It is with some awe that I continue to observe the energy that is going into launching this new industry called IFRS in the US.  It’s like SOX is the washed up celebrity and there is a fresh new face all over the tabloids that everyone is paying attention to (and throwing money at).  Reporting systems are now advertised as being “IFRS compliant” as if you can buy it prepackaged with a module that will automatically convert your US GAAP financial statements.  Recruiters are getting a bead on technical accounting talent to eventually place at their clients.  Every single Big 4 firm is issuing countless commentaries on the subject (each one trying to outdo the other).  And there is no shortage of IFRS training and seminars to make sure you are ready.

Ready for what?!  Since this craziness ramped up late last year, the recently approved and highly anticipated roadmap from the SEC simply says that they will look at the matter for another three years or so and make their decision in 2011.  Don’t get me wrong - as a revenue recognition consultant, I always knew there would be enough years of grief with US GAAP that I’d have more than enough work until someone tried to fix it.  Then my practice would have a few years of implementation/conversion work under whatever the new standards were, followed by a few more years of dealing with the new grief caused by the inevitable interpretations of interpretations of the guidance that was meant to fix everything.  I initially thought this chain of opportunity would stem from the joint IASB/FASB project on revenue recognition (which has been going on since 2002, by the way).  However, it appears I now have an alternative benefactor in IFRS – or do I?

Despite the usual internal objections to actually having a deadline at all for the FASB Board to finally issue a revenue recognition standard (2011), I hope the timing is not just coincidental with when the SEC will make their decision as to whether to proceed with IFRS.  I have to hope the benefits that come from discussing improvements over accounting for the biggest number on your P&L for almost a decade will not go to waste.

For those who are so eagerly anticipating the introduction of IFRS, let’s do a reality check for a moment:

• for nearly 75 years, it has been the job of the SEC to protect investors by issuing very specific guidance, often in response to abuses;
• the accounting standard setters have evolved US GAAP into its “rules-based” approach by issuing guidance like SOP 97-2 for companies that sell software;
• we have trained generations of accountants and auditors in this “rules-based” regime; and
• if a judgment call is not objectionable under GAAP, management will (as expected) push the limits of interpretations of principles to report desired financial results. 

The question is not whether companies are ready to adopt IFRS, but rather whether the regulators, standard setters, and the accounting profession itself are ready.  Companies will do what they did when SOX was introduced – spend a lot of money in a short period of time based on someone else’s advise on what they think section 404 means, and those who start sooner with an appropriate level of resources will be better off than those who wait to address this issue.  At least with IFRS, we have a bit of runway, but first I have to ask a basic question:  If we can’t figure out something as fundamental as what VSOE of fair value is under rules-based guidance like SOP 97-2, how will we even begin to entertain adoption of a principles-based approach like IFRS when the level of judgment is widened?

In response to this rhetorical question, here is what I predict the next several years will look like:

• on or before 2011, the SEC will say that it needs more time to look at IFRS because they will have done their own reality check of the situation;
• the SEC won’t abandon it altogether because it will become increasingly embarrassing that rest of the world has long moved on to the standard;
• instead, it will become clear IFRS is the way to go, but that there are still some specific rules that are needed to continue to ensure consistency and comparability;
• the SEC will need to work on these rules and interpretations for a while which will include the revenue recognition standards that come out of the joint IASB/FASB project (assuming the project is actually completed);
• we will end up with a “rules-based” version of IFRS for US companies; and
• despite the roadmap just introduced, the majority of filers will be allowed (or forced) to adopt IFRS somewhere near 2020. 

Global standards are nothing new and even IFRS is nothing new.  I do believe the long term benefits of adopting IFRS will be improvements to comparability and consistency in financial statements.  However, when given a choice between usefulness of financial statements and protection, investors will choose protection.

The mandate of the SEC is to protect investors, and that is what they will continue to do no matter what form of GAAP companies file under.