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GAAP to IFRS

The Inevitable Change

Accounting Research Paper


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Table of Contents

GAAPGENERALLYACCEPTEDACCOUNTING PRINCIPLES 3

IFRS

INTERNATIONAL FINANCIAL REPORTING STANDARDS 4IMPACT AND BENEFITS OF IFRS 5

DIFFERENCES BETWEEN GAAP AND IFRS 7

CONVERGENCE 10

TRANSITION MANAGEMENT 14

RESPONSE TO CHANGE INACCOUNTING PRINCIPLES 18

ACCOUNTING PROFESSORS AND CURRICULUM 19

CONCLUSION 26

BIBLIOGRAPHY 28

APPENDIX I 29

APPENDIX IIIFRSREADINESS TRACKING SURVEYMAY2011 N/A

APPENDIX IIIPROGRESS REPORT ON CONVERGENCE N/A


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GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Different countries have different requirements for their accounting systems and

as a result accounting standards in each country have developed differently. These

standards are dependent on the type of market that exists in a country (a capital or credit

market). The US market has always been a capital market and this capital market shaped

the accounting principles in place in the US (U.S. GAAP). Accounting principles and

standards came into place after the crash of 1929. The Securities and Exchange Act of

1933 established The Securities and Exchange Commission (SEC). Since the

establishment of the SEC it has been working closely with accounting standard setting

bodies that have been established such as FASB in setting and enforcing U.S. GAAP.

The Generally Accepted Accounting Principles (GAAP) is the accounting

standard used in the United States. GAAPs development was influenced by the local

culture, educational system, religious beliefs, and such other factors relevant to the

country. Before the International Financial Reporting Standards (IFRs) was created and

adopted or accepted, most nations had their own version of GAAP.

FASB (Financial Accounting Standards Board) is the standard setting body in the

US for financial accounting and reporting for companies listed on the stock exchange and

private companies. FASB is an independent standard setting body and the SEC

recognizes its standards as the authoritative figure for accounting and reporting for public

companies (not companies owned by the government) and private companies. In many

cases the financial reporting and accounting requirements have originated from the

Generally Accepted Auditing Standards (GAAS), and the American Institute of Certified


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Accountants (AICPA) has established the ethical requirements in place for accountants.

In 2009 the structure of the U.S. GAAP changed with the launch of the FASB

Accounting Standards Codification (ASC). The codification was developed as a result of

reported difficulties with applying guidance under the four-tiered GAAP hierarchy. In

addition with the FASB standards, SEC registrants are required to comply with the SEC

financial reporting requirements. (Grant Thornton)

IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS

The International Financial Reporting Standards (IFRS) are a set of standards

developed by the International Accounting Standards Board (IASB). The IASB is an

independent organization, based in London, which sets accounting and reporting

standards. The Board consists of 15 members from 9 countries including the United

States. The AICPA was a founding member of the IASBs predecessor, the International

Accounting Standards Committee (IASC). However, it is not associated with the IASB.

IASC issued standards during its reign, called IAS, which are accepted by the IASB as

legal standards in addition to any standards issue by IASB. Around 120 countries require

or permit domestic companies to use IFRS for their accounting purposes. However, only

90 countries have fully adopted and conformed to IFRS. (AICPA)

European Union (EU) companies with stock listed on the exchange are required to

prepare consolidated financial statements in accordance with IFRS. Australia, New

Zealand and Israel have essentially adopted IFRS as their national standards. Brazil

adopted IFRS in 2010 and Canada adopted it in full on January 1st 2011. Japan is working


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on the convergence and permits certain domestic companies to use IFRS. A decision

whether Japan is going to make IFRS mandatory will be released in 2012. China is also

converging with IFRS and Hong Kong has adopted national standards equivalent to

IFRS. (AICPA)

The IFRS standards are principle based and allow accounting professional to use

their own judgment while determining what action needs to be taken while preparing

financial statements. They differ from the Generally Accepted Accounting Principles

(GAAP), which are a set of rules based accounting principles followed in the United

States of America. There are four sets of codifications for the IFRS standards. They are

the International Financial Reporting Standards (IFRS), International Accounting

Standards (IAS), International Financial Reporting Interpretations Committee (IFRIC),

and Standing Interpretations Committee (SIC). (Grant Thornton)

There are a few reasons why IFRS can be beneficial for the US economy. One of

them is that IFRS allows for intercountry differences as it gives professionals the space

to determine how a principle should be applied or how it should be interpreted. This

concept is referred to as carve outs. (Miller and Becker)

IMPACT AND BENEFITS OF IFRS

Its important to understand the impact that the shift in accounting principles will

have. In order to understand whether the impact will be positive or negative what needs

be analyzed is whether the benefits will exceed the costs or vice versa. The SEC


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estimates the cost of conversion to be $5 billion. However, though the cost can be

calculated quantifying the benefits is not feasible. 71% of the responders in a survey

conducted by Mr. Langmead and Mr. Soroosh for their articleMapping the Road to

IFRS: A Survey of CPAs in Public Practice believe that the resources needed to prepare

IFRS represent a substantial burden on their clients. Also, 57% believe that IFRS

financial statements will be much more difficult to audit than GAAP financial statements

and 41% of the biggest supporters of IFRS agreed that auditing IFRS statements will be a

difficult task. In addition 71% of the responders also stated that they would find

understanding the financial statements based on IFRS difficult. (Langmead and Soroosh)

The impact of the adoption of IFRS differs for private and public companies as

well as for domestic and international companies. The benefits and drawbacks differ

depending on a companys size, operations and its ownership. IFRS is already available

in the U.S for small and medium sized companies. It can be implemented at any time for

these private companies. A sufficiently comprehensive version of IFRS for SMEs was

finalized recently, and U.S. auditing and reporting standards acknowledge it as a

satisfactory alternative basis of accounting to U.S. GAAP for U.S. private companies.

(Langmead and Soroosh) However, no change for small and medium sized companies

will take place before public companies (not government owned) are required to adopt

IFRS.

The SEC and other organizations that favor the implementation of IFRS state that

there are benefits for companies in the United States if the accounting principles are

changed. There are benefits such as comparability, reduction of accounting costs over the

long term, and easier access to capital. Comparability of financial statements and the


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benefits arising from it are considered primary in the case for IFRS, but such an

anticipated benefit is not widely shared. (Langmead and Soroosh) Such anticipated

benefit is not widely shared, as companies that dont have a lot of international operations

will not benefit from the change in principles. In addition, companies with subsidiaries in

IFRS countries will save on conversion costs, as the subsidiaries and the parent company

will have statements based on the same principles. Also, there might be a reduction in

costs when there are fewer GAAP bases after conversion. (Koehn and Kilmek)

The change from GAAP to IFRS is going to affect tax accounting the most. The

areas its going to affect are revenue recognition, revaluation of property, plant, and

equipment, inventory valuation, sale and leaseback transactions, pension liabilities and

assets, business combinations, and computation of earnings and profits from foreign

subsidiaries. (Koehn and Kilmek)

DIFFERENCES BETWEEN IFRS AND GAAP

The underlying difference between the U.S. GAAP and IFRS is that IFRS is

principle based, where as U.S. GAAP is rule based. However, there are many exceptions

to the rules based standards, which increase its complexity and often lead to problems in

application. The principle based standards account for the exceptions by leaving room for

professionals to apply their own judgment while applying the standards and making

decisions. There are many differences between the two standards. Comparability is one

of the underlying concepts under IFRS because of which single year statements are not


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permitted except for the first year the company is in operation. GAAP, on the other hand,

allows single year statements.

Under IFRS, all subsidiaries must adopt the parent companys accounting policies

in consolidation. Such a determination of consolidation under GAAP is based off of the

Variable Interest Entity (VIE) model under FIN 46. Under FIN 46, consolidation

decisions are based on determining who has the right to incur the income and losses of a

related entity. Determinations are made naming the primary beneficiary of the related

entity and assessing their relationship. IFRS focuses on the notion of control in

determining whether a parent-subsidiary relationship exists. Control is defined as the

ability to rule over the operating assets of an entity in order to obtain the benefits.

(Feeley and Driscoll, P.C.)

Compensations made to key management personnel are required to be disclosed

under IFRS. However, this is not a requirement under GAAP. IFRS also required detailed

disclosure of the nature of each accrued expense and any changes that are incurred in

them. Under GAAP accrued expenses need not be disclosed individually. (Feeley and

Driscoll, P.C.)

The LIFO (last in first out) inventory method is prohibited under IFRS where as

under GAAP its accepted. IFRS requires companies to use either FIFO (first in first out)

or the weighted average inventory method. Both the accounting standards also differ in

the method used to test the impairment of long-lived assets. GAAP uses the undiscounted

cash-flow method where as IFRS requires the use of and entity specific discounted cash

flow or fair value measurement. (Feeley and Driscoll, P.C.)


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When determining the carrying value of an asset, under GAAP the historical cost

of the asset is used with a few exceptions. However under IFRS the historical cost is the

primary basis of accounting, but assets can be revalued to their fair market value. This

can create a big difference between GAAP and IFRS accounting for the carrying value of

assets. (Feeley and Driscoll, P.C.)

The way depreciation is calculated also differs between the two methods. IFRS

requires important or significant components of property, plant and equipment to be

recorded and depreciated separately. Assets must be depreciated in segments rather than

as a whole. In addition, under IFRS the residual value of assets is also evaluated on the

balance sheet date. (Feeley and Driscoll, P.C.)

In order to determine whether a lease if a capital or operating lease there are four

conditions set which a lease may or may not meet in order to determine its character. The

four specific conditions are ownership transferring to the lessee, a bargain purchase

option, the lease term with respect to its useful life75%, and the present value of the

minimum lease payments in relation to the fair value of the lease asset90%. However,

IFRS focuses on the overall substance of the lease and the transaction. It looks into all the

risks or rewards of ownership that are transferred to the lessee. (Feeley and Driscoll,

P.C.)

There are several differences between IFRS and GAAPs accounting and

reporting of income taxes. The tax rate used for measuring deferred tax under GAAP is

the enacted tax rate in place when the timing difference is expected to reverse, whereas

under IFRS, the substantially enacted tax rate is used. (Feeley and Driscoll, P.C.)


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Another difference is that under GAAP there is the option of deferring a tax asset for

short or long term depending on the relationship of the asset and liability with the timing

difference. However, under IFRS deferred assets and liabilities are always recorded as

long term. For non-public companies a reconciliation of the expected tax expense to

actual is not required in detail whereas IFRS requires a complete reconciliation including

the nature and amounts. (Feeley and Driscoll, P.C.)

The requirements for construction contract accounting also differ in the two

standards of accounting. Under GAAP the percentage of completion method is preferred

and the completed contract method is acceptable in certain situations. However IFRS

prohibits the use of the completed contract method. Under IFRS the cost recovery method

is preferred to the completed contact method when the percent of completion method

cannot be used. In addition, combining and segmenting contracts is a requirement under

IFRS when certain criteria are met where as its not required under GAAP. (Feeley and

Driscoll, P.C.)

CONVERGENCE

A move towards uniform accounting standards began in the 1970s with the

formation of the International Accounting Standards Committee (IASC), now the

International Accounting Standards Board (IASB). The globalization of businesses

created the need for uniform accounting standards and this need has been increasing since

the formation of the IASC. Common accounting standards allow stakeholders to compare

domestic and international companies to determine which company they prefer


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depending on their interest. For the U.S. the cost for the US companies clinging to GAAP

are growing exponentially.

The International Financial Reporting Standards (IFRS) are principles based

standards where as the Generally Accepted Accounting Principles (GAAP) are rules

based standards. Its important for accounting principles to understand the differences

between the two standards in order to ensure that there is not a lot of confusion and

insecurity when the switch takes place and when professionals are required to prepare

financial statements following IFRS. Its also essential that investors, managers and

employees of all companies understand that the change in the accounting principles is

going to impact not only the financial statements of a company but also other operating

areas of the company. There is also a need to understand how the change is going to

impact the company as a whole. (Miller and Becker)

Convergence means that the U.S Financial Accounting Standards Board (FASB)

and IASB continue working together to develop high quality, compatible standards

overtime. Adoption will occur when the SEC sets a specific timetable regarding when

publicly listed companies will be required to adopt IFRS. (AICPA) The first step towards

convergence that the United States took was dropping the requirement for foreign private

issuers in 2007 that required them to reconcile their Securities and Exchange Commission

(SEC) filing to the U.S. GAAP. The next step was the proposal of a roadmap, in

November 2008, for the adoption of IFRS in the US. This proposal included allowing

around 110 U.S publicly trading companies to adopt IFRS earlier than the others. The

original map that was proposed by the SEC was issued for comment on November 14,

2008. It identified 2014 as the date for adoption for the largest U.S. public companies to


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convert to IFRS. Smaller public companies had an additional two years for conversion

according to this proposal. The proposal date was later moved from 2014 to 2015.

(Langmead and Soroosh)

The SECs proposed roadmap depends on continued progress in the conversion

process. It does not depend on complete convergence before the companies are required

to adopt IFRS. (Langmead and Soroosh) The work plan issued on November 14 th 2008

by the SEC contained six areas of critical study; 1) the development of IFRS for the U.S.

domestic reporting system; 2) independence of standard setting; 3) investor

understanding and education regarding IFRS; 4) examination of the U.S. regulatory

environment potentially affected by the change in accounting standards; 5) the impact on

issuers, such as accounting systems and contractual arrangements; and 6) human capital

readiness. (Koehn and Kilmek) However, this strategy was modified after taking into

account the input of stakeholders. As a result, there is a possibility that the time when its

decided whether IFRS will be authorized in the U.S. may be postponed.

Even though the adoption timeline states that the earliest mandatory adoption date

will be in 2015, companies should prepare IFRS based statements beginning 2013 as the

SEC will require three years of comparative data in the first year of mandatory adoption.

Though the companies will be issuing public reports using GAAP for 2013, 2014 and the

first three quarters of 2015, they will also have to prepare financial statements using

IFRS. The companies will have to run parallel systems of reporting from 2013 to 2015.

(Koehn and Kilmek)


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The Financial Accounting Standards Board (FASB) and the IASB have been

working together to bridge the gap between the U.S GAAP and IFRS for some time. The

two committees formalized their commitment towards convergence in 2002 and this

commitment has been renewed since then. Many standards have been modified in order

to reduce the differences between GAAP and IFRS. Many standards have been also been

replaced or new standards have been developed jointly while others are in process.

(Langmead and Soroosh) The leaders of the Group of 20 (G20) have known this project

to be the convergence project, and the FASB and IASB have been called upon by the

G20 to work on this project in order to develop a single set of high quality global

accounting standards. (Miller and Becker)

The AICPA teamed up with the Financial Accounting Foundation (FAF) and the

National Association of State Boards of Accountancy (NASBA) to establish a panel in

order to address the issue of accounting standards for private companies and how these

standards can meet the needs of U.S. users. The panel was also called upon to evaluate

how standard setting for private companies in the United States compares to standards

setting in other countries, including those that have adopted IFRS. (Langmead and

Soroosh)

The statement made in 2010 by the Securities and Exchange Commission (SEC)

identified six areas that need to be analyzed before any decision is made regarding the

switch from U.S. GAAP to the IFRS. Of these six, two are primary considerations and

four are important implementation considerations that need to be analyzed before any

decision is made. The two primary areas of consideration consist of sufficient

development and application of IFRS, and the independence of standards setting for the


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benefit of the investors. The other four considerations, referred to as the transitional

issues by the SEC address, investor understanding and education, existing U.S laws, the

systems of large companies, their contracts, governance, and litigation, and the

preparedness and concerns of those who will implement the change.

TRANSITION MANAGEMENT

In order to manage the transition from GAAP to IFRS in the most cost effective

and obstacle free path, companies will need to find the right people and teams to manage

the process. The teams will need to establish the scope, time frame, and methodology of

the transition. The management needs to understand that the transition from GAAP to

IFRS will be an all-consuming project demanding full attention, (Koehn and Kilmek)

and therefore the management will need to relive the team members from duties that

would hamper their ability in completing this project. One area from where the

management can recruit staff from for this project is the internal audit department.

Internal auditors offer a good fit for the challenges that the members will face in the

transition to IFRS. They have the skills required for such a project as they routinely

perform functions such as the evaluation of business processes, testing new controls and

processes, assessing risks, formulating communications and training others. (Koehn and

Kilmek)

Its also important to educate the Board of Directors and the audit committee

about the transition and what it entails. The internal audit department serves the audit

committee and therefore the team, if formed of auditors from the internal audit


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department, will not incur any additional cost in keeping the audit committee informed of

the development in the change process. Companies can hold board retreats in order to

communicate to the audit committee and the Board of Directors (BOD) the impact of the

change from GAAP to IFRS. External auditors can provide additional value to the

transitional efforts, as the opportunity of the board retreat will offer this relationship an

opportunity to leverage their knowledge about IFRS with that of the external auditors. A

close relationship with external auditors can help increase the efficiency of the

transitional efforts and it may also lower IFRS audit fees in the ensuing years.

The move to IFRS resembles a program evaluation and review technique in which

the leaders are required to analyze all tasks that are involved in the transition, develop

sequencing, and provided time for the completion of each task. The leaders must also

realize that a move to IFRS deepens the need to remain in compliance with the Sarbanes

Oxley Act (SOX) and therefore they need to develop testing procedures that comply with

SOX section 404. A comment made by United Technologies in 2010 emphasizes this

issue:

Maintaining dual reporting presents U.S. issuers with a significant burden since all of the

processes, controls, and checks must occur twice for each transaction. Indeed, it is likely that the

Sarbanes-Oxley control testing requirements could nearly double during the period of parallel

reporting. (Koehn and Kilmek)

In addition, companies that outsource or depend on external providers for services, such

as payroll processing, will need to work with these providers during this transition period

and match their transition with the company to whom they outsource such operations.

This effort will ensure that there is a compatible flow of information between the


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companies and help with the transition. Transition leaders must be ready to spend a great

amount of capital on the transition. Research shows that big companies can incur costs of

up to $32 million and other companies may incur costs of up to 0.5% of the companys

revenue. This budget can increase after including the impact on tax that the transition will

have and the need for additional training employees involved in the companys operating

system. (Koehn and Kilmek)

There are a few transitional issues in a few different functional areas that need to

be considered. IFRS will affect systems and processes throughout all the organizations.

All areas will require preparation and will have to be tested before new systems are put in

place. IFRS might require the production of more detailed and more frequent data. In

order to meet such requirements the transition team must examine the companys

technological infrastructure in order to ensure that the company can support both GAAP

and IFRS if required. The team must also ensure that the current software that the

company uses supports IFRS and all new purchases are IFRS compatible. IT expenses

may account for most of the cost of conversion.

The human resources (HR) team will also be required to cooperate with the

transition efforts. The HR department will have to ensure that employees can be trained

and they must develop a cost effective plan to develop IFRS qualified staff. This will

include training both entry level and existing accountants. The HR department will face a

greater challenge in training the existing staff as entry level accountants will have

obtained some training and understanding from their college courses. Its also difficult to

teach the ability to make judgments regarding the proper treatment under the IFRS

principle based standards. Staffing may also prove to be a challenge for the HR


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department during the transition period. Companies that have let staff go may need to

hire additional staff. They may not have the human resources necessary for such a

transition. The transition may also involve consolidating statutory reporting into fewer

locations. There will also be a need to change the recordkeeping and compensation

administration systems. Systems that are based on GAAP need to be evaluated. The

company must also assess and consider the impacts that actions will have on

compensation especially for share based payment systems. In order to keep a track of any

changes in the modification of the compensation packages the transition team could

create a scorecard. The scorecard could be used to keep a tack of where each constituent

stands with respect to IFRS preparedness. (Koehn and Kilmek)

With respect to tax preparation companies need to pay special attention to the

differences between International Accounting Standard 12, Income Taxes, and ASC 740,

which is accounting for income taxes. The change of principles will give companies a

chance to conduct detailed reviews of their tax methods and strategies. This review will

prove to be challenging as the IFRS environment requires standardized accounting

policies to ensure consistent tax accounting throughout the organization. Three of the

most challenging areas in this review process may center on the potential disallowance of

LIFO inventory valuation, the potential revaluation of fixed assets, and changes in

accounting for pension benefits. (Koehn and Kilmek)

The legal department will also face issues and require readjustments. Attorneys

may need to renegotiate existing contracts if required by the new standards. Contracts

relating to joint ventures such as profit sharing agreements will require modification due

to IFRS requirements. (Koehn and Kilmek)


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The accounting and finance functions of companies need to be flexible in order to

keep up with the change in the principles. These departments need to brainstorm and

consider how the change will affect their departments. The uncertainty about the adoption

that exists creates the need for both the departments to be flexible enough to meet the

emerging requirements. Areas that may need the most planning include but are not

limited to accounting for and funding of pension liabilities, accounting for property, plant

and equipment due to the varying depreciation methods, the valuation of inventory, and

raising capital as changes in fair market value measurements could affect capital access.

A complete survey of accounting policies is an important part of starting point, as IFRS

requires all records to be made in a similar manner. (Koehn and Kilmek)

RESPONSE TO THE CHANGE IN ACCOUNTING PRINCIPLES

IFRS adoption would impact accounting, tax, technology and organizational

dimensions according to a survey conducted by Deloitte in September 2009. However,

only about one third of the respondents thought that IFRS adoption would make the

United States more competitive globally. (Langmead and Soroosh)

The survey conducted by the authors of the articleMapping the Road to IFRS: A

Survey of CPAs in Public Practice as participants to express their views on five groups of

questions. These five groups are, their overall perspectives of IFRS, impact of IFRS,

adoption issues, their readiness for IFRS and their recommendation regarding the

adoption of IFRS. This survey was sent out to all sizes of CPA firms and the surveyors

received about 175 useful responses. Overall, the responses were not in favor of IFRS.


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There was no indication of strong support for IFRS. Respondents did not support the

principle-based standards of IFRS and were in favor of bright line rules. One of the

respondents stated that as time passes, IFRS would develop into something similar to the

U.S. GAAP. 50% of the respondents believed that IFRS is not as comprehensive as the

U.S. GAAP. (Langmead and Soroosh)

ACCOUNTING PROFESSORS AND CURRICULUM

In order for companies to implement the change from the Generally Accepted

Accounting Principles (GAAP) to the International Financial Reporting Standards its

essential that accounting professionals and students develop an understanding of these

new standards. Its important to ensure that current and future professionals have an

education that will help them handle the change. In order to ensure that students who

graduate from college have an understanding of IFRS, colleges need to include IFRS in

their curriculum. Recruiters will require students to be knowledgeable and understand the

differences between GAAP and IFRS. This is not applicable only for accounting majors

but for all business majors as the switch from IFRS to GAAP will affect all areas of

business. In order to meet this requirement the Securities and Exchange Commission

(SEC) will evaluate the level of IFRS education thats required, and consider the extent

of, logistics for, and estimated time that would be needed to implement training

programs. Colleges have been facing the question and deliberating on how to include

IFRS in the accounting curriculum, which is already very demanding. Colleges also need

to consider the time, effort, faculty resources, and the amount its going to cost to include


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IFRS in the curriculum. The costs that the colleges incur can be significant. In order to

help colleges cope with the costs, some public accounting firms have been helping some

colleges implement the IFRS curriculum by making relevant material available. (Weiss)

In order to effectively switch from the current accounting standards to the

International Financial Reporting Standards (IFRS), accounting professors need to be

able to teach IFRS the same way as they teach the Generally Accepted Accounting

Principles (GAAP). However, accounting professors are not at the forefront of the

changes that are needed in the accounting programs (Weiss). A survey done in 2008

reported that 62% of the accounting professors who responded to the survey had not

taken any significant steps in towards adding IFRS coverage in the curriculum. This

result is from a survey done by KPMG, which was released in September 2009 (Miller

and Becker). The fact that 62% of the accounting professors have not implemented IFRS

in their curriculum affects convergence efforts, as companies will not be able to find

accountants who are qualified to work with IFRS, audit firms will not be able to find

students who can audit IFRS financials without addition training, and multinational

companies will not be able to find accountants who have a good understanding of IFRS.

If colleges are unable to implement IFRS in their business courses, graduates will lack

the knowledge required to succeed in the globalized economy that exists at present.

Miller and Becker have identified six potential deficiencies blocking the

implementation of IFRS in the U.S accounting programs in the article Why Are

Accounting Professors Hesitant to Implement IFRS? The six potential deficiencies that

were recognized are faculty knowledge, target implementation date, space in the


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curriculum, instructional resources, suitable teaching methods, and uncertainty over

support for IFRS itself. (Miller and Becker)

Faculty knowledge is important in order to implement IFRS in college, its

important for the faculty to be knowledgeable about the material. In the U.S, accounting

professionals have not been trained in IFRS. In addition, faculty members are often

knowledgeable about the U.S GAAP to the exclusion of other standards. Even the faculty

members who hold a CPA license and are required to participate in continuing education

are mostly knowledgeable about GAAP, as their training tended to focus on GAAP, not

international principles. The only exception in this case is when the faculty member

teaches international accounting and is required to be knowledgeable about IFRS. One

reason that faculty training has not been extended beyond GAAP could be the fact that

even in the European Union IFRS was only adopted recently. In addition, new professors

who are knowledgeable about IFRS do not have the power or influence to have the

curriculum included in their curricula. Though its clear that the faculty needs to learn

about IFRS, its still not clear what material the faculty needs to be knowledgeable about.

Until the issue of whether the U.S is going to adopt IFRS has been settled the accounting

professors will not able to identify the material they need to know and they cannot decide

which seminars to attend in order to gather material for their classes. In 2008 only 22% of

the professors surveyed in the article felt as though they are qualified to teach IFRS. [This

result is from a survey conducted for an article by Kim Nilsen named On the Verge of an

Academic Revolution.] (Miller and Becker)

The delay in making a decision whether or not the U.S. is going to switch the

accounting principles to IFRS is one of the reasons that college faculty is hesitant to


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include IFRS in their accounting and business curriculum. Professors need to justify

changes made in their curricula to the university. If a decision is not made regarding the

accounting principles that will be used in the future the faculty cannot justify the changes

to the university. A survey released by KPMG stated that 55% of the faculty indicated

that administrators do not understand the need for the change in the curriculum. (Miller

and Becker) However, IFRS is already a major part of the global economy regardless of

SECs failure to make a final decision regarding the adoption of the standards for

publicly held companies and this fact should be helpful in convincing the faculty about

the implementation of IFRS in the business programs. (Cherubini, Rich and Zhu)

Resource shortages are another reason why professors have been unable to

implement IFRS in their curriculum. The existing curriculum is self-sufficient and

satisfies the needs of the faculty and the students effectively. However, the addition of

IFRS wouldbring a change to this curriculum and require major restructuring and

course development. (Miller and Becker) In addition, the curriculum would be required

to cover both the IFRS and GAAP. Since mandates would apply only to publicly held

companies there would be a requirement for students to be knowledgeable both about

GAAP and IFRS. This would be costly for the universities, as they might not have the

resources or the funds to cover the additional material. Some colleges have begun to

include IFRS integration at the intermediate level. However the introductory courses still

focus on GAAP. (Miller and Becker) It is and will be difficult for professors to include

IFRS in their accounting courses until better materials are available that are specifically

designed for introductory accounting courses. Instructors have stated that they would

include IFRS in their curriculum if better materials were available. Professors dont only


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need better course materials; they also need more class time in order to introduce a new

topic without removing another portion of the course. However there are supplementary

materials available that have been distributed by several institutions and book publishers

have been releasing updated versions of their texts with information about IFRS. In

addition, professors can integrate IFRS into their principle courses instead of preparing

lectures. They can highlight the differences between GAAP and IFRS in their classes.

This teaching method would save them a lot of time and provide students with the

knowledge they require. (Cherubini, Rich and Zhu)

Accounting professors and other professionals are able to learn about IFRS

through the continuing education courses that are required of them, academic

conferences, and seminars held by the Big Four accounting firms. However these courses

do not provide any instructional materials, which professors can use in their classes. The

faculty members indicated in a survey done in 2008 and 2009 that theres a need for new

materials such as textbooks in order to implement IFRS in the college curricula. (Miller

and Becker) In the survey conducted by the American Accounting Association and

KPMG approximately 40% of the participants said that they have a limited understanding

of IFRS and 60% said that they had no formal IFRS training. (Cherubini, Rich and Zhu)

The teaching method differs with the content thats being taught. IFRS is a set of

principles based accounting regulations where as GAAP is a set of rules based accounting

regulations and therefore the teaching method for both would differ from the other.

According to the chairman of the Committee of Sponsoring Organizations (COSO), Larry

Rittenberg, The challenge is to go back to understanding the basics, which requires a

different kind of teaching. ... IFRS should be taught through cases and real life situations


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group work where professors and peers challenge the students thinking. Teaching

IFRS will require more curricular emphasis on creative thinking, analysis, cogent

decision making, and teamwork. (Miller and Becker) Accounting professors and

students may find this challenging and therefore such teaching methods take time to me

implemented.

The combination of these six issues is hindering IFRS implementation in college

courses. However, professors need to understand the importance of including IFRS in

their accounting courses. Mr. William F. Miller and DArcy A. Beckerstated, The

ramifications of academia ignoring these calls for action are problematic at best, and

potentially catastrophic. A failure to implement IFRS in the curricula could result in

CAP firms no longer recruiting for interns or full time employees from their college

campuses. (Miller and Becker) Implementing IFRS is difficult and time consuming and

therefore its important that the faculty reach a consensus on IFRS implementation and

are aware of its importance. (Weiss) Another article stated that the lack of support from

their institution, and disagreement with the move towards IFRS, hinders the

implementation of IFRS in their business programs. (Cherubini, Rich and Zhu)

(Cherubini, Rich and Zhu)

In an article published by The CPA Journal titled ImplementingIFRS Curriculum

into Accounting Programs the author Jane M. Weiss conducted a survey of the

universities participating in a PwC grant program. The universities were asked about the

development of IFRS material, the courses that would deliver the IFRS material, and the

format of content deliver. In addition, questions were asked regarding the contact

audience for IFRS and any relevant feedback from students and faculty. (Weiss) The


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result showed that only 4 of the 19 colleges had developed stand-alone courses for IFRS.

A joint survey conducted by the American Accounting Association and KPMG in 2008

stated that intermediate accounting is the course of choice in which schools and

professors prefer to include IFRS material in their accounting curriculum. (Cherubini,

Rich and Zhu) Four programs had integrated IFRS into all the accounting courses where

as fourteen of the fifteen schools had integrated IFRS into their intermediate accounting

courses. (Weiss) However, an article on the importance of including IFRS in the general

business curriculum stated focusing on IFRS only at the intermediate accounting level

limits the exposure of future users of accounting information to only those students who

are accounting majors. (Cherubini, Rich and Zhu) A majority of the participants of the

survey conducted by the American Accounting Association and KPMG responded that

all business majors needed to be knowledgeable about IFRS regardless of their major and

90% stated that IFRS was important for both finance and international business majors.

Many of the respondents believe that introduction to IFRS at the principle level is

important for all business majors. (Cherubini, Rich and Zhu)

Of 19 schools that received a grant from PwC, 13 had implemented IFRS in both,

undergraduate and graduate courses. Nine of the nineteen schools that responded to the

survey teach the curriculum in a lecture-based format where as another eight schools use

a combination of lectures, seminars, and case based format. Seven of the nineteen schools

responded to a question that required information about the student feedback about the

inclusion of IFRS in the curricula. The comments stated that students enjoyed the

courses, found the information helpful, and believed they are more prepared,

professionally, than their peers who have no IFRS education. (Weiss) However they also


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stated that the workload was more than expected and that, just as with the U.S. GAAP,

ambiguity exists within IFRS. (Weiss)

The comments from Jane Weisss articles brought across the feeling that

educators need to be well prepared for the adoption of IFRS, especially once the dates

have been set for IFRS adoption. However, smaller universities were also concerned

about implementing IFRS where the client base has no interest in IFRS. A dual-

reporting accounting curriculum is no considered important, in such locations. (Weiss)

The colleges are hopeful that the SEC will also consider the impact of IFRS adoption on

colleges in such locations and the address the concerns of those who oppose IFRS

adoption. Its important to include IFRS in college curriculums, as individuals well

versed in IFRS are ready to engage in the global environment. In addition, gaining an

understanding of IFRS will be useful as a foundation for students who plan to take upper

level finance or international business courses. The exposure to a new standard in college

will help students understand the changing nature of accounting and they will be able to

utilize their knowledge and skills in the application of accounting concepts. (Cherubini,

Rich and Zhu)

CONCLUSION

Globalization is making it necessary for countries to adopt a global accounting

system. A global accounting system will help companies in the international markets by

making it easier for investors to compare financial data of companies in different

countries as well as help them make more informed decisions. In such a situation will it

be beneficial for the US to hold onto the U.S. GAAP or switch to IFRS? The SEC has


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three options with regards to implementing IFRS. The SEC could either continue with

GAAP, or it could allow companies to elect IFRS, or it could make IFRS mandatory.

However, with the second option the SEC will have to support and maintain two sets of

accounting standards. (Miller and Becker) The surveys conducted by the different

accounting organizations show that there are mixed feelings on this issue. Multinationals

and big firms favor a change where as medium and small businesses are against a change

from U.S. GAAP to IFRS.

In order to implement IFRS in the US the effort to educate professionals about

IFRS needs to increase. Many professionals have some basic knowledge about IFRS but

the US is lacking professionals with more than a basic knowledge about IFRS. In order to

implement any changes, companies are going to need to have at least one expert on their

transition team in order to lead the change effectively and efficiently. In addition to one

expert the teams are going to need people who have more than a basic knowledge about

IFRS in order to educate other employees, the board of directors and the audit committee.

Without more than a basic knowledge about IFRS the team is not going to be able to

bring about the changes required effectively. There are materials available from the Big

Four accounting firms and other large public accounting firms, which provide detailed

descriptions of the differences between IFRS and GAAP. Grant Thornton released a 170-

page paper comparing IFRS and GAAP with detailed differences between both sets of

accounting standards. The paper is extremely detailed and compares each of the IFRS and

GAAP standards separately. In addition there are various articles that have been released

in order to help with the transition to IFRS when SEC announces the deadline.


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Bibliography

AICPA. "IFRS FAQ's." 2011. AICPA IFRS Resources. 16 August 2011

.

. "International Financial Reporting Standards (IFRS) An AICPA Backgrounder."

n.d.

Cherubini, Jason, et al. "IFRS in the General Business Curriculum: Why Should We

Care?" The CPA Journal (2011).

Feeley and Driscoll, P.C. "GAAP vs IFRS: The Evolution To IFRS From GAAP." Feeley

and Driscoll, P.C. Certified Public Accountants, Business Consultants. 16 August

2011 .

Grant Thornton. Comparison between U.S. GAAP and International Financial

Reporting Standards. August 2010.

Koehn, Jo Lynne and Janice L. Kilmek. "Transition to IFRS: Planning Considerations."

The CPA Journal (2011): 10-14.

Langmead, Joseph M. and Jalal Soroosh. "Mapping the Road to IFRS: A Survey of

CPAs in Public Practice." The CPA Journal (2010): 30-35.

Miller, William F. and D'Arcy A. Becker. "Why Are Accounting Professors Hesitant to

Implemnt IFRS." The CPA Journal (2010).

Weiss, Jane M. "Implementing IFRS Curriculum into Accounting Programs." The CPA

Journal (2011): 62-63.


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APPENDIX I

IFRS in the General Business Curriculum: Why Should We Care? By Jason Cherubini, Kevin Rich, Hong Zhu, andAlfred Michenzi; February 2011


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Mapping the Road to IFRS: A Survey of CPAs in Public Practice By Joseph M. Langmead and Jalal Soroosh;August 2010


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Why Are Accounting Professors Hesitant to Implement IFRS? By William F. Miller and DArcy A. Becker;


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August 2010

Transitioning to IFRS: Planning Considerations; By Jo Lynne Koehn and Janice L. Klimek; May 2011

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