Transitioning to the global accounting system is a monumental challenge that will cost millions of dollars. As the global economy gains strength, there doesn't seem to be any other option than to prepare for the inevitable. It's a known fact that in order to remain competitive with other international markets, the United States must adapt to the changes of IFRS. These changes will generate significant expenses that go beyond the business of financial reporting. A good portion of expense will be incurred from professional training and development that will need to be implemented industry-wide. How about the cost of upgrades in financial software programs and other technologies? In addition, revisions will need to be made to accounting curriculum in colleges and universities across the nation to reflect IFRS. It's clear to see that the new reporting system will be a costly investment to the financial industry and beyond.
With over 120 nations already using IFRS, it's difficult to conduct business as usual with our international counterparts without converting to the new accounting system. According to D.J. Gannon, a Deloitte & Touche partner, "This is not just a technical accounting exercise... it encompasses a company's entire operations, including auditing and oversight, cash management, corporate taxes, technology and software." The preparations that are required to make the necessary upgrades in communication and software systems are daunting. Think of the vast amount of financial professionals, including regulators, CPAs, investors-to name a few- that will need training to stay current with the new global standards. Not only will the transition require CPAs, financial statement preparers, and auditors to learn the international standards, but actuaries and valuation experts will also need comprehensive training on measuring certain assets and liabilities. Time is money; therefore, the cost of training professionals at all levels in the industry will require a significant investment.
Unfortunately, the majority of CPAs have limited knowledge of IFRS, so this alone could drive the cost of professional training and development well beyond what companies can afford. In today's market, how will this affect cost-conscious CFOs? It doesn't stop there either. The magnitude of the conversion will demand on-going training and development needs throughout its implementation. With the projection of a total conversion estimated at two to three years, costs could be astronomical. This is the reason why professional organizations such as the American Accounting Association and industry groups (KPMG, Deloitte, PricewaterhouseCoopers) opted to introduce IFRS in their training materials, testing, and certification programs, as well as industry publications. With time being a critical factor in the transition, the sooner professionals become familiar with the new standards, the better off the nation is strategically.
Another expense of the IFRS transition centers on academia. The empirical study, "A Cost-Benefit Analysis of the Transition from GAAP to IFRS in the United States," reports that the costs of hiring extra professors are projected to be $100,000-$250,000 per institution. In addition, other costs will be incurred from the hiring of administrative staff that will be responsible for assisting professors with curriculum changes and related issues. With budget cuts in education, who will cover these expenses? Undoubtedly, this will most likely get passed along to the student in the form of a tuition increase. This doesn't include the cost of new textbooks that students will need to purchase. Textbooks are being revised to include material that covers IFRS. The majority of professors will require students to purchase newer editions- so much for purchasing used books at a discount!
Aside from the financial implications of the conversion on academia, there is also the burden of deciding what IFRS material should be covered in a given semester. With volumes of information, no set criteria, and instructors with little exposure to the new standards, how will all of this be set in motion? At this point, there seems to be more questions than answers. In having a true understanding of the overwhelming responsibility being placed upon educational institutions to upgrade their curricula and provide training for professors in IFRS, PricewaterhouseCoopers donation of $700,000 in grants will be put to good use. Other industry leaders must follow in their footsteps if we expect a seamless transition.
For a complete overhaul to IFRS, those in the profession will need to learn the new system. In addition to CPAs, preparers, auditors, actuaries, and valuation experts, educational institutions will also need to prepare for the transition. Many financial resources including publications, software, and other technologies will have to be upgraded to include the new reporting standards. The transition to IFRS will be a costly move that will impact the financial industry for years to come.
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