GAAP vs. IFRS: New accounting rules could mean trouble

Posted Jun 26th 2008 4:30PM by Victoria Erhart
Filed under: International Markets, Industry, Economic Data

As if investors do not have enough to worry about, along comes another problem. There is a growing movement to allow, perhaps eventually require, American companies and foreign companies trading in ADRs, to keep their books according to International Financial Reporting Standards, IFRS, instead of the venerable GAAP method we all know and love.

The move to IFRS makes a fair amount of sense given the global nature of capital markets. American investors will simply have to learn to read a balance sheet constructed using different rules. The problem looming on the horizon is, who will construct the IFRS balance sheets?

Currently, accounting degree programs in the U.S. are defined by the requirements for the CPA exam, which does not require familiarity with IFRS. American accounting faculty, overall an older group, teach from textbooks geared towards the CPA exam. Unless and until the SEC actually publicly states a date by which U.S. companies can or must shift to IFRS, nothing will move. Potential accountants will not be exposed to IFRS as part of the curriculum. The CPA exam will not require familiarity with IFRS. Present accounting faculty will not change their course syllabi or textbooks to include IFRS. Many may opt to retire rather than retrain and redesign their courses. Lead time for publishing a new textbook is at least two years, often longer. Who will write the new textbooks?

Conservatively, the SEC is looking at a five year lag once it finally establishes a date for the switch. At least we will all have plenty of time to get used to the idea.

Tags: accounting, balance sheet, BalanceSheet, GAAP, IFRS, International Financial Reporting Standards, InternationalFinancialReportingStandards

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Reader Comments (Page 1 of 1)

6-26-2008 @ 5:05PM

csneed said...

First of all-who are you calling "older?"
Accounting faculty are not any older than faculty in any other area. Second-are you suggesting that we not teach financial reporting using GAAP when that is what we use in this country?

We are not so narrow minded or ignorant as to not be able to change when and if the change is required. The reason we use GAAP has nothing to do with accounting faculty-we use GAAP b.c that is what we use for financial reporting in these United States.
When the SEC, FASB and AICPA changes we will change as well. Even those of us "older" guys (what? 40?) will somehow manage!
Professor Cynthia Sneed

6-28-2008 @ 4:08PM

Tracy Coenen said...

Will accounting faculty really manage? I doubt it.

I am a working forensic accountant as well as faculty in an MBA program. Since fraud is such a big topic currently, there are lots of accounting professors who see fit to teach forensic accounting. The only problem? Most of them have no experience in the field so their students suffer.

The same thing will happen with IFRS. Professors with no field experience will try to teach it.

Accounting professors will no doubt say they're qualified to teach these courses, but I disagree. There is a lot more to accounting than a textbook and a classroom.

Most accounting professors are so far removed from practical experience. And they don't realize how badly that's hurting their students. Don't look to them to admit this, either.

6-30-2008 @ 11:35AM

Darla Sycamore said...

In Canada will are converting to IFRS effective 2011. There are many adoption problems and I have a blog dedicated to following them. There was an article in CFO magazine dealing with this education issue in the USA see
http://www.cfo.com/article.cfm/11566491/c_2984368/?f=archives

At the FASB recent Forum it was reported that the average age of Accounting Professors in the US is 56 not 40. We probably have the same problem in Cnada but I have not seen any data.

My blog is
http://ifrscanadadevilisinthedetails.blogspot.com/

I deal with the devils in the details and their exorcism. Comments welcome.

8-28-2008 @ 7:36AM

SAHANAGURURAJ said...

This is very difficult to adopt the system. As we are practiced with GAAP for many years.

Teaching to the students will be great diffficult. Bringing this into pratice requires many years to change. Human tendency is that they never accept small change in their life. How it is possible to change the system to the world?

Please think & act on it.