Challenges and Issues in Accounting

Fitch Ratings and other observers of corporate accounting and finance generally agree that the single biggest challenge facing the accounting profession is a requirement for businesses to adopt a new set of global accounting standards.

In 2008, the Securities and Exchange Commission (SEC) released a proposed rule (or “roadmap”) that would require U.S. businesses to adopt a new, international accounting standard that it says will let U.S. investors compare U.S. and foreign corporations on an equal footing. The standard, known as International Financial Reporting Standards (IFRS) was created by the International Financial Reporting Standards Board.

The SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” It was created in 1934 to restore investor confidence in U.S. capital markets and help lift the nation out of the Great Depression. Its purpose was to end the secrecy and dishonesty that contributed to the nation’s economic collapse in 1929.

In February 2010, the SEC released a statement reaffirming its belief that IFRS standards will benefit U.S. businesses and investors. The challenge businesses now face is the schedule the SEC is developing for when businesses should start using it. A schedule is expected in 2011, but other nations are already preparing to switch by 2012.

Accountants will of course have to literally prepare new paperwork, including combining forms and reports. For example, current standards allow certain entities to be left off balance sheets.  IFRS is more inclusive. Furthermore, Chadbourne & Park, LLC, a law firm specializing in accountant liability and antitrust, warns that the IFRS may be confusing for accounting staff to follow. It is less explicit than the accounting standards most U.S. businesses use, which could make it more difficult for auditors and regulators to assess financial reports.

In addition, many states and regulatory agencies require accountants to prepare financial statements in accordance with GAAP (Generally Accepted Accounting Principles). But IFRS is a different set of rules. Unless these agencies replace GAAP with IFRS, companies will be required to prepare two sets of accounting documents, creating an enormous new responsibility.

Finally, the Sarbanes-Oxley Act requires corporate audit committees to have certain financial expertise. It is unclear if Sarbanes-Oxley will require IFRS expertise on audit committees as well.

Anthem College Online offers an Associate of Science degree in Accounting Technology that helps students prepare for entry-level positions that directly support accountants. For more information on the program, please visit our web site or call us at 1.866.837.1010.

Sources:

Securities and Exchange Commission. “The Investor’s Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation.” Web. 5 April 2011.

Securities and Exchange Commission. “SEC Approves Statement on Global Accounting Standards,” 24 February 201o. Web. 5 April 2011.

Chadbourne & Park, LLP.  SEC’s March Toward Adoption of Global Accounting Standards Raises Potential Litigation Challenges for U.S. Issuers and their Auditors.” Client Alert, 31/3/2010. Web. 5 April, 2011.  3/31/10.

Langton, James. “Fitch outlines key accounting issues for 2010.”  Investment Executive, 12 January 2010. Web. 5 April 2010.