The Changing Face of Accounting:
Plans to Converge U.S. GAAP with IFRS
By Michael Hafermann, Lisa Thiermann, Karen Vlach, Elise Wood, and Kristen Wysocki
Whether you want to embrace it, run from it, or claim to have no knowledge of it, accounting as we know it is about to change as the United States adopts a more global set of rules for accounting standards. Currently, the United States uses a set of accounting standards called Generally Accepted Accounting Principles (U.S. GAAP); however, most of the world has adopted a different set of accounting standards called International Financial Reporting Standards (IFRS). In an era where global commerce and international business dominate, converging the two sets of standards into one appears to be a likely solution to create financial reporting consistency throughout the world.
The general difference between the two systems is that U.S. GAAP is very “rules-based,” which means that very technical rules dictate proper accounting treatment to specific accounting transactions. IFRS on the other hand, is “principles-based,” which means that only broad principles are dictated, leaving accountants room to exercise judgment. An easy example of the difference is that we may put specific family rules in place forbidding hitting, kicking, calling names, and so forth or we may ask our children to follow the principle of being nice to their siblings (thanks to Dr. Liu for this example). IFRS tends toward the former, U.S. GAAP tends toward the latter.
A convergence of this magnitude presents substantial issues for students, universities, and businesses. Dr. D’Arcy Becker, chair of the Accounting and Finance Department, says that no specific convergence date has been decided but that the change seems inevitable. In 2008, the Securities and Exchange Commission (SEC) published this timeline for a possible mandatory convergence. As the figure shows, 2014 could be a mandatory adoption date of IFRS by public U.S. companies.
What Does this Mean for Current Accounting Students?
Current UW-Eau Claire accounting students will see little effect of the convergence in the immediate future. Most accounting graduates elect to take the exam required to become a Certified Public Accountant (CPA), which currently does not include any IFRS material. This suggests that these students will not be required to know IFRS before graduating. The UW-Eau Claire accounting curriculum teaches U.S. GAAP, which is the only method covered on the CPA exam. Joe Thompson, a senior accounting major, said, “I feel well prepared for U.S. GAAP because of the schooling here at UW-Eau Claire, but I feel IFRS will be something that this years’ accounting grads will have to learn on their own.” Most of the job opportunities for accounting grads do not require IFRS education; however, Bill Miller, Assistant Professor of Accounting, mentioned in a recent interview that PricewaterhouseCoopers (PwC), one of the largest public accounting firms in the U.S., is leaning in that direction. Starting in the fall of 2009, PwC began requiring potential interns and full-time hires to demonstrate IFRS awareness (source: www.pwc.com). If current students want to build their awareness about the IFRS convergence, they can find current news articles on the AICPA IFRS Resources Web site.
Miller has already incorporated IFRS into his Advanced Financial Accounting class. With only a few pages covering IFRS in the textbook, Miller is not waiting on the textbooks to change. There is also some IFRS coverage in Dr. Liu’s Financial Statement Analysis class. Since the convergence has not been fully adopted, publishers have been slow to incorporate IFRS into their textbooks. Miller covers some of the fundamentals of IFRS in his Advanced Financial Accounting class with a combination of research projects and lecture. Dr. Becker indicated that other UW colleges are on a similar track as UW-Eau Claire in terms of IFRS preparation.
What Does this Mean for Future Accounting Students?
The convergence will impact future students in several ways. First, future students will begin learning IFRS. Dr. Becker expects that about two-thirds of the accounting curriculum will remain unchanged but is unsure of what the two-thirds will actually be. Second, the topics tested on the CPA exam will eventually reflect the new standards. However, as Dr. Becker explained, the content of the exam won’t change until the decision to converge is officially made, new textbooks are written, and universities begin teaching the new standards. Third, future students may be impacted by a structural change in the accounting department. Dr. Becker noted that once new standards are adopted, two separate tracks for some accounting content [U.S. GAAP and IFRS] may be required. The IFRS system mainly affects publicly traded companies; therefore, smaller non-public companies will be able to continue to use the U.S. GAAP system after the change of accounting systems. Since some accounting students want to work for smaller companies, knowledge of U.S. GAAP would remain imperative for those students.
What Does this Mean for Non-Accountants?
Accounting is the language of business, and a change in the accounting system will impact all areas of business. This is why UW-EC business majors are required to take two accounting courses for familiarity with accounting principles. For example, when a salesperson meets with a potential client, it is important for him or her to be aware of the company’s financial situation in order to negotiate a fair agreement. Managers will also be impacted because measurement of assets and liabilities is fundamental to management decisions. So whether you are in accounting or not, a change in accounting systems will impact more than just your company’s accounting department.
Since no official convergence or convergence date has been decided, questions remain unanswered. For now, students can continue to focus on U.S. GAAP while also gaining an awareness of IFRS. However, businesses, universities, and students should begin to brace themselves for a change in accounting as significant as the invention of double-entry bookkeeping.
From left to right: Michael Hafermann is a senior marketing major from New Prague, MN;
Lisa Thiermann is a senior marketing and spanish major from Cedarburg, WI;
Karen Vlach is a senior accounting major from Beaver Dam, WI;
Elise Wood is a senior accounting major from Eau Claire, WI; and
Kristen Wysocki is a senior accounting major from Plainfield, WI. They wrote this article for their BCOM Advanced Writing class.