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Financiers, Accountants Make Their Cases on IFRS

IFRS convergence opponents and supporters are voicing their opinions

The debate over converging national accounting standards with the universal set of rules has raged around the globe. Some countries have already made the switch to the International

The debate over converging national accounting standards with the universal set of rules has raged around the globe. Some countries have already made the switch to the International Financial Reporting Standards (IFRS), while others, including the United States, work to build a hybrid of IFRS and their existing accounting rules.

Insurance

Insurance is just one of the many topics that accountants and other stakeholders are sounding off about. Audit, tax and advisory firm KPMG recently issued an appeal to the International Accounting Standards Board (IASB) to establish a standard for insurance accounting, since there is such a wide variation in the methods companies around the world use.

The global chairman of KPMG's insurance practice, Frank Ellenbürger, said that without a consistent insurance accounting method, investors and analysts have a hard time gauging insurers' performance.

"In an era where there is tough competition for capital, the lack of comparability of insurers’ financial reports puts the industry at a disadvantage to other sectors, where the financial position of a company is easier to compare with its peers," he said, adding that a global standard would lead to greater consistency and transparency.

Ellenbürger also pointed out that while IASB has made progress on the issue of an insurance accounting standard, the topic is more than 14 years old. He argued that even if the boards cannot come to an agreement on the broader IFRS-U.S. GAAP convergence project, they still need to treat the insurance rule as an urgent matter.

"The insurance industry cannot be without an international insurance standard for much longer," he said.

Revenue Recognition

The accounting community in New York state is arguing for revisions to the revenue recognition standards proposal put forth by FASB and IASB. In early March, the New York State Society of Certified Public Accountants sent a letter to the technical director of FASB, Susan M. Cosper, noting that it supported the proposal to increase disclosure on revenue recognitions. However, NYSSCPA warned that the level of disclosure that would be required could make it much more expensive to prepare financial statements and review them.

The society suggested that the information be submitted in a tabular format and would also include a "qualitative discussion" of primary categories - such as timing, uncertainty, amount and nature of revenues are impacted by the economy - in order to make it more understandable for the audience.

"What is most important is that the disclosure be balanced sufficiently as to provide enough information to enhance the reader’s understanding of the entity’s business without duplicating the level of detail found in the entity’s books and records," the group said.

Banking

The question about IFRS adoption and/or convergence is also playing out in the United Kingdom. In a letter to the Financial Times, Sir David Tweedie strikes back against an earlier opinion piece by John Plender that said the U.K.'s adoption of IFRS "fundamentally weakened the quality of accounts, especially in banking."

Tweedie, who serves as the chairman of the U.K. Accounting Standards Board, said the change in accounting standards played no role in the current financial crisis and notes that there are no IFRS provisions that prevent banks from preemptively providing for losses. He also points to suggestions that banks should be ruled by a separate accounting regime, but writes them off as salt in the wound of the current crisis.

"Many large corporates have a greater exposure to financial instruments than a mid-tier bank," Tweedie writes. "Introducing a separate accounting regime for only certain types of entities acting as financial institutions risks exacerbating the problem of a shadow banking system."

To his credit, Tweedie acknowledges that IFRS is not perfect and cites the fact that the IASB is already working on reforms specific to the weaknesses uncovered during the financial crisis.

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