The American Institute of CPAs has told the Securities and Exchange Commission that accountants need an adequate transition period if the SEC decides next year to incorporate International Financial Reporting Standards into the U.S. financial reporting system.

In a comment letter on the SEC’s proposed IFRS work plan, AICPA chairman Robert Harris and president and CEO Barry Melancon noted that the institute held two conference calls with AICPA members who work with public company backgrounds to solicit their input in a virtual roundtable on the SEC’s questions in its work plan.

“In addressing the questions in each section of the Commission’s request, the overriding message from panel participants was that an adequate transition period will be the most important consideration in mitigating concerns outlined in the request for comment,” they wrote.

The AICPA’s research indicates that companies will need five years of preparation time to adopt IFRS if the SEC requires two years of historical comparative financial statements. If only one year of comparative financial statements is required, a four-year transition period would be needed to adopt IFRS. The AICPA would support a decision by the SEC to require only one year of comparative financial statements, Melancon and Harris noted.

“Whether one or two years of comparative statements are required, a majority of round table participants believe the SEC should allow for a minimum of two years preparation time before the earliest opening balance sheet date,” they wrote. “Companies will need to start tracking both U.S. GAAP and IFRS results on that date, and we believe most companies will need at least two years to prepare their systems. Although there are companies that could prepare for adoption in a shorter period, and might prefer to do so, we believe most companies will need the additional transition time. The AICPA would support an early adoption option for companies that want to adopt IFRS sooner.”

They urged the SEC to ensure that the key milestones in the work plan lead to global standards for public companies in 2015 or 2016, as contemplated in the work plan.

They noted that companies would need to take an inventory of their contracts and agreements and determine how they will be affected by adoption of IFRS. In cases in which financial reporting requirements of a contract are based on U.S. GAAP, contracts may need to be amended to allow IFRS as the basis of financial reporting. Covenant requirements might need to be renegotiated, compensation arrangements amended, joint venture agreements modified and collaboration agreements updated

Harris and Melancon reaffirmed the AICPA’s support for the goal of a single set of high-quality accounting standards for public companies and said the institute believes the standards issued by the International Accounting Standards Board are best positioned to become those standards.

However, the AICPA sees hurdles in the convergence process if differences remain with the Financial Accounting Standards Board over issues such as financial instruments accounting.

“The financial instruments project was highlighted as a specific concern by some of the panel members because of the possibility that significant differences could remain after completion of the project,” Harris and Melancon wrote. “If differences remain between U.S. and international standards after the convergence projects are complete, the shift to IFRS will be more of a challenge.”