Over the past several decades, the United States has been the sole capital market superpower with a major infusion of foreign investments in U.S. companies and markets. The strength of the capital markets could be traced to the establishment of a quality uniform financial reporting system known as U.S. Generally Accepted Accounting Principles (U.S. GAAP) which is well respected throughout the global markets. In addition, the business language used throughout the world is English, which I personally experienced during a vacation to Rome, Italy. In a Roman restaurant, I sat next to a table of 20 executives from Europe, Asia, South and North America and Australia and their sole means of communication was English, some better than others.

However, in recent years, the United States has faced global competition from various overseas markets. These foreign markets desired a global financial reporting system rather than their native GAAP or US GAAP. Thus, in 2002, the International Accounting Standards Board (IASB) became a dominant player with its mission to converge with the U.S. Financial Standards Board (FASB). In 2005, the European Union adopted the International Financial Reporting Standards (IFRS) model as adopted by IASB for public companies followed by many other countries. Currently over 100 countries use IFRS and in the next two years, Brazil, Canada, China, India, Korea and Russia will be adopting IFRS. This will leave the U.S as the only major country not on board. Do we want to be isolationist like in 1916 when the slogan was to “stay out of war”?

In 2007, there was a major push for IFRS in the U.S. with many organizations including the U.S. Securities and Exchange Commission (SEC) getting on board the train. The SEC’s decision to allow IFRS without reconciliation for foreign issuers was a major step forward. In 2008, the SEC developed a Road Map with its decision due in 2011 on whether to require IFRS for U.S. public companies starting in 2014. Thus, the train left the 42nd Street Station, but with the global credit crisis in late 2008, the train stopped in the tunnel around 38th Street, not reaching its destination of 34th Street. In the June 17, 2009 speech by President Obama on Financial Regulatory Reform, there is a recommendation that the accounting standard setters make substantial progress by the end of 2009 toward the development of a single set of high quality global accounting standards.

I believe that we should be part of the global economy and not isolationists, and therefore, we need to use the same financial reporting standards for public companies as the rest of the world. The compromise is that the U.S. will use IFRS while the business language would continue to be English.

My only question is what to do with private companies regarding IFRS. Canada is currently undergoing the change to IFRS for public companies effective January 1, 2011 but they have made no decision regarding the mandatory use of IFRS for privately held companies.

Stay tuned and watch to see if the train starts moving again and heads for the IFRS destination.

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