KPMG LLP, audit, tax and advisory firm, introduces survey of institutional investors, analysts and the corporate executives who prepare financial statements. The results indicate support of the Securities and Exchange Commission’s (SEC) proposed timing for potential U.S. conversion to International Financial Reporting Standards (IFRS).
In addition, 65% 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% of investors and analysts believed the timeline proposal announced by the SEC in November to be “about right,” while 18% said it wasn’t aggressive enough. In addition, 55% of corporate executives agreed with the timeline, while 8% 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.
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% of the investors and analysts, and 20% of the financial executives, said they currently have a solid understanding of IFRS.
77% of analysts and investors said they want companies to begin explaining their IFRS conversion plans at least 1-3 years prior to the change.
In addition, the survey found that 70% 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.
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% of investors and analysts expect IFRS to add transparency to financial statements through increased disclosures, while just 25% of the financial executives expect IFRS to improve transparency.
“Some investors have noted that IFRS may ‘shift the burden to the investor’ in terms of understanding corporate financial statements,” says Janice Patrisso, IFRS national leader, KPMG. “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.”
“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.”
“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,” continues 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.”
L.D.