As FASB and IASB take additional time to iron out the major areas of disagreement between GAAP and IFRS, CFOs have a window of opportunity to get ready for major changes to their accounting practices, according to participants at a KPMG webcast.
The two boards, U.S. and international, announced last month that they would be unable to meet a June 30 deadline for convergence, particularly on high-priority items such as financial instruments, leasing, revenue and insurance.
In the wake of concerns raised by stakeholders, FASB chair Leslie Seidman and Sir David Tweedie, her IASB counterpart, admitted that this deadline would slip "by a few additional months," saying in that the delay was necessary to ensure that converged standards would "meet the test of time" and provide "high-quality information."
Convergence on leasing and revenues during the second half of 2011 is still a "reasonable expectation," according to Paul Munter, KPMG partner and national IFRS professional practice leader,who moderated the webcast panel. But joint action on financial instruments and insurance standards is likely to take longer, he said.
IASB and FASB are "completely out of synch with respect to hedging," said Munter, observing that IFRS 9, which is effective in 2013 with early adoption available, is preferred by "a lot of folks, particularly at the non-financial companies," because it allows them to hedge the components of a financial instrument.
Whether the SEC will decide to mandate IFRS is also uncertain. The U.S. regulator currently permits the use of IFRS, but only for foreign issuers.
"More and more evidence" suggests that the SEC, concerned about the impact to companies, "is considering some kind of bifurcated model for big issuers versus smaller issuers," Munter said, adding that statements by the agency announcing on the topic make it look "as though the SEC wants to ease the cost part of the equation for smaller issuers."
Whatever the implementation timeframe and approach, now is the time to start capturing data and communicating with investors and other users of financial reporting, and that may require CFOs to get ready for an environment in which GAAP is either replaced by IFRS or allowed to coexist with it, at least for a time.
A key issue for U.S. issuers will be whether the standards require retrospective application. If so, this could require some U.S. public companies that have long-term contracts for certain revenue and lease arrangements to gather extensive data from many years.
"From a business perspective, that's where you go through a potentially deeper dive into your core business," said Michael Hall of KPMG's Accounting Advisory Services. "Looking at revenue recognition, it's time to get ready for that contract based on the new standards," which may in fact change value assuming their terms extend beyond convergence, he added. "You need to reevaluate a number of leases or at least thinking about how you're going to capture that data."
"Many companies already have steering committees so that they can be ready for the ultimate finalized standards," he said.