Will IFRS Be Worse Than Sarbanes-Oxley?

Lora Bentley

Candela Solutions partner Ron Kral says international accounting standards could be "more onerous than Sarbanes-Oxley." It may be hard to believe at first; how could anything be worse than Sarbox? But as Kral points out in a Wisconsin Technology Network piece, there is a wide gap between Generally Acceptable Accounting Principles (GAAP) in the U.S. -- no pun intended -- and the International Accounting Standards Board's International Financial Reporting Standards.

 

U.S. GAAP, he says, are rules-based and consists of long, complicated standards. (Try 800-plus pages on derivatives alone.) And its shortcomings are well known around the world. Take Japanese company NEC, for example. Earlier this year, Kral says,

NEC announced..."that it was not able to complete a U.S. GAAP-required analysis relating to software, maintenance, and service revenues." In essence, the company said it simply cannot figure out U.S. GAAP revenue recognition rules and will stop trying, resulting in suspended trading on the NASDAQ.

IFRS, on the other hand, are principles-based and give companies "more presentation freedom." The biggest difference could be that IFRS will require three statements rather than a single "bottom line" or "net income number."

 

According to Wisconsin Technology Network:

[T]he working proposal would require three separate statements: a statement of financial position, a statement of comprehensive income, and a statement of cash flows. Companies would need to breakout in each financial statement information for business activities (including operating and investing activities), discontinued operations, financing activities, income taxes, and equity.


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Dec 24, 2007 9:22 AM Kris Kris  says:
The evidence for why IFRS would be worse than SOX is not compelling. US GAAP requires a statement of financial position (Income Statement), statement of other comprehensive income, and a statement of cash flows already. These requirements are standard to a 10-k and predate the passage of the Sarbanes-Oxley bill.Unless the IFRS is proposing a subtantially different way of compiling and measuring these statements (which to my knowledge, they are not), this is unlikely to be a problem for businesses. Reply
Jan 4, 2008 5:25 AM Thomas Rocmans Thomas Rocmans  says:
As an European Process and IT business consultant I have been facing the conversion from local GAAP to IFRS already in Europe for quoated companies. This step over has not been as heavy as implementing SoX within European affiliates of American companies. Also from an IT business application point of view the available packages for Financial data (and thus IFRS) are much more mature than compliancy and risk management tools, allowing companies to automate quite some reporting steps regarding the financial statements. Another major difference between IFRS and SoX is that the latter is not only financially related and a complete re-organisation of other operational, but also IT related aspects, which will be minimal in regards to IFRS.In conclusion, although I am not very familiar with US companies, I do not forsee an enormous burden as they have known with SoX. We can even say that from an organisational point of view the changes that were implemented during the SoX journey will probably facilitate the conversion from US GAAP to IFRS. Reply

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