Convergence and the Implementation of a Single Set of Global Standards: The Real-Life Challenge
Convergenceand the Implementation ofa Single Set of GlobalStandards
Convergence and the Implementation of a Single Set of Global Standards: The Real-Life Challenge
Mary Tokar 0
0 This Symposium is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons
* Mary Tokar is a partner in KPMG LLP (US). Currently she is seconded to KPMG
IFRG Limited and focused on IFRS interpretation and application matters. She is also a
member of the IASB's interpretive committee, IFRIC. Previously, she worked at the U.S.
Securities and Exchange Commission principally on international accounting issues. Ms.
Tokar wishes to thank her colleagues, especially Paul Munter, a partner in the Department of
Professional Practice of KPMG LLP, for their assistance and advice regarding this article.
The views and opinions are those of the author and do not necessarily represent the views
and opinions of KPMG International or KPMG IFRG Limited. All information provided is
of a general nature and is not intended to address the circumstances of any particular
individual or entity. KPMG International is a Swiss cooperative of which all KPMG firms
are members. KPMG International provides no services to clients. Each member firm is a
separate and independent legal entity and each describes itself as such.
1The IASB announced responsibility for setting the IFRS standards on April 1, 2001. See
International Accounting Standards Board, History, at http://www.iasb.org/about/history.asp
(last visited Mar. 11, 2005).
2 Analysis of Asset Allocation, Financial Dictionary
and Glossary, available at
http://www.asset-analysis.com/glossary/glo_00 1.html (last visited Mar. 11, 2005).
there are no absolute scientific truths waiting to be discovered or proved by
experimentation and empirical testing. The passion comes, in part, because
requirements of standards impact how entities present themselves to others:
successful (higher profits), reliable (stable levels of profitability), attractive
(rapidly growing profits) and credit-worthy (substantial assets, low levels of
indebtedness). Also fueling the debate is the fact that how-or
whethertransactions are reported in the financial statements impacts company
behavior. It has been said that "you manage what you measure"-a
behavior that was readily observable, for example, once post-retirement
benefits were subjected to accrual accounting.3
The objective of convergence of accounting standards is to have
entities in different capital markets use the same conventions to measure
and report their financial position and financial performance. This is a
notable and worthwhile objective because differences in conventions impact
the data available for making investment decisions affecting the investment
decisions themselves. For example, an individual wishing to invest twenty
percent of his or her net worth in pharmaceutical companies might focus on
the percentage of earnings reinvested by a company in research and
development (R&D) as a key performance indicator (KPI) of future growth,
and might use a ratio of R&D expense as a percentage of revenue to rank
investment possibilities. If this investor considered only domestic entities,
he or she could expect that the financial statements of the pharmaceutical
companies would be comparable with both R&D expenditures and revenues
measured using the same conventions. However, if that investor wished to
consider some foreign companies as possible investments and obtains the
financial statements of those additional candidates, how useful are
comparisons based on quantitative KPIs that are derived from information
in the financial statements?
What if revenue is measured on an accrual basis (when earned) by
domestic companies but one of the foreign candidates uses a cash (when
received) basis to report revenue? Or if the domestic company expenses
R&D as incurred while the foreign company expenses research but
capitalizes development cost? Such differences in accounting conventions
would impact the comparability of the published financial statements and
the related analysis based on that information.
In the past, each jurisdiction has decided how best to address
differences in accounting conventions and the impact of these differences
on investment allocation decisions within their markets. The U.S.
Securities and Exchange Commission (SEC) has permitted non-U.S.
companies registered with the SEC as foreign private issuers to report using
3 See, SUMMARY OF STATEMENT No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Financial Accounting Standards Board
1990), availableat http://www.fasb.org/st/summary/stsum 106.shtml.
Convergenceand the Implementationof a Single Set ofGlobal Standards
financial statements prepared under their home-country accounting
standards, IFRSs, or U.S. Generally Accepted Accounting Principles (U.S.
GAAP). However, the entities that use either home-country accounting
standards or IFRSs are required to provide a quantitative reconci4liation of at
least net income and shareholders' equity to a U.S. GAAP basis.
Analysts also have sought to address this challenge by adjusting
financial statements to a common basis to facilitate industry-based
comparisons of investment alternatives. For example, in 1998 Morgan
Stanley introduced its "Apples to Apples" series,5 which focused on six
important accounting issues and sought to adjust different national
treatments for these issues to one common approach. However, Morgan
Stanley warned in a follow-up publication that "the accounting measures
we use might understate actual value. Because of inadequate disclosures,
we had to estimate adjustments and have been unable to adequately
evaluate three potentially important issues: financing, the impact of foreign
exchange on revenues and expenses, and provisions. ' 6 Thus, attempts to
address challenges in this area present new challenges of their own.
II. THE CONVERGENCE JOURNEY
Regulators, investors and preparers have begun working together to
find a workable long-term solution to the problem of differences in the
accounting conventions used to prepare financial statements. These efforts
have focused on the work of the IASB and its predecessors through two
distinct routes: direct adoption of IFRSs in place of national GAAP, and
4See Form 20-F, Items 17 and 18, 17 C.F.R. § 249.220f (2005). The financial statement
requirements for foreign private issuers are included in the requirements of this form:
The financial statements and schedules... may be prepared according to United States
generally accepted accounting principles. Alternatively, such financial statements and
schedules may be prepared according to a comprehensive body ofaccounting principles other
than those generally accepted in the United States if the following are disclosed: (a) an
indication... ofthe comprehensive body of accounting principles used... (2) a discussion of
the material variations in the accounting principles, practices and methods used in preparing
the financial statements from the principles, practices and methods generally accepted in the
United Sates and in Regulation S-X. Such material variations shall be quantified... for each
year and any interim periods for which an income statement is presented, net income shall be
reconciled in a tabular format.. .; for each balance sheet presented, indicate the amount of
each material variation ...in parentheses, in columns, as a reconciliation of the equity
section, as a restated balance sheet, or in any similar format ....
In practice, most entities present a reconciliation of shareholders' equity and net income.
5 MORGAN STANLEY DEAN WITTER, APPLES TO APPLES - OVERCOMING ACCOUNTING
DIFFERENCES: A STOCKPICKER'S GUIDE TO THE NUMBERS THAT COUNT (1998).
6 MORGAN STANLEY DEAN WITTER, APPLES TO APPLES - GLOBAL AUTOMOTIVE: TELLING
ITLIKE ITis4 (1998).
indirect adoption of IFRSs by changing national standards so that they are
based on--or, in the extreme-even copied directly from IFRSs. The
indirect adoption approach led to several joint projects between national
standard setters and the IASB to increase
standard and its comparable IFRS are the samteh.7e likelihood that a national
The IASB has been supportive of, and an active participant in, both
approaches. In fact, the promotion of both the direct use of IFRSs and
convergence of national and international standards are key objectives
identified in the IASB's constitution.8
An example of a modified direct approach to adoption of IFRSs is the
European Union's newly-effective International Accounting Standard (IAS)
Regulation. 9 In 2002, the European Union passed this legislation requiring
the use of international accounting standards, once endorsed, by E.U.
companies listed on any capital market exchange within the European
Union. Generally, the use of standards endorsed by the European Union is
required for these companies in their consolidated financial statements for
financial years beginning January 1, 2005. The E.U. requirement refers to
the standards and interpretations issued by the IASB, but their use is subject
to the endorsement of those standards by the European Commission (E.C.).
As discussed later in this paper, the requirement to use standards endorsed
by the E.C. has resulted in some modifications of standards issued by the
IASB. As a result, what had been seen as a pure direct approach to
adoption of IFRSs has become at least in part an indirect adoption of those
standards as a form of E.U. GAAP.
Other countries, including Australia, Russia, and a number of Latin
American and Caribbean countries, are permitting or requiring the use of
IFRSs, generally without any additional endorsement or review, although
Australia is modifying standards as issued by the IASB by prohibiting the
use of some of the options offered by IFRSs and by providing additional
7 See Financial Accounting Standards Board and International Accounting Standards
Board, Memorandum of Understanding, "The Norwalk Agreement," available at
http://www.fasb.org/intl/convergence-iasb.shtml (Sept. 18, 2002) [hereinafter The Norwalk
Agreement]. In the agreement, the IASB and FASB pledged to use their best efforts to work
together to achieve convergence of their two sets of standards for a wide range of topics.
Additionally, they pledged to coordinate the efforts of their respective interpretive bodies so
that implementation guidance might help facilitate a converged application of the converged
standards. Press Release, International Accounting Standards Board, IASB, FASB and IASB
Agree to Work Together toward Convergence of Global Accounting Standards, availableat
http://www.iasb.org/docs/press/2002prl5.pdf (Oct. 29, 2002).
8See International Accounting Standards Committee Foundation, Review of the
Constitution: Proposals for Change, available at http://www.iasb.org/uploaded-files/
documents/8_949_2004-cons-itc.pdf (Nov. 1, 2004).
9 Parliament and Council Regulation 1606/2002 on the Application of International
Accounting Standards, 2002 O.J. (L 243) [hereinafter EU IAS Regulation].
interpretive guidance on their application. 10 More recently, Canada has
begun exploring the possibility of converging its standards with IFRSs."
III. IMPACT OF THE CONVERGENCE PROCESS
The widespread adoption of IFRSs, both directly and indirectly via
convergence of national requirements, presents a number of challenges for
auditors both as individuals and as firms. These challenges include:
Training of professional staff in a new body of requirements
Developing IFRS-based resources to support professionals
working with IFRSs
Applying existing quality-control procedures to IFRS-based
For countries that are using the indirect approach, national practices
and professional institutes have mechanisms for dealing with convergence
effected through changes in national standards (ongoing training
requirements, existing testing, certification and examination mechanisms)
since the change is more evolutionary than revolutionary-although that
does not resolve the issues completely. Nonetheless, the challenge can be
much greater for countries that opt for direct adoption of IFRSs, since there
is no corresponding single international regulatory framework or
infrastructure built around IFRSs, and companies and their auditors often
are required to make wholesale changes in their financial reporting
These challenges affect all stakeholders in today's global capital
markets, requiring significant increases in coordination with counterparts in
different countries. For example, if the IASB and the FASB are exposing
the same proposals simultaneously as possible changes to IFRSs and U.S.
GAAP, who should solicit responses from U.S. constituents and who should
be the "voice" for an international organization (either a company or an
accounting firm)? Should an international organization have one response
for the IASB and a separate (and perhaps different) response for the FASB?
How should each standard setter maintain its independence as a standard
10The Australian Financial Reporting Council adopted a strategic directive of ensuring
that for-profit entities applying Australian Accounting Standards Board standards for
reporting periods beginning on or after January 1, 2005 also will be complying with IFRSs.
See Adoption of International Accounting Standards by 2005, Bulletin of the Financial
Reporting Council 2002/4, available at www.frc.gov.au/content/bulletins/bull_2002_4.asp
(July 3, 2002).
1 See Accounting Standards Board of Canada, Accounting Standards in Canada: Future
Directions, availableat http://www.acsbcanada.org/index.cfm/ci-id/21832/laid/l.htm (May
setter and yet still coordinate with the other body to achieve the objective of
a single conclusion? Should each national securities regulator make its own
decisions about whether a converged standard has been applied properly in
its jurisdiction? Should the SEC conclude on an application of a
"converged" U.S. GAAP standard without consulting with its securities
regulatory counterparts in other countries who are responsible for enforcing
the application of the international version of that same standard to see if all
the regulators are interpreting the same requirements in the same way? Can
a national interpretive body interpret a converged standard in a manner that
is inconsistent with those of other national interpretive bodies? If it is the
first to provide interpretive guidance, does its interpretive guidance
automatically become binding on users of IFRSs in other jurisdictions? Is
the SEC's guidance on the application of U.S. GAAP-either the
requirements of Regulation S-X or the interpretive guidance provided in
SEC Staff Accounting Bulletins12-applicable to IFRSs that are consistent,
at least in principle, with comparable U.S. GAAP? And, turning to the
public accounting profession, how do the national practices that make up
the member firms of global accounting networks develop coordinated
positions and resources for practicing around the world as auditors (and
thus, in part as arbiters) on the application of a single set of accounting
IV. HOW DOES ONE GLOBAL ACCOUNTING NETWORK DEAL
The remainder of this paper describes how KPMG International
(KPMG), 13 one of the "Big Four" accounting firms, has responded to the
challenge of building an IFRS-based infrastructure within its global
network of member firms. KPMG, like the other Big Four firms, has
supported the development, adoption, and application of IFRSs as a single
set of high-quality global accounting standards. 15 KPMG also seeks to
build resources, networks and infrastructure to support the delivery of
IFRS-based audit and advisory services around the globe. One of the key
challenges of doing this is coordinating the day-to-day operating activities
12See SEC Regulation S-X, art. 4, 17 C.F.R. § 210.1-01 [hereinafter Regulation S-X];
Division of Corporation Finance and the Office of the Chief Accountant, Staff Accounting
Bulletins, availableat http://www.sec.gov/interps/account.shtml (last visited Mar. 30, 2005).
13Throughout this document, "KPMG" refers to KPMG International, a Swiss
cooperative that serves as a coordinating entity for a network of independent member firms,
or to any one or more of such firm, including subsidiaries and sub-licensees. KPMG
International provides no professional services to clients; rather, its member firms do.
14The other "Big Four" firms are Pricewaterhouse Coopers, Ernst &Young, and Deloitte
15See Letter from KPMG IFRG Limited to Paul Volcker (June 28, 2004), available at
of over 140 separate, independent national practices that are member firms
of KPMG International when rendering a conclusion on the appropriate
application of IFRSs. Like the regulators and standard setters, the firms
face the challenge of functioning with a single, integrated "voice" while
remaining separate and independent legal entities.
A. What are the issues for KPMG?
The key implementation issues include:
Training professionals to "speak IFRSs"
Avoiding divergence through different interpretation
Developing publications and electronic resources to support
IFRS-based audit and advisory practices
Adapting existing quality control and professional practice
mechanisms within each member firm to address IFRS issues
Coordinating participation in the standard-setting process,
including responses at a national level for projects that are
linked to IASB standards or projects.
B. How have we addressed these issues?
1. Structure: centralizedor distributed?
KPMG decided that IFRS capabilities should be distributed worldwide
rather than concentrated in a single location and that most of these resources
should be integrated into existing national structures rather than overlaying
a different international structure to address IFRS issues. This decision was
based in part on recognition of the need for IFRSs to become "business as
usual" for each member firm. Therefore, national practices have developed
IFRS capabilities, initially within their national professional practice
function and then more broadly as part of the core competencies of a
national practice. Doing so has required the investment of significant
resources and, in many countries, requires that personnel be trained on both
local GAAP and IFRSs.
However, KPMG recognized that these national initiatives had to be
supported and coordinated for there to be consistent application and
interpretation of IFRSs among the member firms. Therefore, KPMG
established its global IFRS resource group (IFR Group) in 1997.16 The IFR
Group is a focal point for KPMG's IMRS activities and does not seek to
16 Since 2004 this has been done by KPMG IFRG Limited, a U.K. company limited by
guarantee. In this paper, the term IFR Group is used to refer to both KPMG IFRG Limited
and to the previous resource group. KPMG IFRG Limited is a separate legal entity that is a
member of KPMG International.
Northwestern Journal of
International Law &Business
replicate or replace the work of national Departments of Professional
Practice (DPP). Instead, it acts in a global capacity, coordinating and
supporting the work of the national DPPs in the application of IFRSs. It
also supports other networks created to coordinate IFRS work within the
member firms. Six partners seconded by four member firms (Germany, the
Netherlands, the United Kingdom and the United States) and managers
from ten countries work on a secondment (loan) basis for the IFR Group.
2. The trainingchallenge
While practices differ from country to country, the two main methods
for accountancy firms to develop their professionals begin either by hiring
trainees who have studied accounting, normally through a university
program, or by hiring graduates with "non-relevant" degrees who pursue an
intensive accounting training course after joining the firm. In either case,
most countries require those holding themselves out as certified public
accountants (CPA) or the equivalent to pass a national examination, such as
the U.S. Uniform CPA exam. In addition to requiring academic or
equivalent training credentials, these exams normally require a minimum
period of supervised work experience under individuals who are licensed
Not surprisingly, these national examinations and licensing programs
normally are based on national accounting regimes. For example, U.S.
CPAs are tested on knowledge and application of U.S. GAAP. While a few
accreditation bodies have started offering IFRS-based curricula and
examinations, the vast majority continue to focus their examinations and
licensing requirements on the application of national GAAP.' 7
Of course, the professionals working for firms who currently are
licensed also have been trained in their national GAAP, rather than in
IFRSs. While national and regional regulators introduced requirements for
adoption of IFRSs for financial reporting, at this time none has introduced
specific requirements for individuals involved in preparing or auditing IFRS
Therefore, it is the responsibility of the individual KPMG member
firm to determine what requirements it will establish for those who will
work on IFRS-based engagements. In many cases, KPMG member firms
decided to develop and deliver the IFRS training internally rather than
contracting with outside bodies or relying on national profession-based or
commercial training events. As a result, KPMG member firms had to:
17 The U.K. International Accountancy Body is one of the few professional institutes to
offer an IFRS-based examination. See the ACCA website, available at
http://www.acca.org.uk/ifrs for details of its International Financial Reporting certificate and
International Financial Reporting diploma programs (last visited Mar. 27, 2005).
establish "credential" requirements
obtain or develop training material
determine the extent to which IFRS training was required
deliver the training
* test compliance with credential requirements
In order to determine how extensive the training needed to be, member
firms needed to determine how many clients were expected to adopt IFRSs.
From that information, it could be determined what proportion of the total
client base would be using IFRSs and, therefore, what percentage of the
professional staff, and more specifically which individuals, would be
assigned to those engagements. From a member firm's perspective, it is not
cost-beneficial to provide IFRS training to those who will be working only
on local GAAP-based statutory financial statements in IFRS. This
estimation process was complicated, especially within the European Union,
because some member states are still determining whether the use of
endorsed standards should be permitted or required more broadly than the
minimum level specified in the E.U. IAS regulation. This consultation was
original E.U. member states had complet1e2d, t2h0e0ir4,coonnsluyltathtiroenes.o8f the fifteen
ongoing throughout 2004. As of July
Another issue relevant to developing training plans was the extent to
which the national GAAP in which professionals were trained was similar
to or different from IFRSs. This, in turn, required national practices to
develop or obtain an in-depth analysis of the differences between their
national GAAP and IFRSs, a task complicated by the extensive changes
being made to IFRSs in the 2001-2004 timeframe.' Each member firm had
18 The E.U. IAS regulation permits member states to defer the applicability of the IAS
regulation until financial years beginning on or after January 1, 2007 for a specified group of
companies and permits member states to permit or require use of international accounting
standards by entities other than those companies covered by the IAS regulation. Countries
are or were consulting on whether to expand the option to apply the IAS regulation to permit
or require use of international accounting standards endorsed by the European Union in the
consolidated accounts for non-listed companies and/or in the separate financial statements of
other companies. For example, Spain has decided to permit, but not require, expanded use
for non-listed companies, but not to permit use of E.U. endorsed standards for annual
(statutory) accounts of entities, and to defer the application of the regulation until 2007 for
all entities except banking sector companies if those companies have only listed debt. See
European Commission, Planned Implementation of IAS Regulation (1606/2002) in the
European Union and European Economic Area, available at http://europa.eu.int/comm/
internalmarket/accounting/docs/ias/ias-use-of-options en.pdf (last visited Mar. 27, 2005);
EU IAS Regulation, supranote 9.
19 Between January 1, 2002 and December 31, 2003, the IASB proposed amendments to
sixteen standards and published five proposed wholly new standards. Final versions were
published in 2002 (one amendment); 2003 (one new standard, seventeen amendments); and
2004 (four new standards, with consequential amendments to other standards, and further
to determine when to deliver the training so that professionals in need of the
training had the necessary skills at the time their clients began the process
of conversion to IFRSs, but not so early that the training was out of date or
the knowledge was "rusty" from lack of use when needed. The IFRS
training also had to be coordinated with ongoing delivery of national GAAP
training, as virtually all professionals had to maintain national GAAP
knowledge in order to continue delivering national GAAP-based audit and
advisory services at least through 2005 and, in most cases, thereafter.
Individual member firms began working on these training plans even
before finalization of the E.U. IAS regulation in 2002. In 2003 a
coordinating committee within KPMG that develops minimum compliance
policies for audit practices asked each European member firm to formalize
an IFRS training plan addressing a standard list of issues and to explain
how it had reached its conclusion about the need for IFRS credentials, the
number of people to be trained and the extent of training required. The
coordinating committee recognized that formalized plans to address IFRS
training were also needed for some countries that did not adopt IFRS
directly if those national practices audited significant subsidiaries or other
operations of entities that would be adopting IFRSs and the national
practice performed work locally at the request of the lead KPMG audit firm.
For example, the U.S. practice of KPMG developed an extensive IFRS
training program for professionals who would be working on audits of
U.S.based operations of E.U. companies adopting IFRSs from 2005, even
though IFRSs generally are not going to be used by U.S. companies. The
request to develop national IFRS training plans was expanded the following
year to other KPMG member firms outside of Europe.
Other training initiatives by KPMG member firms included:
KPMG in Germany required all managers and partners
working on IFRS-based audits, including referred-in work and
audits of reporting packages, to complete a six-week IFRS
training program. This course was delivered over a
twelvemonth period in a combination of self-study and classroom
settings, including an examination at the end of each module.
All European KPMG member firms trained a substantial
portion of their concurring review partners so that these
partners could be credentialed as IFRS reviewing partners.
The conversion training included a week-long
case-studybased classroom "conversion course" as well as ongoing
annual training requirements.
All KPMG member firms worldwide required that partners
amendments to two standards). See IASB website, at http://www.iasb.org (announcements of
exposure drafts and final standards during this time period) (last visited Mar. 27, 2005).
designated as IFRS reviewing partners attend local or regional
sessions of annual partner update training developed by the
To support these national and regional training initiatives, the IFR
Group developed standard training materials including:
A set of "basic" training materials with more than thirty
modules on individual standards and topics, including detailed
lecture guides, slide packs and case studies. These basic
materials generally are tailored by national practices to focus
on areas where IFRSs differ from national GAAP.
A set of "advanced" training materials covering more complex
application issues, particularly in the area of financial
instruments and other specialty topics such as IFRS/U.S.
Periodic updates of training material distributed through
national practices, providing training on newly published
IASB standards, interpretations, and proposals.
These materials often need to be translated into local languages.
Regional groups and national practices also developed and delivered
complementary training materials. For example, a European Training
Center offered basic and advanced courses to KPMG member firm
professionals using three five-day courses developed from the IFR Group
material. That training center also developed two- and three-day IFRS/U.S.
GAAP differences courses, basic and advanced courses on accounting for
financial instruments under IFRSs, and specialized industry training in
Training is one of the key issues for making IFRSs, and convergence
with national accounting standards, a reality. Every one of the Big Four
networks has made a significant investment in training that is incremental to
its existing local training requirements. Materials have been developed,
translated and rolled out in a period when IFRSs were changing rapidly. In
addition to the changes in many of the individual standards, the materials
were updated for the application of IFRS 1 covering first-time adoption of
IFRSs, published in June 2003.20 Between 2003 and March 2004 the IASB
published additional amendments to its financial instrument standards,
20 Amendments to EMPLOYEE BENEFITS, International Accounting Standard 19
(International Accounting Standards Bd. 2002); Amendments to FINANCIAL INSTRUMENTS:
DISCLOSURE AND PRESENTATION AND IAS 39, FINANCIAL INSTRUMENTS: RECOGNITION AND
MEASUREMENT, International Accounting Standard 32
(International Accounting Standards
issued four new standards and finalised at least one consequential
amendment to twenty-four other standards. 2 1 All of these revisions
impacted the application of IFRSs within Europe and Australia for 2005.
This pace of change and the need to translate materials into local languages
presented a significant challenge in planning and delivering training in time
to support audits of conversions to IFRSs.
One of the future challenges that firms will need to face is the potential
for changes in national education and licensing regimes to adapt to IFRSs.
For the near future the training burden will continue to fall principally on
the firms and national professional institutes until university-level
accounting programs incorporate significant amounts of IFRS content.
3. Avoiding divergence through different interpretation
Achieving true convergence with IFRSs requires more than merely
modifying national standards to fit (often-times barely) within the principles
of IFRSs. True convergence requires developing a shared and common
understanding of IFRSs and ultimately a single view on every
implementation question that arises.
In order to build a shared understanding of IFRSs, KPMG has
developed a number of consultation networks. The purpose of these
networks, generally ranging from fifteen to thirty people, is to bring in
views from different parts of the world as part of the consultation process
for developing answers to IFRS application issues. The primary
consultation group is KPMG's IFRS Panel, a group comprised of senior
technical partners drawn from thirteen national practices. The IFR Group
also consults IFRS networks focused on specific topics such as financial
instruments, business combinations and employee benefits, and on the
financial, real estate and mutual fund industries. In addition to drawing on
experience from different industries and countries, these networks provide a
forum for discussing and identifying implementation issues. Experience
has shown that the words of IFRSs can be read very differently, depending
in part on national GAAP practices and other cultural issues that are
brought into a reading of the IFRSs. Holding discussions with participants
from different countries as part of the process for formulating guidance is
time-consuming and expensive, as well as logistically difficult-"live"
meetings involve people traveling from five continents and there is no
single time frame convenient for all participants for a conference call.
However, these consultations, while difficult, and demanding, have proved
to be an invaluable part of building a shared understanding of IFRSs within
the KPMG member firms.
21For a list of all of these amendments see http://www.iasb.org/standards/summaries.asp
(last visited Mar. 30, 2005).
Convergence and the Implementation of a Single Set of Global Standards
Another mechanism for consistent interpretation of IFRSs is the
IASB's interpretive body, the International Financial Reporting
Interpretations Committee (IFRIC). However, IFRIC's mandate is to
support the IASB's principles-based approach to standards and avoid
developing extensive and detailed application guidance. Even if it wished
to do so, it does not have the capacity to address more than a limited
number of issues each year.2 2 It also cannot resolve issues rapidly; typically
it takes IFRIC over a year to develop and finalise an interpretation.
As a consequence, accounting firms must resolve many of the
day-today implementation issues that arise. During the 2003-2004 time period,
the IFR Group responded to more than one hundred times the number of
specific application questions addressed by IFRIC. Additionally, national
practices responded to numerous additional inquiries from their practice
offices. Therefore, KPMG has to develop its own interpretive guidance on
IFRSs to supplement that provided by IFRIC.
Interpretations are developed at both a national and international level.
At a national level, engagement teams consult with the IFRS resources in
their member firm (these resources generally are working within a national
DPP). These national resources also consult with the IFR Group which
draws on the networks described above, as well as its own resources, to
respond to these questions. Conclusions reached by national DPPs and the
IFR Group are captured in a shared database of queries that can be accessed
by national DPPs and in electronic and hard-copy publications prepared by
the IFR Group.
One evolving area is the interaction of individual KPMG member
firms with national regulators in countries adopting IFRSs. As described
above, the member firms in KPMG have worked to establish consultation
mechanisms focused on developing consistent interpretations and
application of IFRSs. While regulators are working to develop comparable
consultation mechanisms, their processes have not been fully tested.23 A
22 IFRIC meets six to ten times per year, generally for two days at a time. Typically it
discusses about eight issues per meeting, with most issues requiring at least three meetings to
develop an agreed approach. IFRIC's interpretations are then exposed for comment after
consultation with the IASB. After comments are analysed and discussed, IFRIC finalises its
conclusions and, subject to confirmation by the IASB, publishes a final conclusion. From
January 1, 2003 through January 1, 2005, IFRIC published eleven proposed interpretations
and five final interpretations.
23 For example, see Guidance developed by the Committee of European Securities
Regulators (CESR) on co-ordination of enforcement of financial information. CESR has
established a European Enforcers Coordination Session intended to bring together CESR and
non-CESR members with responsibility for enforcement of financial reporting and auditing
in E.U. member states. CESR's objective is to "achieve a high level of coordination and
convergence of their supervisory activities and to foster greater consistency of accounting
treatment across Europe and the necessary level playing field." See Press Release,
"worst case" scenario for convergence is three or four national functional
regulators in each country-e.g., securities regulators (like the SEC),
banking regulators (like the U.S. Federal Reserve Bank), insurance
regulators (like the U.S. state insurance regulators) and regulators of the
auditing profession (like the Public Company Accounting Oversight
Board), each developing and requiring different interpretations of IFRSs.
This would be an unworkable situation, considering only the possible
conflicts within the twenty-five E.U. member states.
4. Guidance materialsupportingIFRS-basedengagements
All of the Big Four networks of accounting firms have developed
implementation and interpretive guidance to supplement the IASB's
standards and formal interpretations. To pursue the objective of consistent
interpretation and application of IFRSs throughout KPMG member firms,
the IFR Group has published implementation guidance material both for
internal use and for distribution outside of the member firms. These
IFRS Illustrative Financial Statements (general, banks,
insurance, investment funds, first-time adoption)
IFRS Accounting and Disclosure checklists
IFRS comparison books, comparing IFRS with U.S. GAAP
and various national GAAPs
IFRS guidance books (including one on Financial Instruments)
Other publications communicate IFRS developments, such as new
IASB proposals and decisions, interpretive conclusions, and related
regulatory developments. News alerts, including updates on interpretive
positions, are published in both internal alerts and frequent newsletters for
internal and external distribution. In order to facilitate more timely
updating of materials, KPMG has included the IFRS guidance material
described above in its electronic database, Accounting Research Online,
which is available to professionals in KPMG member firms and on a
subscription basis to clients and others.
The "GAAP Comparison" series grew out of the analyses performed
by national practices as part of their training needs assessments. National
practices were encouraged in early 2001 to do a comprehensive analysis
comparing the IFRSs to their national GAAP. To facilitate this comparison
the IFR Group developed a standardised overview of the requirements of
IFRSs and asked national practices where IFRSs were expected to be used
Committee ofEuropean Securities Regulators, ref. CESR/04-325 (June 25, 2004), available
extensively to compare their national GAAP to IFRSs using this
standardised template. The process of developing these GAAP
comparisons involved many hours of discussion at the international level.
These discussions and comparisons also strengthened the acceptance within
the KPMG network of firms of IFRSs as a separate body of standards with
its own interpretations that should not be stretched to accommodate
inconsistent existing national practices. Seeking to accommodate
inconsistent national practices turns IFRSs into a reference framework
rather than an independent body of standards for direct application.
The key IFRS comparison documents going forward are likely to be
for U.S. GAAP, especially for those entities with a U.S. reporting
requirement that use IFRSs as their primary basis of accounting, and for
those countries where IFRSs are being permitted or are used in national
standard setting, but are not required to be used directly, such as Russia,
Japan and Canada. While some of the KPMG firms in E.U. member states
plan to update their GAAP comparisons, their attention typically has shifted
to develop2in4g and distributing IFRS interpretive guidance such as Insights
The material in guidance publications, including Insights into IFRS,
goes beyond simply illustrating suggested approaches or identifying leading
practices. Instead, the expectation is that KPMG member firm engagement
teams will endorse the approach illustrated in every audit around the world.
Therefore, it was very important that the positions taken reflect the
consensus view of the member firms. In order to achieve this, IFR Group
professionals reviewed and compiled the documentation relating to five
years of queries on the application of IFRSs, identifying the points of
principle and the conclusions taken, and evaluating what impact changes in
standards may have had on those conclusions. Each of the forty-five
chapters was reviewed by at least three KPMG IFRS Panel members and
any unresolved differences discussed by the entire IFRS Panel. While this
was a cumbersome process, it worked to build consensus about the views to
be expressed on the application of IFRSs. The approximately 600 pages of
guidance reflect an investment of over 5,000 hours by IFR Group
professionals alone in addition to the time contributed by over 20 additional
Another critical resource for use within KPMG member firms has been
the development of a shared data base of application issues. Developing
this resource was both a technological and a regulatory challenge. The
technological challenge was to build a common platform that is compatible
with the different databases used in each national practice so that data could
INTERNATIONAL FINANCIAL REPORTING STANDARDS
24 KPMG IFRG LTD., INSIGHTS INTO IFRS-KPMG's PRACTICAL
be transferred without being recreated. In order to comply with data
protection requirements all information that would have identified entities
or individuals involved had to be removed. And, as ever, there was the
question of translation of the information into different languages.
Ultimately, it was concluded that the database would be maintained solely
in English, requiring translation by national practices into their local
A business opportunity offered by the requirement for business entities
to convert to IFRSs is advisory work supporting conversion projects.
KPMG sought to draw on its experience with other conversion projects,
including adoption of U.S. GAAP by entities seeking U.S. listings, and to
capture experience and knowledge throughout its member firms as part of
an advisory offering. A global IFRS conversion methodology and toolkit
was developed in cooperation with the U.S.-based Accounting and Auditing
Service Center and rolled out first in Europe and Australia and then to other
countries within the KPMG network. This resource combines project
management tools with IFRS technical resources to bring efficiencies to
planning and executing conversion to IFRSs. For example, it includes a
template to facilitate the comparison of an entity's current accounting
policies based on national GAAP with IFRS requirements in order to
identify which policies require change and what the data collection
requirements are for both accounting policy and disclosure differences.
This advisory offering requires ongoing support from IFRS technical
resources at both global and national levels.
5. Risk management and quality control issues
Typical components of the risk management structure within a KPMG
member firm include:
Assignment of a team with appropriate industry and technical
experience (see earlier discussion of training and credentialing
Involvement of a concurring review partner who reads key
planning and conclusion documents as well as the financial
Consultation with national technical offices on matters of
A consultation process that permits review of advice from a
national technical office
Each of these elements, as well as others, had to be reconsidered in the
context of introduction of significant IMRS work into a national practice.
This reconsideration of existing risk management procedures had two
facets: (a) what changes were necessary to address the addition of a second
GAAP (IFRSs) as the basis of reporting for existing audit clients; and (b)
what procedures should be applied to advisory engagements supporting
entities-often non-audit clients-using KPMG member firms to support
their conversion work. Some of the key additional client acceptance
considerations relating to IFRS conversions include: how client personnel
would obtain sufficient IFRS training, client resources committed to IFRS
conversion projects, and the capacity and flexibility of an entity's reporting
system to cope with a second (or third) body of GAAP. Other issues that
were highlighted included independence concerns when clients were
seeking assistance and support in IFRS conversion projects. Independence
requirements relating to advisory work vary from country to country, and
therefore guidelines had to be developed at a national level. It also was
necessary to consider overlaying national independence requirements from
other markets in which a client may be listed. For example, both French
and SEC independence requirements have to be complied with for any
French client with an SEC reporting obligation.
Another challenge was addressing whether additional audit and review
procedures had to be applied in the year that an audit client converted its
financial statements to an IFRS basis.
Involvement of a concurring review partner is a requirement
throughout the KPMG member firms network regardless of the body of
accounting or auditing standards involved. About five years ago all KPMG
member firms agreed to a requirement for concurring review partners on
IFRS-based engagements to be partners designated as IFRS reviewing
partners if the audit client was either a public company or public interest
entity, as well as on other engagements designated by the national practices.
If an audit engagement had a concurring review partner who was not
credentialed as an IFRS reviewing partner, then a partner with such
credentials is to be added to the engagement team to support the concurring
Each national practice has designated professional practice resources
who support engagement teams. Usually these partners work in a national
DPP with responsibilities for responding to queries about interpretation and
application of national GAAP and IFRSs, as well as monitoring the
activities of a national standard setting body and regulators, developing and
25In order for a partner to be designated as an IFRS reviewing partner, he or she must be
nominated by the national practice, have experience working with IFRSs and have satisfied
ongoing training and experience requirements. These training requirements included
participation in an annual IFRS partner update training course. The number of partners
attending this course has increased significantly in the past two years and will continue to
escalate as more and more engagements require participation by an IFRS reviewing partner.
delivering training, and communicating within a member firm about
As direct application of IFRSs has grown, and especially with the
anticipated adoption in 2005 by over 7,000 E.U. companies and virtually all
Australian entities, local IFRS knowledge has been developed in the
practices most impacted. These practices have added IFRS knowledge
within their national professional practices so that a national DPP is now
the first "port of call" for an engagement team with an IFRS application
question. When issues are precedent-setting, highlight possible
inconsistencies within IFRSs, or involve disagreements with a non-KPMG
firm of auditors (e.g., in a joint audit situation), then the national DPP
consults with the IFR Group, which also may consult with a topic team
network, the IFRS Panel, or both.
Each national practice has established a consultation process for cases
when an engagement partner does not agree with the guidance received
from a national DPP. The process varies within each country, but might
include consideration of the issue by a panel of partners not involved in the
engagement, review by the head of the national DPP, the head of the audit
practice, the national partner in charge of risk management or the chairman
of the national firm.
As discussed above,26 a key goal for KPMG International has been to
have member firms work together to avoid inconsistent interpretations of
IFRSs. Consultation procedures have been developed that work across
national firms to bring a wider range of views to bear in resolving each
issue. Therefore, it was necessary to adapt consultation processes related to
reviews of national DPP advice to ensure that issues were not resolved
solely at a national level when national views might be inconsistent with
guidance developed on an international basis. While the consultation
process adopted by the member firms continues to be a function of the
national risk management structure for that practice, it also includes the
agreement of the IFRG Group, after consultation with the IFRS Panel, in
order to maintain global input into conclusions about what is required under
6. Participationin nationalandinternationalstandardsetting
One impetus for the establishment of a global IFRS group within
KPMG came from suggestions from Michael Sharpe, the chairman of the
International Accounting Standards Committee in the late 1990s. He noted
that when the IASC published exposure drafts with requests for comment it
received responses from several national firms within a global network of
firms and that the individual responses often were inconsistent with the
responses from other member firms of the same international network of
firms. For example, two member firms of KPMG responded to a 1993
proposal on changes in foreign exchange rates, two Coopers & Lybrand
practices responded to proposals published in 1996 on segment reporting,
and two Ernst & Young member firms responded in 1997 to the discussion
paper on financial instrument assets and liabilities. The IASC chairman
encouraged each of the international networks of accounting firms to
coordinate within their international networks to develop a single view for
consideration by the IASC in its standard-setting process.
-Since the establishment of its global IFRS resource in 1997, KPMG
has provided a single agreed-upon response to IASB proposals. From time
to time this may be supplemented by additional comments from a national
practice wishing to relate the overall view to specific national business
practices or existing national guidance. However, member firms have
agreed that they will not offer individual views that are inconsistent with
the KPMG response to the IASB or to national standard setters pursuing
joint projects with the IASB.
In order to develop an agreed-upon KPMG response, the IFR Group
first circulates a summary of the proposal to all professional staff within
KPMG, requesting suggested comments by a specified date. Based on
comments received and previous discussions of an IASB or IFRIC project
with the IFRS Panel, the IFR Group drafts a proposed response for the
consideration of the IFRS -Panel. If there are conflicting suggestions for
comments, then the IFR Group recommends one approach but also
summarizes the different views proposed. After consideration and
resolution by the IFRS Panel, the letter is submitted to the IASB by the IFR
Group on behalf of KPMG International and its member firms. It also is
provided to member firms who may wish to provide it to their national
standard setters, particularly if those national standard setters also exposed
the IASB's proposal either as a proposal for national GAAP or to solicit
input to allow the national standard setter to provide input to the IASB on
The comment letter process highlights many of the practical and
sovereignty issues faced by autonomous member firms in a global
organization. The first is timing: it is not unusual for the IASB to publish a
document with a ninety-day comment period. While the IFR Group's
summary and call for input often is released on the same day, it is only in
English and many national practices may have to translate either the
summary or the entire document for further consultation within that firm. If
the IASB proposals also are published by a national standard setter, the
national comment deadline tends to be a month earlier than that of the
IASB. Therefore, since KPMG member firms are expected to be consistent
in their comments at the national level with the international position, there
is significant pressure to finalize the KPMG comment letter before the
national deadline. This is a tight timetable to coordinate, discuss, resolve
differences in views and finalize the response.
From time to time, national member firm views diverge from the
majority view within the KPMG network. For example, the IASB proposed
modifications to IAS 19, Employee Benefits, to permit (but not require)
immediate recognition of actuarial gains and losses directly in equity; 27 one
objective of these amendments was convergence with the current U.K.
standard, FRS 17, Retirement Benefits, which requires this immediate
recognition in equity.28 In light of the broad acceptance by financial
statement users of FRS 17 disclosures, KPMG in the United Kingdom
encouraged KPMG International to support the IASB's proposals as, in its
view, companies reporting under U.K. GAAP would have to report what
was considered to be less understandable information related to company
pension plans once they adopted IFRSs. However, after discussion within
KPMG's IFRS Panel, KPMG International's response discouraged the
IASB from pursuing this project as it was viewed as prejudging the IASB's
work on performance reporting.2 9 This illustrates one of the trade-offs of
building consensus and strengthening the impact of KPMG International's
input into the international standard setting process-some valid national
concerns may have to be subordinated.
Similar challenges are encountered when a national standard setter is
issuing its own proposals with, or based on, an IASB document. For
example, when the IASB published ED 2, Share-based payment, in
November 2002,30 the U.S. FASB published that document with a request
for comment to its constituents. In particular, the U.S. FASB asked that
respondents focus on whether or not it should undertake a project to revise
its existing requirements in order to converge with the IASB proposal.
KPMG LLP (US) was an active participant in the preparation of the KPMG
response. It had extensive experience with accounting for share-based
payments as the member firm in one of the few countries with any specific
requirements for such transactions; it also had strong views about what
worked-and what didn't-under then-current U.S. GAAP. KPMG in the
27 See PROPOSED AMENDMENTS TO IAS 19 EMPLOYEE BENEFITS-ACTUARIAL GAINS AND
LOSSES, GROUP PLANS AND DISCLOSURES (International Accounting Standards Bd., issued for
comment 29 April 2004), summary available at http://www.iasb.org/uploaded-files/
documents/863iasl9-sum.pdf (on file with author).
28 FINANCIAL REPORTING STANDARD 17 ON RETIREMENT BENEFITS (United Kingdom
Accounting Standards Bd., 2000), available at http://www.asb.org.uk/asb/technical
29 See Comment Letter 82 from KPMG International to Anne McGeachin, Project
Manager, International Accounting Standards Board (Aug. 3, 2004), available at
http://www.iasb.org/docs/ed-ias 19aglfIAS 19_CL82.pdf.
30SHARE-BASED PAYMENTS, Exposure Draft (International Accounting Standards Bd.
2002), availableat http://www.iasb.org/docs/ed02/ed02.pdf (last visited Mar. 6, 2005).
United States drew on those experiences as input into KPMG's response to
KPMG in the United States, also expressed its concerns about how
convergence efforts that were not fully coordinated strained participation in
the national standard-setting process. On January 30, 2003, KPMG in the
United States wrote to the U.S. FASB noting its support for the U.S. FASB
to expose the IASB's document in order to focus the attention of the U.S.
FASB's domestic audience on the issues that the IASB was addressing.
While noting support for the IASB finalizing its project on a timely basis,
KPMG in the United Stated expressed its concerns that
any attempt to achieve true convergence on this subject between the
IASB and the FASB may not be possible in the allotted timeframe.
Therefore, any current form of convergence on stock-based
compensation would result from the FASB adopting the model in the
IASB Exposure Draft rather than the two boards working together to
develop a single high-quality solution to the accounting for stock-based
compensation. We would object to a U.S. standard on stock-based
compensation that adopts the IASB model solely to achieve
convergence without the full due process of the FASB, including
consideration by the FASB about the relative conceptual merits of
In the future, the two boards and, possibly other national boards, will
need to work to develop a more synchronized approach to comment
periods for exposure drafts on convergent standards. Many international
organisations, such as international accounting firms, need to deliberate
internally to decide on an international approach to a proposal,
especially if it is to become the national accounting standard. For
example, as the U.S. member of KPMG International, we are requested
to comment on the FASB's Invitation to Comment before KPMG
comments on the IASB Exposure Draft. We do not believe the lack of
co-terminus deadlines for future32convergence projects is in the interest
of improved financial reporting.
7. NationalandRegionalGAAPs basedon IFRSs
Convergence will continue to be a goal that is desirable but
challenging for all of the stakeholders in the financial reporting process.
One area of potential tension comes about when countries adopt IFRSs as
Northwestern Journal of
International Law & Business
their national GAAP. In some countries this has been done with
modifications made only to effective dates and transition provisions of
IFRSs. 33 In other countries it has involved modification of the requirements
of IFRSs. For example, Australia has eliminated some of the alternatives
permitted under IFRSs 34 and Hong Kong modified the application of IFRS
consolidation requirements when it issued local standards adopting IAS 27,
Consolidatedand Separate FinancialStatements, in 2001 and 2004. 35 In
these cases, the national standard setters must balance the desire for
convergence and the ability to assert that their national GAAP is consistent
with IFRSs with the pressures for national tailoring to accommodate
established practices and views as well as national law and regulatory
As a global network of member firms that participates in the
standardsetting process at both a national and international level, our ability, or the
ability of a national member firm, to participate fully at a national level may
be subject to a global consensus to support a different decision as the route
for convergence. The tensions and understandable frustrations of member
firms are amplified when an issue arises in a country without a direct
participant in the IFR Group or IFRS Panel, as those countries may feel
excluded from a decision-making process that will impact their
participation in local standard setting. Similar tensions arise when a
national practice is expected to apply a KPMG interpretation of IFRSs to its
national GAAP because its national GAAP is claiming convergence with
IFRSs. It may be particularly difficult for a local member firm to insist on a
change from established national practice only because of a KPMG-specific
interpretation of IFRSs. But this is what member firms are endeavoring to
do at a local level when local GAAPs claim to be convergent with IFRSs.
At a regional level, the E.U. endorsement process has created
differences from, and even the prospect of conflicts with, the requirements
33 For example, when Sweden introduced requirements for lease accounting based on
IAS 17, Leases, entities were not required to apply the new Swedish standard to existing
agreements. Therefore, even though current Swedish GAAP regarding lease accounting is
largely consistent with IFRSs, application of IFRSs may result in reclassification of some
agreements and changes in accounting. See generally KPMG SWEDEN, IMPLEMENTING [AS:
IAS COMPARED WITH SWEDISH GAAP, at 84, available at http://www.kpmg.sk/index.thtml/
en/library/publishedinternat/IFRS/ (2003) (last visited Mar. 31, 2005).
34 For example, IFRSs permit use of either the equity method or proportionate
consolidation when accounting for investments in joint ventures. AASB 131, the equivalent
Australian standard to AS 31, Interests in Joint Ventures, removes the alternative of using
proportionate consolidation for investments in joint ventures and requires use of the equity
method. INTERESTS IN JOINT VENTURES, Accounting Standard No. 131, para. 38 (Austrl.
Accounting Standards Bd. 2004) (stating "the Standard ... requires a venturer in a jointly
controlled entity to apply the equity method in recognizing its interests").
35 See KPMG Hong Kong, First batch of HKASs: Revised Standards on Subsidiaries and
Associates, at 2, availableat http://www.kpmg.com.hk (July 2004).
Convergenceand the Implementationof a Single Set of Global Standards
of IFRSs as published by the IASB. For example, the E.C. has, after much
debate, only endorsed IAS 39 for use after deleting some or all of seventeen
paragraphs.36 As a result, the option to designate most liabilities as
measured at fair value through profit or loss will not be available to entities
claiming compliance with E.U. endorsed standards and entities complying
only with E.U. requirements will not need to comply with certain hedge
accounting requirements in IAS 39. If an entity complies only with the
E.U. requirements and not with all of IAS 39, then it cannot refer to
compliance with IFRSs as its accounting framework. Further, the
additional time requirements for the E.U. endorsement process raise the
prospect that an entity may not, in future, be able to comply with both
IFRSs and standards endorsed for use in the European Union because an
amendment that changes the requirements of an IFRS is required to be
adopted by an entity complying with IFRSs but the amendment may not yet
have been endorsed by the E.C.
The time required for E.C. endorsement after a standard is issued by
the IASB can create planning issues. For example, the IASB issued
amendments to IAS 19 in December 2004; the amendments must be
adopted by entities reporting under IFRSs for financial years beginning on
or after January 1, 2006, but the IASB permits voluntary early adoption.37
These amendments are expected to be endorsed by the European
Commission before the end of 2005, and therefore to be available to
calendar year-end companies reporting under standards endorsed for use in
the European Union for their 2005 annual reports. If a company intends to
comply with both IFRSs and the E.U. IAS regulation (endorsed standards)
and also is reporting in interim periods on the basis it expects to use at year
end, then what should it do in its 2005 interim report? Does it assume that
the amendments will be endorsed by the end of the year and, therefore, that
it should reflect its intended year-end policy (early adoption) in the interim
financials? Or should it wait until the endorsement is complete? When
should it start collecting data such as actuarial valuations to implement the
amendments? The move to a new system that includes a regulatory overlay
like the E.U. endorsement mechanism brings additional challenges for
preparers, auditors and users; this is just one example.
36 Press Release, European Commission, IAS 39 Financial Instruments: Recognition and
Measurement - Frequently Asked Questions (FAQ) (Nov. 19, 2004), available at
clarification of the European Commission's views regarding the impact of the adopted standard).
37 Press Release, International Accounting Standards Bd., IASB Issues Amendments to
Pension Cost Standard (Dec. 16, 2004), available at http://www.iasb.org/news/
"May you live in interesting times" often is viewed as both a blessing
and a curse. Certainly as a global network of firms and as a profession we
are living in interesting times. Real convergence with IFRSs requires
coordinated action for an organization to function on a consistent basis.
Global organizations that are subject to different and sometimes conflicting
national regulations face tremendous challenges, not least, organizational
and coordination ones. A national entity may face the challenge of setting
aside its national biases when participating in international initiatives, but
the mechanics of its participation may be simpler merely because it has
centralized decision making and policy setting. A global network like
KPMG with separate legal entities and national leadership, infrastructure
and regulation faces tremendous challenges when trying to participate in the
standard setting process with one voice. Fulfilling the traditional roles of a
major accounting firm-participating in standard setting and developing
guidance on the application of accounting standards-requires cumbersome
consultative processes across a number of different structures and entities.
But this consultation, while cumbersome at times, is also the foundation of
success, because it builds acceptance and buy-in to decisions, and fosters a
climate of consultation rather than reluctant acceptance of imposed
conclusions. We are pleased that, as a global network, we moved early to
develop mechanisms to create the means for this consultation.
Achieving true convergence of accounting standards-convergence of
not just the words, but also on a shared understanding of the principles and
objectives-is a costly and time-consuming objective. It asks organizations
like KPMG to imagine the future and build new policies, links and
committees to create an international infrastructure. It has required a huge
investment of money, people, and leadership to support the transition to
IFRSs, and will require a significant change in the training of accounting
students in the near future. It is, however, the right objective and one that
must be pursued vigorously, as it offers tremendous opportunities for all
involved, but especially for users and preparers of financial statements.
31See Comment Letter 91 from KPMG International to David Tweedie, Chairman, International Accounting Standards Board (Mar. 7 , 2003 ) available at http://www.iasb.org/ docs/ed02/ed2 - c191 .pdf.
32 Letter from KPMG LLP (US) in Response to the FASB Invitation to Comment (Jan . 30, 2003 ), available at http://www.fasb.org/.