Despite some encouraging results in liquidity and valuations, the study raised questions about the anticipated benefits to IFRS. If the foreign company is mainly using GAAP and IFRS standards the same way, then the impact on liquidity is negligible.
Meanwhile, Hail sees little capital markets benefit from U.S. firms switching from GAAP to IRFS. "The infrastructure is already in place, and combined with the strong reporting incentives due to constant pressure from investors, we may not see much of an impact on how U.S. firms report," Hail says. "But perhaps U.S. firms will gain from comparability benefits, which should be more pronounced when you are late in the game and everybody else has already switched to IFRS."
Others in their SEC comment letters say that it is too premature to implement global international accounting. The differences between U.S. GAAP and IFRS standards need to be addressed, they say.
Russell Read, chief investment officer of the California Public Employees' Retirement System, Sacramento, Calif., outlined his biggest problem: The current source of funding for the International Accounting Standards Board may pose a conflict of interest. IASB operations, the SEC has noted, is funded largely through voluntary contributions from companies, accounting firms, international organizations and central banks.
"We are concerned that the independence of the IASB may be compromised by its current source of funding," Read says. "CalPERS also questions whether the IASB currently has the enforcement infrastructure to ensure [a company's] compliance with international standards."
On the plus side, he says that multinational firms with a large percentage of revenue derived from overseas operations would gain a competitive advantage over their foreign competitors.
Allan C. Nichols, international equity strategist at Morningstar Inc., Chicago, says the accounting change overall will have a minor impact on investors. Stock analysts will benefit from uniform accounting standards, which will improve data consistency and make global peer comparisons better. Stock analysts will also be able to better evaluate a company's fundamentals.
But there are some differences between GAAP and IFRS that analysts need to recognize. On the plus side, IFRS standards recognize the underfunded pensions on the balance sheet more conservatively than GAAP accounting. But foreign companies that list in the United States using IRFS do not have to comply with the Sarbanes-Oxley Act of 2002, which established stronger standards for all U.S. company boards, management and public accounting firms.
Another major issue is that the fair-value accounting used in international accounting standards may be more helpful to analysts in evaluating corporate financial statements.
Fair-value accounting uses market prices or estimated market prices to value a company's assets and liabilities. In this case, financial analysts consider what the value of the company would be if it were sold or liquidated.
Say an insurance company sells a portfolio of policies. Investors want to know what the policies are worth in the marketplace. Under International Accounting Standards Board rules, insurance companies would have to revalue their assets, investment portfolios, liabilities and claims reserves quarterly.