The Convergence Blog™

Do U.S. CFOs' Opinions About IFRS Matter?

It has become rather popular to survey U.S. financial executives and ask them what they think about IFRS-related issues. But I always try to get as close as possible to the raw survey data in order to look for a "key" question, i.e., one related to the respondents' familiarily with IFRS. And from my perspective, I generally don't put much stock in the opinions of people who admittedly don't know what they're talking about.

For example, Grant Thornton LLP recently conducted a national survey of chief financial officers and senior comptrollers in which one of the survey items asked "Do you have experience preparing financial statements according to IFRS?" Only 22% of the survey respondents answered "Yes," highlighting once again the overwhelming lack of IFRS experience among senior financial executives in the United States. As I have blogged before, the inclusion of such a question in surveys like Grant Thorton's is critical to putting many of the other survey results in perspective. To their credit, GT's press release announcing the survey results reads "Majority of CFOs do not agree with SEC on IFRS – More than three-fourths have no experience in preparing IFRS statements" [available here]. However, such headlines have a way of drifting into misleading territory when picked up in the media, e.g., "Most CFOs disagree with SEC on IFRS", which fails to adequately convey the critical finding that most CFOs simply don't know enough about IFRS to have a valid opinion on such matters.

There have also been a few media reports of another recent survey conducted by Deloitte & Touche that asked U.S. CFOs and other senior financial professionals various IFRS-related questions. The reported results were rather interesting, but I haven't been able to find any details about the survey or its results at Deloitte's website, so I'm reluctant to discuss them here, and frankly puzzled as to how and why the media coverage came about without the online availability of supporting data.

Results of September 2007 "Business Outlook Survey"

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.

IFAC Survey on the Financial Reporting Supply Chain

On June 1, 2007, the International Federation of Accountants (IFAC) launched a global "Financial Reporting Supply Chain Survey" designed to obtain information that could strengthen the financial reporting process for publicly listed companies. The survey defines the financial reporting supply chain as "the chain of people and processes involved in the preparation, approval, audit, analysis and use of financial reports." All participants in the financial reporting supply chain, including investors and other users of financial reports, standard setters, preparers, auditors, academics, and regulators are encouraged to respond to the survey.

IFAC will use the survey responses and interviews to evaluate past recommendations it has made to improve the quality of the various links in the financial reporting supply chain, including those expressed in two previously-published IFAC reports:

• Rebuilding Public Confidence in Financial Reporting: An International Perspective (2003)
• Challenges and Successes in Implementing International Standards: Achieving Convergence to IFRSs and ISAs (2004)

IFAC will also identify newly emerging issues and innovations and develop proposals to further improve the quality of the financial reporting process.

To participate in the survey, visit http://www.ifac.org/financialreportingsurvey. IFAC estimates that it takes about 20 minutes to complete the survey. The deadline for responding is July 6, 2007. A final report will be issued by the end of the year and will be posted on the IFAC website.