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IFRS Implementation Surprisingly Smooth But Significant Doubts Remain

by Robert Lee,, London

02 May 2006

Senior accounting, regulatory and industry figures from around the world have expressed surprise at how smoothly the implementation of International Financial Reporting Standards (IFRS) has gone to date, but a number of key issues remain to be resolved in order to confirm the success of the project, a new report by KPMG has shown.

KPMG International’s report – 'International Financial Reporting Standards: Views on a financial reporting revolution' highlights some critical issues facing the project ahead, based on interviews with standard-setters, regulators, CFOs, analysts and auditors from around the world

According to KPMG, some of the issues include:

  • US Convergence - Specifically, how the Securities and Exchange Commission will react to the first full IFRS results as they are issued and how a series of requested restatements could affect progress towards mutual recognition between IFRS and US GAAP, and the ultimate quest for one global accounting language.
  • Consistency of interpretation – doubts linger over whether the global financial community will ensure that IFRS is adopted and interpreted in a consistent manner across borders and between different industry sectors.
  • Rules versus principles – following on from this, KPMG asks if the need for consistency will result in a movement towards a more rigid rules-based (US-style) approach
  • Fair value – some preparers are still uncomfortable with the direction that fair value accounting is taking, and question the relevance of some of the numbers it produces.
  • Complexity of accounts – accounts are becoming increasingly complex for investors to read, but some believe that this situation is a greater reflection of reality.

Still, these issues aside, Sir David Tweedie, Chairman of the International Accounting Standards Board, believes the implementation of IFRS to date has gone “surprisingly well, while Robert Herz, Chairman of the Financial Accounting Standards Board (FASB), the US standard-setting body, describes it as “an incredible event in the history of accounting.”

Michael Hughes, Global Head of Audit at KPMG and partner in KPMG’s UK firm, is of the view that in five years time, there is a good chance that IFRS will be "bedded down and (with) mutual recognition [between IFRS and US GAAP]."

However, others are less optimistic. Charles Grieve of the Securities and Futures Commission in Hong Kong believes that “there is nothing new under the sun."

"The same issues, like goodwill, will be floating around and being argued about," he contends.

Others fear incompatibility of US and European versions of IFRS. Jon Symonds, CFO at AstraZeneca says that the downside is that "we could have both European IFRS and US IFRS and it is on a knife edge as to which way that will go.”

Analyst Tony Good of the UK Society of Investment Professionals warns that “there is a real danger that we will end up with a set of standards which might satisfy neither FASB nor Europe.”

Mike Rake, Chairman of KPMG International, underlines the importance of all parties engaging in ongoing debate and discussion on the future of accounting standards.

“It is essential that constituents, particularly users and preparers, play a full and active part in the future development of IFRS. We must all now work to ensure that IFRS delivers the intended benefits to companies and investors," he said.

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