Big Shift in Accounting Rules Nears

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For major U.S. companies with global operations, the benefits of switching are obvious. They already keep multiple sets of books and will be able to simplify without having to learn a whole new standard.

Domestically focused companies will incur big costs in adopting new rules, with uncertain benefits. However, E&Y's Ostling argues that even U.S.-centric corporations will benefit from bigger companies going before them and working out the kinks. Markus notes that many companies, whatever their marketplace, chafe under the highly detailed U.S. rules and would prefer the opportunity to move toward the "principles-based" style the international accounting standard embraces. U.S. GAAP rules historically have been much more specific, with bright lines drawn on matters such as the reporting of income from stakes in other businesses.

GAAP Seen as Inflexible

Some companies complain those inflexible boundaries force them into accounting that often doesn't make economic sense. In the worst case, they can lead to embarrassing restatements. Such restatements soared in the years after the Sarbanes-Oxley accounting reform legislation was signed into law in July 2002 and only fell for the first time in 2007, according to a study by Compliance Week.

But for some industries, particularly financial firms, translating reports into the new financial language may not be so easy. Some experts worry that could leave room for shenanigans. Financial firms will be highly affected by the international standards for fair-value disclosure, for instance, which govern how they document hedges and encompass other compliance requirements. A 2008 survey by the American Institute of Certified Public Accountants found that most members believe it will take three to five years to prepare for the move.

Washington has been generally supportive of the idea. Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson have both come out for merging the standards. But not everyone is enthused. Senator Jack Reed, the Rhode Island Democrat who chairs the securities and investments subcommittee of the Senate Banking Committee, has criticized U.S. regulators for not being tough enough. He has opposed adoption of international standards on the grounds that regulation will become even more lax.

Controversy About Financing

Another topic of controversy has been the method by which the International Accounting Standards Board (IASB) is financed. Presumably, U.S. officials and investors would like to see it entirely funded, as FASB is now, by a standard levy on public companies. The IASB now has some mandated funding from companies using the international standards, but much of its budget still comes from voluntary donations from a small number of large U.S. companies and the big audit firms. Critics say that can give companies and auditors too much influence at the expense of investors.

All of the big accounting firms quickly came out in favor of the SEC's road map. But some experts wonder whether auditors will be able to so quickly abandon their old ways in favor of a new path. "U.S. auditors have grown up knowing, loving U.S. GAAP," says Markus. "Can they wipe all that clean? That's going to be a struggle for everyone."

Byrnes is a senior writer based in Chapel Hill, N.C. Epstein is a writer based in Washington.