The results of the September 2007 "Business Outlook Survey" conducted jointly by Duke University and CFO magazine were released earlier this month. In reporting the results, most media outlets focused on one particular finding: only 9% of the U.S. CFOs surveyed indicated that they would be "very likely" to file their financial statements "according to International Financial Reporting Standards (IFRS) instead of U.S. GAAP if the SEC were to allow it." Media commentary on that statistic generally seemed to infer that the overwhelming majority U.S. CFOs are opposed to (or uninterested in) switching from U.S. GAAP to IFRSs. Unfortunately, most media reports abused the reported statistic by robbing it of its context among the other results of the survey.
Specifically, most media reports omitted or "buried" the statistic that only 14% of the U.S. CFOs surveyed described themselves as "very familiar" with IFRSs. It is reasonable to assume that most, if not all, of the 9% of U.S. CFOs who indicated that they would be "very likely" to file using IFRSs if permitted by the SEC are among the 14% who described themselves as "very familiar" with IFRSs. That assumption leads to the conclusion that most U.S. CFOs who are very familiar with IFRSs would be very likely use IFRSs given the opportunity -- an entirely different story from what was commonly reported in the media.
Furthermore, by side-stepping the "familiarity" statistic, the media failed to convey a critical point: the overwhelming majority of U.S. CFOs are not sufficiently familiar with IFRSs to make an informed choice between using U.S. GAAP vs. IFRSs. Consequently, the apparent low interest in IFRSs can reasonably be attributed to widespread ignorance about IFRSs rather than the informed judgment of U.S. CFOs about the merits of IFRSs vs. U.S. GAAP. Perhaps instead of headlines saying "Only 9% of US companies keen to adopt IFRS," [Financial Times, September 12, 2007], the headlines should have said "86% of U.S. CFOs Don't Know Enough About IFRS."
The complete survey results are available at http://www.cfosurvey.org.

Highlights from FEI's Convergence Conference
On September 28, 2007, Financial Executives International (FEI) hosted the Global Financial Reporting Convergence Conference at the Marriott Marquis Times Square Hotel in New York City. The one-day conference was the first major educational event in the United States focused on helping financial executives understand the implications of the convergence of U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRSs). Since The Convergence Blog was the official sponsor of the Conference's afternoon Networking Break, I attended the Conference, and I'm very glad I did. There's a summary of the Conference at FEI's website, and below you'll find my thoughts on three of the Conference's highlights.
1. Raising Awareness
The purpose of the Conference, according to FEI President and CEO Michael Cangemi, was to raise awareness of global convergence in the United States. Cangemi stated that he wanted his organization "to be at the forefront of helping educate financial executives about IFRS and how it will impact their companies." I think it's fair to say that the Conference fulfilled its purpose.
The current lack of awareness among U.S. financial executives about IFRSs and Convergence was made clear in the September 2007 "Business Outlook Survey" conducted jointly by Duke University and CFO magazine. Among the 580 U.S. CFOs surveyed, only 82 (14%) described themselves as "very familiar" with IFRSs. That is a disturbing level of ignorance, especially in light of the comments made by speakers and panelists at the Conference.
In particular, Financial Accounting Standards Board (FASB) Chairman Robert Herz's comments regarding IFRSs and Convergence revealed his personal desire to see the United States establish a timetable and milestones to move to one set of global standards, i.e., IFRSs, not U.S. GAAP. When 86% of U.S. CFOs aren't very familiar with the financial reporting standards that are likely to eventually replace U.S. GAAP, then there's clearly an awareness problem and a clearly a need for events like the Convergence Conference to address the problem.
2. "The Last Mile" in External Financial Reporting
At the breakfast session sponsored by Clarity Systems, company president Mark Nashman demonstrated Clarity's "Financial Statement Reporting" (FSR) software. I was impressed at the degree to which the software automates -- in a very controllable way -- the many inter-related tasks of producing external financial reports (annual reports, 10-Ks, etc.). It is standards-neutral and can thus be applied to U.S. GAAP or IFRS reporting, as well as to reports that reconcile one set of standards to the other.
From personal experience, I can attest to the fact that the preparation of external financial reports is usually poorly automated and/or poorly controlled even in the largest and most sophisticated organizations. It is this "last mile" that Clarity's software focuses on improving -- the inefficient, error-prone end stage of what is (ironically) often a highly-automated, highly-controlled process up to that point. See for yourself at http://www.claritysystems.com.
3. The Convergence Guidebook Announced
As I mentioned previously, this Blog was an official sponsor of FEI's Convergence Conference. Because sponsorship has its privileges, I was able to arrange for a special announcement to be included in the Conference materials -- the first public announcement that my book, The Convergence Guidebook™, will be published by John Wiley & Sons in 2008. The Conference was the perfect occasion for that announcement, and I appreciate having had the opportunity to participate in such a significant event.
Like my blog, my book will help financial executives prepare for "the next big challenge in corporate financial reporting." In the Guidebook, I'll explore the same themes that are covered in this Blog, but in considerably more depth than I'm able to do in my weekly blog posts. I will be sharing excerpts from the book in my blog posts over the next few months, so keep reading to see how The Convergence Blog and The Convergence Guidebook will complement and enhance each other.
Posted by Bruce Pounder | Permalink