
to IFRS requirements. (Koehn and Kilmek)
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The accounting and finance functions of companies need to be flexible in order to
keep up with the change in the principles. These departments need to brainstorm and
consider how the change will affect their departments. The uncertainty about the adoption
that exists creates the need for both the departments to be flexible enough to meet the
emerging requirements. Areas that may need the most planning include but are not
limited to accounting for and funding of pension liabilities, accounting for property, plant
and equipment due to the varying depreciation methods, the valuation of inventory, and
raising capital as changes in fair market value measurements could affect capital access.
A complete survey of accounting policies is an important part of starting point, as IFRS
requires all records to be made in a similar manner. (Koehn and Kilmek)

RESPONSE TO THE CHANGE IN ACCOUNTING PRINCIPLES
IFRS adoption would impact accounting, tax, technology and organizational
dimensions according to a survey conducted by Deloitte in September 2009. However,
only about one third of the respondents thought that IFRS adoption would make the
United States more competitive globally. (Langmead and Soroosh)
The survey conducted by the authors of the article Mapping the Road to IFRS: A
Survey of CPAs in Public Practice as participants to express their views on five groups of
questions. These five groups are, their overall perspectives of IFRS, impact of IFRS,
adoption issues, their readiness for IFRS and their recommendation regarding the
adoption of IFRS. This survey was sent out to all sizes of CPA firms and the surveyors
received about 175 useful responses. Overall, the responses were not in favor of IFRS.
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There was no indication of strong support for IFRS. Respondents did not support the
principle-based standards of IFRS and were in favor of bright line rules. One of the
respondents stated that as time passes, IFRS would develop into something similar to the
U.S. GAAP. 50% of the respondents believed that IFRS is not as comprehensive as the
U.S. GAAP. (Langmead and Soroosh)

ACCOUNTING PROFESSORS AND CURRICULUM
In order for companies to implement the change from the Generally Accepted
Accounting Principles (GAAP) to the International Financial Reporting Standards its
essential that accounting professionals and students develop an understanding of these
new standards. Its important to ensure that current and future professionals have an
education that will help them handle the change. In order to ensure that students who
graduate from college have an understanding of IFRS, colleges need to include IFRS in
their curriculum. Recruiters will require students to be knowledgeable and understand the
differences between GAAP and IFRS. This is not applicable only for accounting majors
but for all business majors as the switch from IFRS to GAAP will affect all areas of
business. In order to meet this requirement the Securities and Exchange Commission
(SEC) will evaluate the level of IFRS education thats required, and consider the extent
of, logistics for, and estimated time that would be needed to implement training
programs. Colleges have been facing the question and deliberating on how to include
IFRS in the accounting curriculum, which is already very demanding. Colleges also need
to consider the time, effort, faculty resources, and the amount its going to cost to include
20
IFRS in the curriculum. The costs that the colleges incur can be significant. In order to
help colleges cope with the costs, some public accounting firms have been helping some
colleges implement the IFRS curriculum by making relevant material available. (Weiss)
In order to effectively switch from the current accounting standards to the
International Financial Reporting Standards (IFRS), accounting professors need to be
able to teach IFRS the same way as they teach the Generally Accepted Accounting
Principles (GAAP). However, accounting professors are not at the forefront of the
changes that are needed in the accounting programs (Weiss). A survey done in 2008
reported that 62% of the accounting professors who responded to the survey had not
taken any significant steps in towards adding IFRS coverage in the curriculum. This
result is from a survey done by KPMG, which was released in September 2009 (Miller
and Becker). The fact that 62% of the accounting professors have not implemented IFRS
in their curriculum affects convergence efforts, as companies will not be able to find
accountants who are qualified to work with IFRS, audit firms will not be able to find
students who can audit IFRS financials without addition training, and multinational
companies will not be able to find accountants who have a good understanding of IFRS.
If colleges are unable to implement IFRS in their business courses, graduates will lack
the knowledge required to succeed in the globalized economy that exists at present.
Miller and Becker have identified six potential deficiencies blocking the
implementation of IFRS in the U.S accounting programs in the article Why Are
Accounting Professors Hesitant to Implement IFRS? The six potential deficiencies that
were recognized are faculty knowledge, target implementation date, space in the
21
curriculum, instructional resources, suitable teaching methods, and uncertainty over
support for IFRS itself. (Miller and Becker)
Faculty knowledge is important in order to implement IFRS in college, its
important for the faculty to be knowledgeable about the material. In the U.S, accounting
professionals have not been trained in IFRS. In addition, faculty members are often
knowledgeable about the U.S GAAP to the exclusion of other standards. Even the faculty
members who hold a CPA license and are required to participate in continuing education
are mostly knowledgeable about GAAP, as their training tended to focus on GAAP, not
international principles. The only exception in this case is when the faculty member
teaches international accounting and is required to be knowledgeable about IFRS. One
reason that faculty training has not been extended beyond GAAP could be the fact that
even in the European Union IFRS was only adopted recently. In addition, new professors
who are knowledgeable about IFRS do not have the power or influence to have the
curriculum included in their curricula. Though its clear that the faculty needs to learn
about IFRS, its still not clear what material the faculty needs to be knowledgeable about.
Until the issue of whether the U.S is going to adopt IFRS has been settled the accounting
professors will not able to identify the material they need to know and they cannot decide
which seminars to attend in order to gather material for their classes. In 2008 only 22% of
the professors surveyed in the article felt as though they are qualified to teach IFRS. [This
result is from a survey conducted for an article by Kim Nilsen named On the Verge of an
Academic Revolution.] (Miller and Becker)
The delay in making a decision whether or not the U.S. is going to switch the
accounting principles to IFRS is one of the reasons that college faculty is hesitant to
22
include IFRS in their accounting and business curriculum. Professors need to justify
changes made in their curricula to the university. If a decision is not made regarding the
accounting principles that will be used in the future the faculty cannot justify the changes
to the university. A survey released by KPMG stated that 55% of the faculty indicated
that administrators do not understand the need for the change in the curriculum. (Miller
and Becker) However, IFRS is already a major part of the global economy regardless of
SECs failure to make a final decision regarding the adoption of the standards for
publicly held companies and this fact should be helpful in convincing the faculty about
the implementation of IFRS in the business programs. (Cherubini, Rich and Zhu)
Resource shortages are another reason why professors have been unable to
implement IFRS in their curriculum. The existing curriculum is self-sufficient and
satisfies the needs of the faculty and the students effectively. However, the addition of
IFRS would bring a change to this curriculum and require major restructuring and
course development. (Miller and Becker) In addition, the curriculum would be required
to cover both the IFRS and GAAP. Since mandates would apply only to publicly held
companies there would be a requirement for students to be knowledgeable both about
GAAP and IFRS. This would be costly for the universities, as they might not have the
resources or the funds to cover the additional material. Some colleges have begun to
include IFRS integration at the intermediate level. However the introductory courses still
focus on GAAP. (Miller and Becker) It is and will be difficult for professors to include
IFRS in their accounting courses until better materials are available that are specifically
designed for introductory accounting courses. Instructors have stated that they would
include IFRS in their curriculum if better materials were available. Professors dont only
23
need better course materials; they also need more class time in order to introduce a new
topic without removing another portion of the course. However there are supplementary
materials available that have been distributed by several institutions and book publishers
have been releasing updated versions of their texts with information about IFRS. In
addition, professors can integrate IFRS into their principle courses instead of preparing
lectures. They can highlight the differences between GAAP and IFRS in their classes.
This teaching method would save them a lot of time and provide students with the
knowledge they require. (Cherubini, Rich and Zhu)
Accounting professors and other professionals are able to learn about IFRS
through the continuing education courses that are required of them, academic
conferences, and seminars held by the Big Four accounting firms. However these courses
do not provide any instructional materials, which professors can use in their classes. The
faculty members indicated in a survey done in 2008 and 2009 that theres a need for new
materials such as textbooks in order to implement IFRS in the college curricula. (Miller
and Becker) In the survey conducted by the American Accounting Association and
KPMG approximately 40% of the participants said that they have a limited understanding
of IFRS and 60% said that they had no formal IFRS training. (Cherubini, Rich and Zhu)
The teaching method differs with the content thats being taught. IFRS is a set of
principles based accounting regulations where as GAAP is a set of rules based accounting
regulations and therefore the teaching method for both would differ from the other.
According to the chairman of the Committee of Sponsoring Organizations (COSO), Larry
Rittenberg, The challenge is to go back to understanding the basics, which requires a
different kind of teaching. ... IFRS should be taught through cases and real life situations
24
group work where professors and peers challenge the students thinking. Teaching
IFRS will require more curricular emphasis on creative thinking, analysis, cogent
decision making, and teamwork. (Miller and Becker) Accounting professors and
students may find this challenging and therefore such teaching methods take time to me
implemented.
The combination of these six issues is hindering IFRS implementation in college
courses. However, professors need to understand the importance of including IFRS in
their accounting courses. Mr. William F. Miller and DArcy A. Becker stated, The
ramifications of academia ignoring these calls for action are problematic at best, and
potentially catastrophic. A failure to implement IFRS in the curricula could result in
CAP firms no longer recruiting for interns or full time employees from their college
campuses. (Miller and Becker) Implementing IFRS is difficult and time consuming and
therefore its important that the faculty reach a consensus on IFRS implementation and
are aware of its importance. (Weiss) Another article stated that the lack of support from
their institution, and disagreement with the move towards IFRS, hinders the
implementation of IFRS in their business programs. (Cherubini, Rich and Zhu)
(Cherubini, Rich and Zhu)
In an article published by The CPA Journal titled Implementing IFRS Curriculum
into Accounting Programs the author Jane M. Weiss conducted a survey of the
universities participating in a PwC grant program. The universities were asked about the
development of IFRS material, the courses that would deliver the IFRS material, and the
format of content deliver. In addition, questions were asked regarding the contact
audience for IFRS and any relevant feedback from students and faculty. (Weiss) The
25
result showed that only 4 of the 19 colleges had developed stand-alone courses for IFRS.
A joint survey conducted by the American Accounting Association and KPMG in 2008
stated that intermediate accounting is the course of choice in which schools and
professors prefer to include IFRS material in their accounting curriculum. (Cherubini,
Rich and Zhu) Four programs had integrated IFRS into all the accounting courses where
as fourteen of the fifteen schools had integrated IFRS into their intermediate accounting
courses. (Weiss) However, an article on the importance of including IFRS in the general
business curriculum stated focusing on IFRS only at the intermediate accounting level
limits the exposure of future users of accounting information to only those students who
are accounting majors. (Cherubini, Rich and Zhu) A majority of the participants of the
survey conducted by the American Accounting Association and KPMG responded that
all business majors needed to be knowledgeable about IFRS regardless of their major and
90% stated that IFRS was important for both finance and international business majors.
Many of the respondents believe that introduction to IFRS at the principle level is
important for all business majors. (Cherubini, Rich and Zhu)
Of 19 schools that received a grant from PwC, 13 had implemented IFRS in both,
undergraduate and graduate courses. Nine of the nineteen schools that responded to the
survey teach the curriculum in a lecture-based format where as another eight schools use
a combination of lectures, seminars, and case based format. Seven of the nineteen schools
responded to a question that required information about the student feedback about the
inclusion of IFRS in the curricula. The comments stated that students enjoyed the
courses, found the information helpful, and believed they are more prepared,
professionally, than their peers who have no IFRS education. (Weiss) However they also
26
stated that the workload was more than expected and that, just as with the U.S. GAAP,
ambiguity exists within IFRS. (Weiss)
The comments from Jane Weisss articles brought across the feeling that
educators need to be well prepared for the adoption of IFRS, especially once the dates
have been set for IFRS adoption. However, smaller universities were also concerned
about implementing IFRS where the client base has no interest in IFRS. A dual-
reporting accounting curriculum is no considered important, in such locations. (Weiss)
The colleges are hopeful that the SEC will also consider the impact of IFRS adoption on
colleges in such locations and the address the concerns of those who oppose IFRS
adoption. Its important to include IFRS in college curriculums, as individuals well
versed in IFRS are ready to engage in the global environment. In addition, gaining an
understanding of IFRS will be useful as a foundation for students who plan to take upper
level finance or international business courses. The exposure to a new standard in college
will help students understand the changing nature of accounting and they will be able to
utilize their knowledge and skills in the application of accounting concepts. (Cherubini,
Rich and Zhu)
CONCLUSION
Globalization is making it necessary for countries to adopt a global accounting
system. A global accounting system will help companies in the international markets by
making it easier for investors to compare financial data of companies in different
countries as well as help them make more informed decisions. In such a situation will it
be beneficial for the US to hold onto the U.S. GAAP or switch to IFRS? The SEC has
27
three options with regards to implementing IFRS. The SEC could either continue with
GAAP, or it could allow companies to elect IFRS, or it could make IFRS mandatory.
However, with the second option the SEC will have to support and maintain two sets of
accounting standards. (Miller and Becker) The surveys conducted by the different
accounting organizations show that there are mixed feelings on this issue. Multinationals
and big firms favor a change where as medium and small businesses are against a change
from U.S. GAAP to IFRS.
In order to implement IFRS in the US the effort to educate professionals about
IFRS needs to increase. Many professionals have some basic knowledge about IFRS but
the US is lacking professionals with more than a basic knowledge about IFRS. In order to
implement any changes, companies are going to need to have at least one expert on their
transition team in order to lead the change effectively and efficiently. In addition to one
expert the teams are going to need people who have more than a basic knowledge about
IFRS in order to educate other employees, the board of directors and the audit committee.
Without more than a basic knowledge about IFRS the team is not going to be able to
bring about the changes required effectively. There are materials available from the Big
Four accounting firms and other large public accounting firms, which provide detailed
descriptions of the differences between IFRS and GAAP. Grant Thornton released a 170-
page paper comparing IFRS and GAAP with detailed differences between both sets of
accounting standards. The paper is extremely detailed and compares each of the IFRS and
GAAP standards separately. In addition there are various articles that have been released
in order to help with the transition to IFRS when SEC announces the deadline.

28
Bibliography

AICPA. "IFRS FAQ's." 2011. AICPA IFRS Resources. 16 August 2011
<http://www.ifrs.com/ifrs_faqs.html>.
. "International Financial Reporting Standards (IFRS) An AICPA Backgrounder."
n.d.

Cherubini, Jason, et al. "IFRS in the General Business Curriculum: Why Should We
Care?" The CPA Journal (2011).

Feeley and Driscoll, P.C. "GAAP vs IFRS: The Evolution To IFRS From GAAP." Feeley
and Driscoll, P.C. Certified Public Accountants, Business Consultants. 16 August
2011 <http://www.fdcpa.com/Tax/IFRS_GAAP.htm>.

Grant Thornton. Comparison between U.S. GAAP and International Financial
Reporting Standards. August 2010.

Koehn, Jo Lynne and Janice L. Kilmek. "Transition to IFRS: Planning Considerations."
The CPA Journal (2011): 10-14.

Langmead, Joseph M. and Jalal Soroosh. "Mapping the Road to IFRS: A Survey of
CPAs in Public Practice." The CPA Journal (2010): 30-35.

Miller, William F. and D'Arcy A. Becker. "Why Are Accounting Professors Hesitant to
Implemnt IFRS." The CPA Journal (2010).

Weiss, Jane M. "Implementing IFRS Curriculum into Accounting Programs." The CPA
Journal (2011): 62-63.



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APPENDIX I


IFRS in the General Business Curriculum: Why Should We Care? By Jason Cherubini, Kevin Rich, Hong Zhu, and
Alfred Michenzi; February 2011





30


Mapping the Road to IFRS: A Survey of CPAs in Public Practice By Joseph M. Langmead and Jalal Soroosh;
August 2010
31

Why Are Accounting Professors Hesitant to Implement IFRS? By William F. Miller and DArcy A. Becker;
32
August 2010

Transitioning to IFRS: Planning Considerations; By Jo Lynne Koehn and Janice L. Klimek; May 2011