IFRS is Coming!

Let this be a warning to owners of private companies: The shift to new global financial reporting standards may yet happen during the Obama Administration. That would be the Sasha Obama Administration.


While the SEC currently proposes to require big public companies to change from generally accepted accounting principles (GAAP) to international financial reporting standards (IFRS) around 2014, the outlook for private companies is far from settled.


Among the potential drawbacks of IFRS is the current uncertainty around inventory valuations. Now, the IRS accepts the LIFO method, which results in favorable tax treatment. LIFO is not permissible under IFRS, however, portending much bigger tax liabilities if an alternative method becomes mandatory.



At this point, there's no telling whether public companies will convert to IFRS on schedule, since the SEC's proposed timetable is undergoing a review under new SEC Chairman, Mary Schapiro. But assuming the changeover eventually occurs, IFRS will be an inevitability for private companies. Meanwhile, the International Accounting Standards Board plans to publish its recommendations for private companies by mid-2009.


Where do all these potentially monumental changes leave financial executives at private companies? For now, just keep an eye on what goes on, but stay busy running your business.