US embraces vision of a single global standard

If there were any lingering doubts about the growing global acceptance of International Financial Reporting Standards (IFRS), they have now evaporated with the Securities and Exchange Commission’s proposal to give US companies the option to use IFRS.

On August 27, SEC Chairman Christopher Cox approved for public comment the issuance of a proposed roadmap for US companies to make the final switch to IFRS. The proposed roadmap would provide for a possible mandatory adoption date of 2014 for some US public companies. A limited number of companies that meet specific criteria may be permitted to adopt IFRS as early as 2009.

This follows the SEC’s decision earlier this year for foreign companies that fully report under IFRS to drop the requirement to reconcile their financial statements to US generally accepted accounting principles (GAAP).

The SEC’s latest move speaks to the remarkable speed at which countries worldwide have accepted IFRS. More than 100 countries, including some of the world’s largest capital markets, either require or permit the use of IFRS. Now the world’s largest capital market has signaled that it, too, is ready to throw its full weight behind the push for a single set of high-quality global accounting standards.

As more and more countries embrace IFRS, the expectation is that the accounting world will focus its energies and resources on improving IFRS instead of modifying it for local use. To realize the full benefit of IFRS, all capital markets must abide by the same IFRS principles. To do otherwise would be to make IFRS a global standard in name only.

It bears repeating, however, that creating a global set of high-quality accounting standards won’t happen overnight. It’s a constant process to ensure quality.

But we must all remain fixed on the end goal, which is to have companies tell their financial stories in a way that makes it easier for buyers, sellers and other stakeholders to make informed global investment decisions. And let’s not forget the benefits to emerging markets. IFRS could promote investment and help strengthen the economies of those markets.

The adoption of IFRS is intended to encourage the free flow of capital — and help bolster investor confidence. Market realities demand no less. Today’s environment is marked by growing numbers of multinationals and rising levels of cross-border capital flows.

Earlier this year, the Canadian Accounting Standards Board confirmed its decision to adopt IFRS in 2011. Public companies here must begin getting ready for what is to be much more than a technical accounting exercise.

We’ve learned from those who’ve gone down this path before that the transition to IFRS could affect virtually every key business decision.

While the extent of the work will vary from company to company, this much is certain: the switch will take focus, planning, time and resources. And that’s why Chairman Cox’s proposed roadmap is a good thing. US companies, regulators, accounting professionals and educators can start the planning process and confront the significant legal and regulatory changes that will come with conversion.

Change certainly isn’t easy, but the rewards can be worth it.

Lou Pagnutti is chairman and chief executive officer of Ernst & Young LLP