Veihmeyer: consolidation can be managed

The adoption of International Financial Reporting Standards (IFRS) is imminent and a positive move for the accounting profession, according to John Veihmeyer, CEO of KPMG.

Veihmeyer, speaking at a conference in New York Tuesday said, “The companies we engage with and the markets are becoming more global every day. I’m personally very supportive of a single set of accounting standards.”

Both the International Accounting Standards Board (IASB) and the US’s Financial Accounting Standards Board (FASB) have been working to reach a common set of between IFRS, including a common fair value standard.

A problematic issue for private equity firms concerns consolidation. PE firms are exempt from consolidating their financial statements – which can lead to additional costs and reduced clarity – under US GAAP. As IFRS does not provide any such exemption for investment firms, few private equity firms have adopted the international standards.

“The firm has full confidence that this could be managed,” he said.

The Securities and Exchange Commission unanimously approved in February a new timeline that sets 2015 as the earliest possible date for the required use of IFRS by US companies. The SEC action calls for more study of IFRS and a 2011 vote on whether to move ahead with a mandate to use IFRS.

The IASB and the FASB have certainly encountered setbacks in the convergence process. The deadline has been pushed back several times, and certain issues have proven thornier to reconcile than anticipated, including the two systems’ treatment of fair value.

In February, the IASB seemed to be relaxing its stance on convergence, according to a review of its constitution. Though convergence remains “a strategy aimed at promoting and facilitating the adoption of IFRS”, it is not “an objective by itself”, the IASB said in the review.

But it’s unclear just how much the IASB has actually softened its stance. In response to a report in the Financial Times suggesting that the IASB was “softening” its stance, the chairman of the trustees at the IAS Committee Foundation, Garrit Zalm, wrote an open  letter saying that he was “surprised” that the newspaper had interpreted the review as a “weakening” of the IASB’s ongoing work to converge global accounting standards. “Nothing could be further from the truth”, he said.

While some firms have balked at the time and expense IFRS would create, Veihmeyer does not agree. “Unlike (Sarbanes Oxley rule) 404, we are talking about a one-time implementation process. One distinction is that this will not be a continued cost, but a one-time issue.”

As the financial landscape is more global, it makes sense for international principles to be put in place, he said. “[The US] is not the first country in the world to change accounting standards if we do go that route,” he said, adding that other countries are moving toward adoption including Brazil, South Korea, Canada, India and Japan.

“Net-net it’s a very positive thing for the profession. The goal is for investors to have confidence. Most commentators or participants in the capital markets see it as a positive.”