When will the United States finally adopt the International Financial Reporting Standards? The honest answer is:...
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And that's according to people who should know: enterprise resource planning (ERP) vendors, consultants and analysts.
The International Financial Reporting Standards (IFRS) is the international standard for accounting -- a set of principles and rules companies use to report various transactions and items on their financial statements. IFRS is used everywhere but the United States, which follows U.S. Generally Accepted Accounting Principles (GAAP) rules.
Experts said that by adopting IFRS, U.S. businesses will be able to present their financial statements on the same basis as their foreign competitors, making comparisons easier. Additionally, multinational U.S. companies that are already required to use IFRS in other countries will save money because they won't have to report in U.S. GAAP.
On the downside, the enterprises that would be affected by the switch will have to modify their ERP systems, according to industry observers.
What's more, those organizations are resisting because the transition isn't going to be easy. In this sluggish economy, companies aren't willing to spend time or money on a long-term project whose costs, they say, outweigh the benefits.
IFRS doubters backing off preparations
Publicly traded companies will be required to adhere to IFRS if and when the U.S. adopts it; U.S. companies that do business internationally already do. So, while IFRS isn't all that new to the ERP industry, it is new to U.S.-only companies.
Previously, the U.S. Securities and Exchange Commission (SEC) had expressed support for a core set of accounting standards that would serve as a framework for global financial reporting.
But it appears that support is waning and that small word "if" is looming larger now than in the past, according to analysts and IFRS experts.
In fact, one industry observer is so convinced the switch from GAAP to IFRS is never going to happen, that she has stopped trying to figure it out.
"I've researched and followed IFRS for years," said Gloria Braunschweig, president of the Tualatin, Ore.-based ERP consulting firm Computeration Inc., and an expert in Microsoft Dynamics GP, in an email. "Lately all the information I read is that the U.S. will never likely enforce IFRS because of the huge economic impact. The only companies we see interested in IFRS are foreign-owned, required to report back to their parent with that country's IFRS. Based on that, I've discontinued investment of my time in IFRS."
On the other hand, in a survey late last year by the Association of Chartered Certified Accountants (ACCA), U.S. investors said they expect the country will eventually adopt IFRS, but it will take time and require substantial investment in staff and training.
Despite the confusion, the big players in ERP, Oracle, SAP, Infor and Microsoft said they have been ready for the switch for years -- and ready to help customers make the switch. Smaller ERP vendors with customers in other countries have done the same.
"IFRS has been planned for years," said R "Ray" Wang, principal analyst and CEO of Constellation Research. "Almost everybody that's an ERP vendor in the international space has prepped for IFRS."
Wang said part of the reason the United Nations was looking at an ERP project several years ago was that it was trying to be IFRS-compliant. By choosing Oracle or SAP (it selected SAP) it automatically would be.
ERP vendors say they're ready for IFRS
SAP has been compliant with IFRS since 2005, said Paul Theobald, CEO of CAPE Global Consulting based in Henderson, Nev., who specializes in transitioning companies to IFRS in SAP.
"In 2005, SAP brought out what they called the new general ledger, and they really only did that to meet the new accounting requirements for the ability to report by more than one accounting rule," Theobald said.
That's because multinational U.S. companies have to report in both IFRS and GAAP, and at some point the SEC could require U.S. public companies to report in GAAP and IFRS in parallel until IFRS is adopted in the U.S., he said.
"Now, in the new general ledger you have a leading ledger and you can have a parallel ledger," Theobald said. "Every multinational company over here is trying to figure out, 'Do we keep GAAP in our leading ledger and input internationally in our parallel ledger, or do we bite the bullet and flip them around now, thinking it will happen in the future?' But [the SEC] published a report in July 2012, saying, 'We're not sure it will ever happen now.' From what I'm hearing they wanted to wait until after the election."
More on International Financial Reporting Standards
Read an IFRS Q&A
Understand revenue recognition and IFRS
See a definition of IFRS
Theobald said each time his company helps a U.S. SAP user migrate to the new general ledger, there's always a debate over how to handle IFRS reporting. It used to be that Theobald's firm advised customers to report to IFRS standards in the leading ledger and GAAP in the parallel ledger in anticipation of the U.S. switch to IFRS.
"Now we're sort of backing off that a little and saying, put IFRS in the parallel ledger and later [make the switch]," he said. However, one of Theobald's customers, Coca-Cola, put IFRS in the leading ledger. "Coca-Cola doesn't do anything like that if they're not pretty sure it will happen one day."
Microsoft has also been dealing with IFRS for a long time, said Rob Helm, an analyst at Directions on Microsoft, which is based in Kirkland, Wash. "That's because two of its biggest ERP products, Dynamics AX and Dynamics NAV, have big customer bases in the European Union, which has already gone through adopting IFRS," Helm said. "[Microsoft] can point to case studies where big customers have adopted IFRS and possibly a national accounting standard, as well, in parallel on the same software. It seems those products have demonstrated their ability to deal with IFRS and parallel accounting in two systems."
Helm said parallel accounting will be key for U.S. companies because if IFRS is ever adopted in the U.S., there will a transition and probably the need to report at least some parts of a company's finances, according to both sets of rules.
Dee Houchen, director of product marketing at New York-based Infor Inc., said the company's ERP software has been IFRS-compliant for a number of years. "But to distinguish ourselves from other players in the market, we decided to go for certification for our product set," Houchen said.
In July, BDO Audit & Assurance B.V., an accounting, tax, financial advisory and consulting firm, certified Infor's ERP products as IFRS-compliant. The certification means that Infor is able to help companies in the manufacturing, distribution and service industries make the transition and adhere to IFRS rules.
"We're advising our customers to analyze their businesses and ensure that they understand what the issues would be for them as a company, because depending on their specific business, the impact will vary," she said. "We definitely advise U.S. companies without overseas subsidiaries to analyze their businesses and identify where they could have issues, and how they want to plan for those from a strategic point of view."
Houchen agreed with Theobald that the recent U.S. election has delayed the SEC's decision about requiring companies to adopt the international accounting standards.
"I think there's a willingness to have an international standard that all companies can be measured against," she said. "That's definitely a goal for everybody, including the United States authorities. However, I do think that there is a bit of tension between the regulatory authorities and the IFRS [governing body] as to who's going to take the lead and who's going to have control. So I think there will be more negotiations, but I think in the longer term it will come together.