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What are the major transition challenges for GAAP/IFRS convergence? (Webinar Attendee Question)

This question was asked during the Proformative webinar "Convergence of Financial Instruments, Leasing, and Rev Rec Standards."  A video of the webinar can be viewed here: https://www.proformative.com/resources/webinar-video-convergence-financial-instruments-leasing-rev-rec-standards

Answers

Topic Expert
Sunil Thukral
Title: Controller/Technical Accounting Advisory..
Company: Consultant
(Controller/Technical Accounting Advisory/ SEC Reporting, Consultant) |

First things first, you need to worry about the following key issues first:

1. Will IFRS be ever be adopted in U.S.?

If answered "NO", you do not need to answer the questions below.

2. What is the timing of the adoption of IFRS in the U.S.?

If answered say 5 years from now, then you need to only consider accounting standards that will be applicable 5 years from now. For example, the current guidance for Revenue Recognition and Leasing will change in the next 5 years. So you will need to consider the new guidance. The current guidance is not relevant. So the challenge here is to know which accounting standards will be applicable.

Once you know the relevant accounting standards, the key challenge will be to understand which all accounting standards will be applicable to your organization. Then you need to understand the data requirements, any system changes that will be required. It always takes time to make changes to any big ERP system - so you need to plan ahead.

Another key challenge you will face will be the people issues - accountants who are preparing the financial statements, senior management of the company, your auditors understanding of the complex accounting transactions, educating your analysts and the investors, etc.

This list goes on and on, as you might need around 3 - 5 years for companies to successfully implement IFRS.

One of the KEY challenges that you will face will be application of the principles based accounting standards. Check out my webinar presentation that I had done at Proformative.com in March, 2012 - where I had explained the participants the difficulty of application of principles based accounting standards.

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