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Accounting shifting to international standards

NORTH BAY – With the economy becoming increasingly global, pressure is building for financial statements to be universal.

The push began with the European Union, said Ken Dansie, CPA with Andersen & Company in Santa Rosa. Within a few years of the switch to the euro, the European Union implemented standards to create a more fluid way of looking at financial statements across its borders.

“What happened is that all these standards have built up and are all different. They are recognizable, there are nuances, but things are accounted for differently,” Mr. Dansie said.

Prior to the European Union transferring over to the International Financial Reporting Standards, the countries in Europe did the same thing that most of the rest of the world still does, which was following their own generally accepted accounting practices.

Now the Securities and Exchange Commission is working on moving away from the United States principles, overseen by the Financial Accounting Standards Board, and switching to the international standards.

In the U.S., the current principles are rules-based, Sam Doolittle of Deloitte said. That means there is an attempt to create rules for every possible scenario, which resulted in about 25,000 pages of regulations.

Mr. Dansie said the shift to international standards will create a lot of work for CPAs and changes in education.

In the United Kingdom, a group called the International Accounting Standards Board has come together to create guidelines for the accounting standards. This is a principle-based way of accounting reporting, which has a guidebook of only 2,500 pages.

“This is fundamentally a different approach to rulemaking,” Mr. Doolittle said. “Here [in the U.S.] it is very prescriptive. If you have A, B and C, you know what to do.”

In addition, with the principles-based system it becomes much more important for the companies to analyze each situation, said Mr. Doolittle. “You have to make sure you disclose your reasoning.”

Hence, more accountability for accountants.

“If we have fewer rules there are still the same amount of decisions to make that are more based on judgment,” said Elizabeth Capener, director of the undergraduate business program at Dominican University in San Rafael.

“Accountants will have to make good, sound, solid business decisions in the changing global economy,” she said.

As to the impact of this pending change on the United States, it will come up in many ways.

Training for practicing CPAs will be required, and private businesses will have to learn the new rules as well.

As far as educational institutions go, there will have to be a revamping of the courses. However, said Ms. Capener, publishers and professional organizations have already been collaborating and are getting materials together to change the curriculum. As it stands, accounting rules change every few years, and while this is a major revision, it is not entirely unusual.

Ms. Capener said she really is looking forward to when more people across more borders can compare financial information, and she thinks getting there is worth it.

Both the International Accounting Standards Board and the U.S. Securities and Exchange Commission agree that while this is a good thing for the financial world, it will be several years before every public company will be required to follow new guidelines to financial reporting.