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Understand Changes That Will Come with IFRS Transition

A globalized economy has created a need to converge

An increasingly globalized economy has made it necessary to standardize accounting procedures not just domestically, but internationally. This is why the Securities and Exchange Commission has started the process of

An increasingly globalized economy has made it necessary to standardize accounting procedures not just domestically, but internationally. This is why the Securities and Exchange Commission has started the process of transitioning U.S. companies to the International Financial Reporting Standards (IFRS), rather than the current Generally Accepted Accounting Principles (GAAP).

Smart Business reports that the convergence of the standards will impact public and private organizations' lease accounting and revenue recognition, regardless of size and industry.

Ian Waller, a partner at Nichols Cauley and Associates told the news source that the convergence has long been on the horizon, and that even though a ruling from the SEC would probably not come through until at least 2015, companies should start getting ready for the transition. "It's time for audit committees and management teams to begin discussions to prepare for the change, which will have far-reaching implications for U.S. companies," he said.

The changes will also make U.S. accounting based more on principles than hard-and-fast rules, forcing companies to train employees, invest in IT modifications and look at their accounting policy definitions to create a more transparent financial reporting process, the news source reports.

Waller said the switch will enable more equal comparisons for equity firms that have partnerships with organizations overseas, companies that are considering establishing foreign ties, banks and other entities with international operations. Additionally, the switch would make it simpler and easier for investors to compare companies anywhere in the world and would let multinational firms streamline their reporting processes, he said.

While some champion IFRS as a simplification for businesses worldwide, others are not so sure. In a recent address at an SEC roundtable on IFRS, Gaylen Hansen, the director at large for the National Association of State Boards of Accountancy, said that embracing IFRS should be done by "convergence when appropriate." He warned that there could be significant costs associated with the switch - citing one estimate that it could "easily exceed by several magnitudes the cost of" Sarbanes-Oxley Section 404. Hansen added that smaller practices would not see the same benefits from the IFRS proposal as the largest auditing firms would.

"Convergence based on compromise represents acceptance of mediocrity, inconsistent with any claim to high-quality standards," he said.

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