Getting a head start: preparing for the switch to an international accounting standard.(Column)

Discussions of best practices can often involve investigations and analyses into an individual company or industry's workings, whether the best practice itself is based on a lengthy research process or simply the testimony of experts on the subject. In most cases though, best practices can be distilled into one simple piece of advice that any Boy Scout could offer to a credit professional: be prepared. Sure, it's an unspecific phrase that doesn't lend itself to the B2B credit world directly, but in many instances, a credit professional who conducts business according to that old, reliable adage will find themselves ahead of the curve. Being prepared and knowing, or at least having an idea about, what's going to come next allows a credit professional and their department as a whole to plan for the worst and soften the blow of subdued business conditions like the ones many face today. It also gives them the opportunity to take advantage of better times when they arrive by properly leveraging technologies.

The fundamental obstacle that blocks a person or a company from being prepared is the fact that much of the future is unclear and uncertain. There are economic, personnel and industry events that cannot be easily or reliably predicted, making it difficult for businesses to dodge problems and rendering smart moves invisible until the last moment. Rather than hiring an on-staff psychic or budgeting for more calls to Miss Cleo, companies often do the best with the information they have using the most sound strategic planning methods available and, in some instances, more technological methods like forecasting models.

Still, the fact that much of the future is a mystery doesn't mean that all of it is, and it's easy for even the most passive observer to see that in five years, the B2B financial universe will be different than it is now. Experts have predicted economic pick-up in the final quarters of 2009, the current political reaction to the economic crisis may mean more regulation and higher taxes for certain industries and, almost completely without any major media scrutiny, financial regulators have begun floating plans for the convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Accounting Standards (IFRS) into one singular, global accounting standard. This convergence will eventually change the way financial statements look and change the way that companies account for certain items, which will alter the process associated with analysis and evaluation of a company's, or potential customer's, financial statements.

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Where It Is Now

This isn't the first time that the convergence of GAAP and IFRS has been mentioned in Business Credit, but since the topic first popped up in March of 2008, the International Accounting Standards Board (IASB), the entity responsible for maintaining IFRS, the U.S.-based Financial Accounting Standards Board (FASB), the U.S. Securities and Exchange Commission (SEC) and the international credit crisis as a whole have all altered the landscape of financial standard setting and set the stage for the first steps toward convergence. Most recently, the SEC released for public comment its proposal, entitled "Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers," which fulfilled the commission's August 2008 promise to provide U.S. companies and investors with an outline for the move toward the potentially mandatory filing of financial statements in IFRS. "An international language of disclosure and transparency is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions," said SEC Chairman Christopher Cox after he and his fellow commissioners unanimously approved the proposal of the roadmap. "The increasing worldwide acceptance of financial reporting using IFRS, and U.S. investors' increasing ownership of securities issued by foreign companies that report financial information using IFRS, have led the Commission to propose this cautious and careful plan. Clearly setting out the SEC's direction well in advance, as well as the conditions that must be met, will help fulfill our mission of protecting investors and facilitating capital formation."

According to the SEC's now public plan, the roadmap "addresses the basis for considering the mandatory use of IFRS by U.S. issuers. It sets forth seven milestones which, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission." Furthermore, the release notes that in 2011, the SEC "would determine whether to proceed with rulemaking to require that U.S. issuers use IFRS beginning in 2014 if it is in the public interest and for the protection of investors to do so." This means that the ...