For hundreds of years a wide range of accounting frameworks and conventions have proliferated worldwide, with most developed countries now having their own accounting standards board or equivalent.

Link: Access IFRS - PwC’s IFRS resource centre

And although it is several decades since the International Accounting Standards Committee -­ the forerunner of the International Accounting Standards Board -­ first started to develop standards for international use, it is only in the last few years that major steps have been taken to achieve substantive convergence on a global scale. At the heart of that convergence is IFRS.

Much of the story so far has focused on Europe and the 1 January 2005 deadline. Nearly 12 months ago, more than 7,000 European-listed companies were required to converge their reporting on an agreed set of accounting standards: IFRS.

The imperatives behind this transformation have been well rehearsed. IFRS would decrease the cost of capital, create a more competitive Europe and greater comparability of reporting, harmonise European capital markets, increase market liquidity, and generate greater returns for investors.

The struggles and drawbacks have been well documented too:individual companies have cited conversion costs; there have been disagreements over individual standards; the timeframe was imposed by ‘Europe’; the companies concerned were not consulted; the future direction of standard setting has become the subject of increasingly voluble concerns.

But the trend to convergence is here to stay ­ that much we know. And the benefits that will apply across Europe would also hold true for global markets. The objectives of the IASB and the US Financial Accounting Standards Board in signing the Norwalk Agreement in 2002 ­ the commitment to converging US and int ernational accounting standards ­ still remain but the practical implications of future convergence need to be debated.

From one point of view, the convergence of IFRS and US GAAP is the obvious next stage in an evolution. For some in the business world, this seems highly desirable.

For others, the practicalities will seem overwhelming. But this kind of step change does not happen in some remote academic environment ­ it has the potential to affect the global business community. As such, it must be vocally and vigorously debated.

The response so far of UK-listed multinationals to the possibility of converging IFRS and US GAAP has been mixed and depends very much on the circumstances of individual companies. For businesses also listed in the US, there are obvious and immediate benefits to working towards a mutuallyagreed set of international standards.

It would eliminate the need to reconcile figures that must currently be expressed under both IFRS and US GAAP, removing cost, risk and complications from the task of international investor relations.

For others, the benefits are not so clear. In fact, for companies that are not SEC-registered, while the potential costs of convergence are becoming more obvious the benefits are not.

This is particularly the case for unlisted companies which, across Europe as well as the UK, are still generally subject to local GAAP. A few countries -­ Australia and South Africa, for example -­ have imported IFRS virtually wholesale into their local GAAP, resulting in a big bang approach to change; it will be interesting to see what happens.

In Europe, the UK Accounting Standards Board wants to move to IFRS fairly rapidly (faster than other parts of Europe) ­ an issue that will require further debate. Should the changes that IFRS has brought, such as a move to fair value accounting and greater disclosures, be imposed on smaller entities?

Plenty will argue against it, but if the changes aren’t imposed, there is a risk that a two-tier system will emerge that will increase both cost and risk and make future changes more onerous in the long run.

Then there’s the issue of what convergence will mean. If the convergence process favours a US approach ­ a rules-based system of financial reporting ­ there are likely to be problems ahead. IFRS takes a principles-based approach with which UK companies are most familiar.

There are real concerns that a rules-based approach would not cover all eventualities, and that while the rules would be suitable for the country in which they were written, they would not adapt themselves very readily to the European environment and would be difficult to apply across the diverse commercial and regulatory environments that exist worldwide.

Remember, though, that these are relatively early days for IFRS and that so far all that has happened is that the FASB and IASB have said they will converge the two sets of standards and announced a series of joint projects to achieve this aim. Convergence is not being imposed politically as it has been in Europe.

It is also worth bearing in mind that IFRS has been generally well received globally and that other markets are monitoring the transition and its effects very closely.

Around 100 countries will require or permit IFRS by 2007 for publicly traded­ and in some cases unlisted ­ companies, which would make it the most widely used accounting convention in the world. Many major economies such as Hong Kong are moving to IFRS. Interestingly the Canadian Accounting Standards Board has adopted a similar stance to the UK, despite Canada’s proximity to the US.

In the meantime, there’s still much work to be done on IFRS closer to home. First, the international standards are a work in progress. Sir David Tweedie and the IASB originally set a 2010 target date for improving the standards they inherited from their predecessors.

The European 2005 implementation deadline accelerated the implementation but not the improvement process, so the standards that finance directors began working on in 2004 were themselves in flux and will remain a moving target.

Second, having to adopt a new reporting platform has been a significant distraction from the day job for CFOs. Companies that have treated IFRS adoption as a one-off change project must now adopt a more sustainable model. Is it an extra cost? Yes, but a positive position taken now will increase companies’ ability to be flexible going forward.

Third, there is the issue of enforcement. For the markets to have confidence in the quality of information, the standards must be consistently applied and enforced. In the UK, the Financial Services Authority and the Financial Reporting Council have been vocal about their determination to take an active stance on IFRS compliance.

Achieving consistency across Europe is also high on the agenda of bodies such as the Committee of European Securities Regulators.

As the first phase of IFRS implementation draws to a close, UK businesses need to look closely at what they have achieved so far and assess what needs to be done to keep pace with changes in the standards, emerging interpretations and developments in market practice.

They also have an additional opportunity, or perhaps that should be obligation, to engage in the debate on what convergence will mean in practice and what its implications will be.

If they are to play any role in influencing the future direction of financial reporting, businesses must be prepared to monitor the activities of bodies such as the IASB, IFRIC, EFRAG, the European Commission and its Accounting Regulatory Committee and CESR, and in the US the FASB, EITF and SEC. Companies of all sizes will potentially be affected by IFRS, but the time still available to influence the shape of international standards is running out.

Ian Dilks, IFRS conversions leader at PricewaterhouseCoopers

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