Isn’t it fun complying with 69 different sets of accounting rules for your company’s operations around the world?

Just as customs, languages and local cuisine differ from country to country, so do accounting requirements. For global companies, that means staying on top of a bewildering array of local principles, reconciliation methods and reporting requirements. And even where common standards do exist, local interpretations can still make closing the books a lot more complicated than it needs to be.

But here’s the good news. A common set of international accounting standards, a lingua franca for the global business world — once dismissed as a pie-in-the-sky fantasy — is quickly gathering momentum.

You may be thinking: “Yeah, I’ve heard this all before. Call me when something really happens.” Or your reaction may be like that of a parent puzzling over their child’s math homework.

This time it’s real
Relax. For starters, it’s actually happening this time. International Financial Reporting Standards (IFRS) are now in use in some form in over 100 countries ranging from Australia to the United Kingdom. In fact, IFRS has become the local statutory reporting standard in many countries.

In the summer of 2007, the Securities and Exchange Commission (SEC) floated the idea that U.S. companies may someday be allowed to file financial statements prepared according to IFRS instead of U.S. Generally Accepted Accounting Principals (GAAP). That day may come sooner than you think. The mere suggestion of SEC adoption would have been unheard of just a few years ago.

And IFRS isn’t entirely “new math” either. It’s much of the same old math that you’ve been doing for years. IFRS and GAAP are already fairly similar — and standards will continue to converge over time. Things like leasing and revenue recognition, for example, have pretty much the same framework under IFRS. GAAP just has different “bright-line” rules. (A bright-line rule is a clear standard with little room for interpretation, intended to produce predictable and consistent results.)

Of course, it still takes some effort to sort out these differences, but we believe they’re manageable. And it’s certainly a heck of a lot easier than remembering dozens of local GAAP standards for lease accounting.

Do it now
Even if your company is not required to report in IFRS, there are huge advantages to getting up to speed before the SEC makes its decision.

•  Cost savings. For global organizations, IFRS represents a huge cost savings opportunity. It’s ideal for a centralized platform and it’s also a great fit for a shared-services model. We believe using IFRS to help standardize and centralize your reporting process is well worth the effort.
• Control. Nothing can totally eliminate the risk of penalties and compliance problems at the local level, but IFRS goes a long way towards helping a company achieve this goal. IFRS allows your local subsidiaries to follow a consistent set of rules and — with centralized interpretation from above — can help you avoid inconsistent data, closing headaches and nasty surprises.
• Investor goodwill. If you think it’s a pain reconciling your books on a global basis, the users of your financial statements aren’t having much fun either. The investment community is increasingly looking to IFRS as a way to compare companies across borders. If you’re not providing this information, chances are your shareholders and the analysts that cover your company will soon be asking for it. Offer it now and investors and analysts will love you.
• Keeping up with competitors. Your competitors may already be using it. Industries that tend to be global — such as airlines, pharmaceuticals, financials and automobiles — have been especially aggressive in the adoption of IFRS. If you’re in one of these sectors and you’re not using IFRS, you risk being the odd man out.
• Easier acquisitions. IFRS makes mergers and acquisitions a lot easier. If you make a lot of acquisitions — or plan to in the future — IFRS may come in handy, especially if those deals involve companies from other countries or companies with international subsidiaries. Having a centralized IFRS platform in place can mean fewer late nights and less room for error.

It might be tempting to put all of this aside until the SEC makes a formal ruling on IFRS. After all, international accounting standards — sort of like electric cars — are one of those great conceptual ideas that have been discussed and debated forever, but never seemed to go anywhere in the marketplace.

But when the big change finally does come (as it has in the automobile business) it’s hard to catch up if you haven’t been paying attention. So get a head start on IFRS now. You’ll thank yourself later.

This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

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