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Tom Garton has seen a lot of changes in the profession in his 25 years as a certified public accountant. But he says the transition to a global set of rules known as International Financial Reporting Standards (IFRS) will be among the most far-reaching he and other CPAs are likely to see in their careers.

“I think that everybody is on a path that’s it’s just a matter of when, not if,” the rules will be adopted in the United States, said Garton, managing partner of the Des Moines office of KPMG LLP. The Securities and Exchange Commission is expected to announce guidelines this summer that could allow some companies to begin using the standards on a voluntary basis. KPMG and other large firms are anticipating a five-year transition period for publicly traded companies to shift to IFRS.

More than 100 countries already require or permit the use of IFRS, and U.S. accounting professionals have anticipated a move toward the standards for the past several years. Using the international set of accounting rules is expected to enable U.S. companies to better compete globally, make comparisons with foreign competitors easier, increase access to foreign capital markets and ease international acquisitions.

Publicly traded companies with international operations will likely be among the earliest adopters of IFRS, Garton said, though all public companies will need to become familiar with and eventually adopt the standards, he said.

Universities also will be closely tied in with the conversion as they begin training accounting students in IFRS, he said. A University of Northern Iowa accounting professor, for instance, has already participated in some of the firm’s Web seminars, “and we have identified schools around the country that we work with that are big accounting schools.”

Global consistency

Last week, the American Institute of Certified Public Accountants (AICPA) unanimously passed a resolution recognizing the International Accounting Standards Board (IASB) in London as the standards-setting organization for international accounting and financial reporting, which was another step toward convergence of IFRS with the U.S. Generally Accepted Accounting Standards (GAAP).

“I think it’s for the better,” Garton said. “The good thing about IFRS is that everyone can see the light – the global consistency in a global economy where more and more companies play internationally. To have apples and oranges, so to speak, doesn’t make very much sense.”

U.S.-based companies currently use GAAP, comprising more than 25,000 pages of rules, as their guidelines to report their financial results on a uniform basis. The SEC ruling would enable companies to begin switching from GAAP to IFRS, a principles-based system contained within approximately 2,500 pages. Adoption will likely be optional at first and then made mandatory over several years.

“This year (the SEC) may allow certain companies to do it based on their level of international operations and their size,” said Sean Vicente, a KPMG partner who’s leading the Des Moines office’s IFRS efforts. “A five-year window has been talked about for getting everybody on board.”

Initially, only publicly traded companies will be affected, but beyond 2013, private companies will probably be required to begin using the standards as well, Vicente said.

Johnston-based Pioneer Hi-Bred International Inc. is among the Iowa companies that are beginning to prepare for the transition. Pioneer will likely shift to IFRS within the next two to three years, but that decision will be made by its parent company, E.I. du Pont de Nemours & Co. said Jeff Burnison, Pioneer’s corporate controller.

“We won’t want to be the first, and we definitely don’t want to be the last,” Burnison said. Because DuPont is made up of several hundred legal entities worldwide, the move will significantly lower costs, decrease complexity and streamline the company’s operations, he added. Currently, only Pioneer’s South Africa operations are required to use IFRS, which they convert to GAAP for reporting purposes.

Double-edged sword

Burnison said he expects the transition won’t involve as much work as compliance with the audit oversight regulations mandated by the Sarbanes-Oxley Act did several years ago. And though the IFRS guidance is one-tenth as many pages as GAAP, it’s “a double-edged sword” because accountants will have to exercise more professional judgment to interpret the IFRS accounting principles, he said.

“So auditors are going to have to come to an agreement on how to interpret how to apply something, because there won’t be specific industry standards,” he said. Congress will also need to address tax law changes needed to coordinate with IFRS, and probably revisit Sarbanes-Oxley regulations as well in light of IFRS, he said.

Some of Principal Financial Group Inc.’s overseas operations already use IFRS or will be converting soon, said Angie Sanders, Principal’s assistant vice president for financial reporting. The financial services company has begun putting together a conversion plan for the entire organization, she said.

“We hope to get some efficiencies from being on the same basis of reporting,” Sanders said. “But overall, I don’t know if you end up with a net gain or not. Some of the rules may require more back-office work, so we don’t know yet.”

Currently, the IASB is in the initial stages of developing accounting principles for insurance contracts, so switching to those standards wouldn’t mean any change for its insurance products until those rules are adopted, Sanders said. “The insurance industry tends to agree with having one global standard. What that standard will be is subject to a lot of debate,” she said.

Principal is not likely to switch to IFRS until it becomes mandatory, she said.

“I think it would be highly unlikely we would take the option to pursue it voluntarily, unless so many of our peers were doing it,” she said. “For our internal planning purposes, just to put a line in the sand, we’ve assumed it’s going to take place within the next five years.”

To help accountants make the transition to IFRS, the AICPA has established a Web site at www.ifrs.com, to explain the main differences between the two sets of standards. KPMG last month established an IFRS Institute, with information posted at www.kpmgifrsinstitute.com.

KPMG will likely supplement its conversion teams with professionals from its overseas offices who are already versed in IFRS, Garton said.

“I think you’ll see a lot of rotational traffic from the international offices helping out on the teams that need help,” he said. That’s also likely to happen within companies, he said.

“The smart large companies that are international will grab a person or two from their foreign accounting operations and bring them over for six months, and also engage their external auditor to come in with a few of their folks with the same experience to form a multidisciplinary team,” he said. “I think planning, planning and planning are going to be three of the biggest pieces.”