NSA President Donny Woods and I attended a conference of international accounting regulators earlier this week to better assess the impact of the future adoption of International Financial Reporting Standards, or IFRS, in the United States on the small business community and their accountants.
First, it is clear that IFRS is still a work in progress, even at the international level. Standards and rules are still being developed, possible exceptions for small business (such as no required disclosure of holdings in financial instruments like derivatives, for example) have been discussed, and even those foreign accounting regulators who claim to have fully adopted IFRS concede that what they have adopted is still unknown.
What is clear is that a fairly limited number of large multination corporations are driving IFRS so that their financial statements, and earnings per share calculations that are importantimportant for listings on stock exchanges throughout the world, can be consistent across borders and continents.
Second, this effort will have far-reaching consequences throughout the financial sector. Educators at the conference anticipate that university courses teaching generally accepted accounting principles will eventually become a thing of the past. GAAP will no longer be supported by U.S. regulators, which will mean that large multinational banks will change their accounting systems to IFRS. Smaller banks, which have correspondence relationships with large banks, will need to change their systems to maintain those relationships.
Third, the changes will impact small business because the small and regional banks will require financial statement based on IFRS for loan applications. For consistency, financial data used for tax returns will also be IFRS-based.
A knowledge of IFRS will not be necessary in the near future, not least because IFRS does not yet exist. However, this change is coming at some point in the coming years and NSA will continue to monitor and provide a voice for the small business community as IFRS is developed.