Ifrs, Should We Switch?

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One of the biggest issues in the accounting world today is should the United States switch from GAAP to IFRS?  Currently the SEC is contemplating making the switch, hearing arguments from both sides.  Some experts say that the U.S should while others disagree with this notation.  Some believe that by switching to IFRS (International Financial Reporting Standards) international investing would be easier and costs would be cut.  The counter argument for this is the transition phase; saying it will cause confusion and be quite expensive.  Another argument against switching over to IFRS is that some believe that there are not enough rules in IFRS and it leaves companies too much wiggle room unlike that of GAAP whose rules are quite precise.    As of right now the SEC is planning on allowing some of the larger multinational companies to make the switch starting in 2010.  Other smaller companies would make the switch in 2014.

I feel that it would be a smart idea if the United States switched to IFRS from GAAP.  I feel this because of a couple of things.  For one, we would now be able to compare apples to apples; under our current system we compare apples to oranges.  Another reason I feel that the switch is necessary is for the international companies.  As of right now the Unites States requires companies that have sales in other counties to disclose the amounts on their 1120’s.  This is a problem because it wastes time, because companies have to take the time to attain the information needed from their subsidiaries, and then convert them from local currency to the dollar because those are the guidelines from the government.  If the United Sates followed IFRS this wouldn’t be such an issue because we would all be following the same accounting methods.  In return the time that was once wasted on dealing with the foreign subsidiary can now be spent on more pressing issues.

As for the argument of the switch would cause confusion and be costly; there are answers for these rebuttals.  For one, any of the confusion can be dealt with.  The SEC would obviously give a time table for the switch and up until the day of the switch companies have time to learn the new system.  The people who would be affected by this change are very smart people.  If they read certain guidelines and take the time to actually learn about how IFRS works then I’m sure that the switch will be smoother than expected.  Another way to curve the learning is that IFRS will have to be implemented into college curriculums.  One of the ways that the professors can learn about IFRS is if the AICPA holds seminars which would count towards their hours that they need to fulfill in order to retain their CPA status.  Once these professors understand IFRS they can teach it in their business schools.  Make it mandatory for the accredited schools to have IFRS as a part of the curriculum.  One of the advantages to adding it to the curriculum is that when the students enter the work force they already have knowledge of IFRS and can probably help in the implementation of the new system.

 As for the argument it will be costly; how can anyone truly know?  They cannot; and because they cannot truly tell how much it would cost the argument is a slippery slope.   Also, is it not true that in order to make money one must spend money?  The expensive part would come if the CEO’s and the CFO’s do not take the time to learn IFRS.  If they don’t learn it then when the switch actually happens their companies will be at a huge disadvantage.  One of the things that I have learned while in school is that if your company can not bill out at a high rate because of you; then you are a waste for the company.  So learning about IFRS is an incentive to keeping your job.   Also, the big 4 should love the idea of switching over because when implementing a new system they will have to do more work which means that they can bill you even more.   To go along with that; when you have recent college graduates who know about IFRS you can assign them to international clients and be confident that they will succeed. 

IFRS could very well be a great thing for the United States if people would just let it work.  It will give people jobs because there will be more demand for accounts at firms to handle the bigger companies with foreign subsidiaries.  It will now put the entire world on the same page when it comes to books; now being able to truly see who the stronger companies are.  The question  is not if we switch anymore, it is when will we switch.

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