Accountants know change coming with international standards - Philadelphia Business Journal:

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"Similar to SOX, it's going to be a painfuk periodof adoption," says Matt Perreault, partner in charge of SEC, technologhy and audit in the South Bay for San Ramon-based . When the U.S. Securitiexs and Exchange Commissionimplemented Sarbanes-Oxley in responsr to largely publicized accounting scandalas at public companies earliee this decade, companies were stung by the cost and the time compliances the new rules required. Now the SEC is studying how to best move from thestricgt rules-based accounting standards called U.S. GAAP that governas how U.S. public companies repor financials, to the more interpretivr principles-based standards many foreign countriesare adopting.
While the SEC has yet to lay out a accountants expect the change to be abig one. Accountants thinl the SEC has learned some important lessonesfrom SOX. "I think rulemakers will dela the adoption requirements until companies are prepared because we saw what happenex with SOX where costs went through the roof becaussecompanies didn't have time to understaned rules and digest," says Perreault, whose firm recentlyh expanded in San Jose and now has a full-service office here whic includes audit, corporate taxation, valuation, information technologgy consulting and other practices.
Before the change can take accounting officials say International Foreigm Reporting Standards need to be improvefd to eliminate some of the vagaries inheren t inthe principles-based rules. "International standards leave it to the auditorws and preparers to do a lot of the rule interpretationm and that becomes the existing bodyof knowledge," Perreault One area in need of attention with a big impactt in Silicon Valley is the way software companiesd recognize revenue. The method and outcom can be highly divergent whenusing U.S. standardw versus foreign standards, says Perreault, who specializee in software company accounting.
So far, therer aren't real concrete guidelines on how to accounf for software company revenue to satisfyforeign standards. "So many rules in that arenwa arein U.S. GAAP and not in international financial he says. "As we start moving toward convergence, our understandingg of what is the resource to identify all of theseunwritten interpretations, I think that's going to continu to evolve." He said if forced to do accountinfg using the foreign standards today, he'd have to pull all of the financiak reports of foreign filers and sift through them to understansd how they're applying the rules of softwarew revenue recognition.
Supporters of the transition say the move will help ease the accountingy burden on multinational companies with foreignn subsidiaries as well as the burdebon U.S. subsidiaries of foreign companies. More than 100 including the European Union, Hong Kong and Australia, alreadhy either require or permit the use of internationak reporting standardswhile Canada, Korea and others are in the process of adoptinhg the international standards, according to the Financial Accountinhg Standards Board. The SEC recentlyh voted to drop the requiremenf that foreign companies using foreign reportingv standards reconcile their financial reportswith U.S. That change precipitated the conversation onallowinf U.
S. companies to change over to theforeignj system. The SEC has solicitec public comment on the idea and heldtwo half-dayh roundtables with interested parties in In the meantime, Financial Accounting Standards which advises the SEC on accountinvg rules, and the International Accounting Standardsa Board which does the same thinfg for international accounting rules, are workinhg to merge various Most recently, new standards for reporting acquisitions were releasee that will treat accountinb for those events the same under both foreign and U.S. standards. Reportin g for stock options is anothee example where internationaland U.S.
standards are now the "But nonetheless I think you'rwe looking at 15 to 20 percenrtincrease [in cost of an audit] with thosee new standards in initial year of Perreault says. Perreault says becausr convergence of the two sets of standard s has been under way since the impact will be a little easietr to swallow thanwas Sarbanes-Oxley. And ultimatelyt the international rules could make accountinf for software companies less confusing than thecurrentr system, but that mightg take some time. Brian Minnihan, a partnef with , says the accounting industryh will haveto re-educatr itself just like it did after Sarbox to get accountants on trackj with the new rules.
That could be a lengthuy and costly process, he says. But he also says there will be payougt once the transitionis over. "Increasingly companies in Silico n Valley have a global footprinr and ultimately harmonizing reporting worldwide wouldr allow the markets to bemore efficient," Minnihab says.