DePaul University Professor Bel Needles will soon provide the accounting industry with a valuable compass that points practitioners in the right direction on the U.S. route to adopting international financial reporting standards.

A renowned authority on global accounting standards, Needles is the co-editor of a new definitive guide for navigating the Security and Exchange Commission’s (SEC) plan to transition thousands of U.S. companies from the American-based Generally Accepted Accounting Standards (GAAP) to International Financial Reporting Standards (IFRS).  

Titled "The Road Ahead: Collected Thoughts on Convergence and Adoption of IFRS in the United States," the book contains timely information on getting through this major accounting crossroad, which will force CPAs, regulators and investors to learn new standards, U.S. businesses to invest in updated software, communications and training programs; and business schools to revamp accounting curricula to accommodate IFRS. The American Institute of Certified Public Accountants (AICPA) will publish the book in March and expects it to be a must-read among its 350,000 members.  

For the book, Needles, the Ernst & Young Professor of Accountancy at DePaul, and co-editor Donna L. Street, the Mahrt Chair of Accounting at the University of Dayton, selected and organized more than 30 articles about the practical implications of IFRS from hundreds of pieces published by large accounting firms, professional organizations, standard-setting bodies and journals.

"Our goal was to create the most comprehensive view of IFRS in a single volume for accounting practitioners and accountants working in industry, as well as for anyone who needs to be aware of IFRS," Needles said.

The SEC unveiled its roadmap for the accounting conversion in December with a timetable that is expected to mandate use of IFRS standards by U.S. companies over the next seven years.  The plan permits selected large U.S. companies to voluntarily begin using IFRS in 2009 through 2011 and, if certain milestones are met, for others to follow in stages from 2014 through 2016, depending on company size.

How will IFRS change financial reporting? "Full adoption of IFRS completely changes to way we view accounting for companies’ earnings and how they present financial information," Needles said.   "It’s more principles-based than the rules-based GAAP currently used in the U.S.  This means that more judgment is required in the application of accounting standards.  With judgment comes more room for differences.

"IFRS also relies more on fair values, thus the impact of marked-to-market valuation will lend to more volatility in financial reporting, as we have seen in recent months," Needles continued. "Instead of matching revenues against expenses, as is done currently, IFRS shows changes in values of assets and liabilities to measure income.  Students and practitioners will have to become valuation experts."

While the SEC is still gathering public comment on the roadmap and the plan could be altered, the adoption of IFRS appears inevitable, said Needles, a past president of the International Association for Accounting Education and Research.  "There is a feeling that business globalization is a powerful force and that a single set of accounting standards will bring better comparability among companies around the world."

Throughout financial history, companies have issued financial statements based on the accounting standards of the country in which they are headquartered, explained Needles, who has taught at DePaul for 30 years and is the author of "Principles of Accounting," one of the most widely used accounting textbooks worldwide. "But now, worldwide, IFRS has become the most common basis of financial reporting.  Over 15,000 non-United States-listed companies currently use IFRS in more than 100 countries, and another 12,000 will likely adopt IFRS by 2012.  Many foreign-based subsidiaries of U.S. multinationals operating in IFRS countries already prepare IFRS financial statements. With more of the world using IFRS, expectations are that the United States will follow.  In fact, non-public companies in the U.S. may now issue financial statements in accordance with IFRS and receive an audit opinion on them."

Adoption of IFRS will have a profound effect on the future of the accounting industry, Needles observed.  "The Sarbanes-Oxley accounting reforms, brought on by the Enron and WorldCom scandals, led to the recognition that auditing is a very important function in our society.  IFRS will focus similar attention on the importance of good financial reporting.  Both of these developments are a boon for the accounting profession."

The AICPA plans for Needles and Street to update the substantial volume annually to reflect the changes in the road ahead as the U.S. travels toward adopting international accounting standards.

Editors’ Note:  Reporters interested in interviewing Needles about international accounting standards and the book should contact Robin Florzak, DePaul Media Relations, at 312-362-8592 or rflorzak@depaul.edu. 

For a copy of the "The Road Ahead: Collected Thoughts on Convergence and Adoption of IFRS in the United States, " contact the AICPA at (919) 402-4811 or visit the AICPA Web site: www.aicpa.com.