Financial Aid: IFRS

Financial Aid
IFRS is coming and consultancies—particularly the Big 4—are gearing up for what they hope will be a financial windfall

by Joseph Kornik

Dave Kaplan at PricewaterhouseCoopers says the global crisis that we find ourselves in right now demonstrates the interconnectivity of capital markets around the world, and the need for better coordination amongst those capital markets. “Having a common set of accounting standards is an important aspect of ensuring that the information that flows to investors is consistent and useful in terms of making efficient asset capital decisions,” says Kaplan, PwC’s Leader of U.S. International Accounting and SEC Services. “It’s essential for the world’s financial success in the long run.”

In other words, the time has come for the United States to adopt the International Financial Reporting Standards (IFRS). Already in practice in more than 100 countries, including all of Europe, India, China, Hong Kong, Russia and Australia, IFRS will soon be mandated to replace the U.S. Generally Accepted Accounting Principles (U.S. GAAP) for most U.S. companies.

The U.S. Securities and Exchange Commission released a potential roadmap last fall. As of press time, the SEC had not yet made official its original timetable for adoption, but if the SEC sticks to its proposed timetable—early adopting companies in 2014 and all public companies by 2016—there’s still plenty of time for companies, and consultancies, to get ready. “It’s a matter of when, not if the U.S. will convert to IFRS,” says Danita Ostling, Americas IFRS technical leader for Ernst & Young. “The SEC has made it very clear that a single set of high-quality standards would benefit the capital markets, investors, and ultimately would benefit the companies themselves. That’s why we’re very bullish on IFRS.”

Ernst & Young is not alone. While no one is quite sure just how big the potential of IFRS (and estimates vary widely), what is certain is that consulting firms—and specifically the Big 4—are looking at IFRS as a potential gravy train, particularly now that the bottom has dropped out from so many other parts of the business. And even though the 2014 early adopter date seems like a long way out, discussions around IFRS, its implications to financial reporting and its potential to the bottom line have been going on for years.

“It really kicked off for us in about 2000,” says Glenn Koennecke, a partner and national advisory IFRS leader at KPMG. That’s when the European Commission proposed that companies in European Union countries switch to IFRS by 2005. At that point, [KPMG] really started to develop a global team and a global network around IFRS.” As more countries announced they were adopting IFRS, the network grew, he said. “Over the last eight years or so, we’ve continued to build and train a team and use the multi-disciplinary skills required to support clients through the entire IFRS process, including the performance improvement piece. Firm wide, IFRS is one of our top initiatives.”

With more than 1,400 conversions globally under its belt, KPMG believes it is uniquely positioned to advise clients through the entire IFRS process. “We’re global, and we have strong IFRS technical skills—and those qualities are limited to just a few firms,” Koennecke says.