By James Hamilton, J.D., LL.M.
There is a growing chorus of concern that differing interpretations of international financial reporting standards will derail the IFRS train before it reaches the ultimate destination of a uniform global accounting regime for financial statements. The latest voice added to this chorus is that of IASB trustee Samuel A. DiPiazza, Jr., who is also CEO of PricewaterhouseCoopers.
In remarks to world standard setters, he feared that individual authorities will publish their own interpretations of IFRS, just as they did under their national GAAP. If regulators find it absolutely necessary to issue implementation guidance, said the trustee, they must ensure that such guidance is consistent with global interpretations. He emphasized that the goal is compatibility, equivalence and comparable results, not necessarily wholesale uniformity. His refusal to call for complete uniformity is consistent with the majority view that, even under IFRS, there will still be room for the stamp of national identity.
That said, it appears that a consensus is building among senior officials that the greatest threat to IFRS is a babel of differing interpretations of international accounting standards. With over 100 countries having adopted IFRS, and with the European Union having mandated IFRS, this is a very real worry.
For example, European Commissioner for the Internal Market Charlie McCreevy has emphasized that the great challenge of IFRS is to achieve the consistent application of standards and interpretations. Principles-based standards will not always give the same result in all situations, he reasoned, but they should give similar results in similar situation. With consistency in mind, the EU strongly believes that interpretations of IFRS should be made by the IASB’s International Financial Reporting Interpretations Committee. Importantly, he said that IFRIC must be staffed so that difficult interpretive issues can be timely addressed.
On a separate topic, Mr. DiPiazza said that the preparation of IFRS financial statements must move from crash projects using work- arounds to business-as-usual flexible systems generating IFRS-compliant data. He said that many companies managed to meet the 2005 deadline to publish their first IFRS financials only because they established dedicated project teams to work on the transition. In some cases the objective was met by deploying work-arounds, such as using spreadsheets to generate some numbers and disclosures. While that may have worked for the first year, he urged companies to migrate IFRS from the finance function to their business units. If they don’t do that, he predicted, there will be financial reporting control issues that could result in restatements.