When the Roman Empire was first expanding, regulators noticed an annoying problem: Due to increasing traffic, chariots were leaving grooves in the stone roads, but the gauge - the distance between the wheels - varied according to region. Different sized chariots didn't fit in the grooves. Julius Caesar had a solution: international standardization.

Changing every chariot to the same gauge was initially expensive, but once everyone could agree on the same standard, civilization was able to take a giant leap forward. More than 2,000 years later, the majority of the world's railroads still use the same Roman standard gauge. The actual distance of 4'-8 1/2" isn't as important as the concept that we can all agree on something.

Regulators around the world are trying to establish a new international standard for financial accounting, known as International Financial Reporting Standards (IFRS). More than 100 countries have already adopted IFRS, but the United States is still using Generally Accepted Accounting Principles (GAAP).

This difference is becoming increasingly frustrating for multi-national companies, which currently report under both IFRS and U.S. GAAP.

"In the last 18 months, we relearned how globally connected we all have become," said James Turley, chairman and CEO of Ernst & Young. "We need to recognize that we are living in a G-20 world. It is absolutely imperative to have one global standard."

In the grand scheme of things, a single, global standard would make it a lot easier for companies and regulators to communicate their financial information, and it would be a lot easier for mutual funds and other investors to compare international companies.

Everybody wants the U.S. to get on board with the rest of the world, but the conversion process is nothing short of monumental. Champions of the change say it will eventually bring harmony to international accounting, but acknowledge that it will be incredibly expensive and take years to implement. Regulators in the U.S. and abroad are taking careful, baby steps, with a tentative implementation date of 2014.

"Pretty much all of the world's major capital markets have adopted IFRS or have said they will adopt it, except one: The U.S.," said Ruth Picker, leader of Ernst & Young's Global IFRS Services Group.

The U.S. has not committed to adopting IFRS, yet it is a major player on the International Accounting Standards Board, which determines the international standards, Picker said.

IFRS isn't perfect, but its requirements are continually being revised and improved to incorporate the best ideas from other countries, including from the U.S. The U.S. is also changing its GAAP, bringing it ever closer to becoming more like IFRS. By the time 2014 rolls around, many of the differences will have gone away.

"Ideally, we want this designed so that when the U.S. comes on board, everything will be ready and there won't need to be a lot of adjustments," said Leo van der Tas, technical director of Ernst & Young's Global IFRS Services Group.

"It's important for converting countries to move to a stable platform of standards," Picker said. "A country can't implement changes to ever-changing standards. It is very important for the U.S. [financial executives] to be able to know what they're going to move to, whether that's 2011 standards or 2014 standards, so they can cope with what it is they're converting to."

Companies would prefer know sooner than later if IFRS will be adopted in order to adequately prepare for the new standards.

"If companies start planning now, they can spread out their resources and prevent a lot of surprises," said Lisa Filomia-Aktas, a partner at Ernst & Young. "There is enough time for companies to get there, but it gets a lot harder if you wait."

The Securities and Exchange Commission is currently mulling over the public comments it received to its draft roadmap for conversion. A large number of the comment letters were pleas for the SEC to hurry up and set a date, she said.

Repeated extensions and delays to adoption have created uncertainty among those who thought the conversion was a done deal, especially among European countries.

"There is some anxiety that the U.S. is cooling to IFRS, but I don't think that's the case," Turley said.

Should the U.S. decide not adopt IFRS, the result would be devastating to international standardization efforts. Most people involved think global convergence is inevitable and only requires the time and patience to see it through.

Slow to Adopt

Progress on the IFRS/GAAP conversion seems to have stalled recently. Regulators were a little preoccupied last year with saving the global economy, and now that the world seems to be on the mend, U.S. lawmakers have found themselves consumed with reforming healthcare.

While it may seem that the U.S. is dragging its feet on its roadmap, a lot of work is currently underway. The U.S. is well on the way to adopting a new summary prospectus format and eXtensible Business Reporting Language (XBRL) data tagging, both of which are part of the roadmap.

Another key milestone in the roadmap which has yet to be implemented is the education, training and preparation of professional associations, industry groups and business schools for the new standards. The changes to taxes and accounting rules will be so significant, business schools and CPAs will have to be retrained, Filomia-Aktas said.

According to a new survey conducted by the American Accounting Association and KPMG LLP, faculty at universities throughout the U.S. believe their students and the economy will be at a disadvantage if U.S. regulators don't adopt a set of global standards. Universities need to take immediate sets to incorporate IFRS into accounting curricula, the said.

"University professors throughout the U.S. recognize that teaching IFRS is critical in preparing our accounting students to excel in the global marketplace and finding space to fit IFRS in the curriculum is the challenge," said Manny Fernandez, KPMG's national managing partner of university relations and recruiting. "Not surprisingly, nine out of 10 professors surveyed by KPMG and the AAA believe it is very important to teach IFRS to U.S. students."


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