Love and Esperanto have a new competitor. Following the an­nouncement of a US plan to adopt the International Financial Reporting Standards, the accounting framework looks like it may become a real universal language. This is welcome, but the changeover will be difficult and US policymakers will need to stand firm in defending their decision, says the Editorial page of Financial Times.

IFRS is a principles-based ac­counting framework. It eschews detail in favour of broad-brush rules. Although this means there are re­gional variations to IFRS, it is possible for companies working in different countries to operate according to a single accounting code. Following its adoption by the European Union, it has spread around the world.

The US Securities and Exchange Commission recognised the ubiquity of IFRS last year when it stopped asking foreign IFRS users to reconcile their accounts with the current US system. But, this week, the SEC has set out a timetable for a US switch to IFRS.

The SEC will test the new system with a few large companies before making a decision on whether fully to adopt IFRS in 2011. The SEC is, however, very enthusiastic about IFRS. Rightly so. The standard would remove a serious barrier to operating in the US. It seems unlikely that the SEC will not press ahead. Companies should now start preparing for IFRS; switching over will prove difficult.

At the moment, US companies must comply with 25,000 pages of precise accounting regulations and guidance. IFRS is only one-tenth as long and concerns itself with sweeping principles rather than minutiae. It will take a while for companies to get used to the new code. They may ask for extra rules and guidance to help them. The SEC must refuse in order to protect the global principles-based rule-set.

The real risks to full IFRS implementation are political. Even if the SEC has a final say over which IFRS rules are implemented and which are not, these proposals will give a group of foreigners a say in US regulation. This will attract fire from congressional windbags.

If any of the large US companies road-testing IFRS shed any jobs during the trial period, the new foreign accounting system will be used as a scapegoat. The change may be caught up in the rising tide of populist protectionism in the US.

The SEC is right to propose a switch to IFRS. It will be helpful to the US and to the rest of the world. But implementation will be tough on businesses, and will need firm resolve from policymakers. Learning a new language, even a universal one, is easier said than done.

Love and Esperanto have a new competitor. Following the an­nouncement of a US plan to adopt the International Financial Reporting Standards, the accounting framework looks like it may become a real universal language. This is welcome, but the changeover will be difficult and US policymakers will need to stand firm in defending their decision, says the Editorial page of Financial Times.

 

IFRS is a principles-based ac­counting framework. It eschews detail in favour of broad-brush rules. Although this means there are re­gional variations to IFRS, it is possible for companies working in different countries to operate according to a single accounting code. Following its adoption by the European Union, it has spread around the world.

 

The US Securities and Exchange Commission recognised the ubiquity of IFRS last year when it stopped asking foreign IFRS users to reconcile their accounts with the current US system. But, this week, the SEC has set out a timetable for a US switch to IFRS.

 

The SEC will test the new system with a few large companies before making a decision on whether fully to adopt IFRS in 2011. The SEC is, however, very enthusiastic about IFRS. Rightly so. The standard would remove a serious barrier to operating in the US. It seems unlikely that the SEC will not press ahead. Companies should now start preparing for IFRS; switching over will prove difficult.

 

At the moment, US companies must comply with 25,000 pages of precise accounting regulations and guidance. IFRS is only one-tenth as long and concerns itself with sweeping principles rather than minutiae. It will take a while for companies to get used to the new code. They may ask for extra rules and guidance to help them. The SEC must refuse in order to protect the global principles-based rule-set.

 

The real risks to full IFRS implementation are political. Even if the SEC has a final say over which IFRS rules are implemented and which are not, these proposals will give a group of foreigners a say in US regulation. This will attract fire from congressional windbags.

 

If any of the large US companies road-testing IFRS shed any jobs during the trial period, the new foreign accounting system will be used as a scapegoat. The change may be caught up in the rising tide of populist protectionism in the US.

 

The SEC is right to propose a switch to IFRS. It will be helpful to the US and to the rest of the world. But implementation will be tough on businesses, and will need firm resolve from policymakers. Learning a new language, even a universal one, is easier said than done.