In addition, 65 percent of investment executives and analysts surveyed by KPMG expect that U.S. adoption of IFRS will make U.S. capital markets more attractive to foreign investors.

 

KPMG’s survey found that 57 percent of investors and analysts believed the timeline proposal announced by the SEC in November to be “about right,” while 18 percent said it wasn’t aggressive enough. In addition, 55 percent of corporate executives agreed with the timeline, while 8 percent said it was “too long.”

 

The SEC has issued a proposed “road map” for a potential transition by U.S. issuers from U.S. Generally Accepted Accounting Principles (GAAP) to IFRS, a body of accounting literature required or permitted (or a national variant based on IFRS) by listed companies in more than 100 countries. Under the SEC’s proposed timeline, select companies could begin using IFRS this year, and large accelerated filers could be required to use IFRS for financial reporting periods ending on or after Dec. 15, 2014.

 

Despite most survey respondents agreeing on the proposed timeline, the survey findings highlighted a need for adequate education, preparation and dialogue. For instance, just 16 percent of the investors and analysts, and 20 percent of the financial executives, said they currently have a solid understanding of IFRS.  In addition, 77 percent of analysts and investors said they want companies to begin explaining their IFRS conversion plans at least 1-3 years prior to the change.

 

“Some investors have noted that IFRS may ‘shift the burden to the investor’ in terms of understanding corporate financial statements,” said Janice Patrisso, KPMG’s IFRS National Leader. “This perception highlights the need for analysts and investors to fully understand the potential ramifications of an IFRS conversion on a given company, and points to the need for each company to manage investor and analyst expectations regarding the impact of their IFRS conversion.”

 

In addition, the survey found that 70 percent of investment respondents pointed out that “open and proactive” communication from the companies they cover would have a “positive” or “very positive” effect on their evaluation of that organization.

 

“Although companies are understandably focused on managing through the current economic environment, many also recognize that a potential conversion to IFRS is just over the near-term planning horizon,” said Patrisso, noting that almost half (48 percent) of companies surveyed indicated that they have assessment plans in place to gauge the IFRS impact on their organizations. “The survey findings reflect our discussions with clients as we work to help them assess their readiness and identify how various systems, processes and financial results could be affected.”

 

According to the KPMG survey, although the investment community and financial executives generally support the transition to IFRS, the two groups differ on the potential impact of the conversion. For example, 68 percent of investors and analysts expect IFRS to add transparency to financial statements through increased disclosures, while just 25 percent of the financial executives expect IFRS to improve transparency.

 

More members of the investment community said they believed that a company’s financial condition would be better represented in financial statements filed using IFRS than do preparers (54 percent vs. 12 percent of financial executives), and investors were more confident than preparers that there would be an improvement in comparability between U.S. companies and their global competitors (85 percent of investment community vs. 28 percent of financial executives).

 

Meanwhile, just 50 percent of the financial reporting executives expressed a high degree of confidence that their organization would be prepared to make the conversion without major problems in 3-5 years. And, some 59 percent said there was no benefit to early adoption.

 

“Companies are clearly recognizing that an early adoption of IFRS is not a viable option given the current proposal by the SEC that might require them to convert back to U.S. GAAP after 2011,” said Patrisso. The SEC has said it will consider in 2011 whether to approve financial reporting under IFRS after consideration of whether certain milestones established in its road map had been achieved.

 

The SEC recently extended from Feb. 19 until April 20, 2009 the public comment period on its road map proposal to improve the potential response rate and allow for more thorough consideration of the proposal by companies.

 

The KPMG survey included responses from more than 130 senior corporate officers, controllers and other professionals in the United States with responsibilities for management, finance, accounting and tax issues, and from more than 100 U.S. sell-side analysts and institutional investors from mutual, pension and hedge funds, as well as employee benefit plans, insurance companies, charities and college endowments.