Promoted vigorously by Christopher Cox, chairman of the SEC under the most recent Bush administration, International Financial Reporting Standards have been hotly debated in recent months.

Should the U.S. adopt IFRS completely and allow the International Accounting Standards Board rather than the Financial Accounting Standards Board, to introduce mandates? Or should the FASB continue its work with the IASB to converge the two standards and eliminate material differences? Mary Schapiro, the current SEC chairman, has been cool to the idea of converting to IFRS. She is "not prepared to delegate standard-setting or oversight responsibility to the IASB." By the fall of 2009 the new SEC leadership was to have provided more insight about their intentions, but so far, corporations are still left wondering what, if anything, they should do to prepare.

The "convert or converge" debate is centered on the question of principles-based versus rules-based accounting standards. The IASB has made a concerted effort to maintain a principles-based approach, while U.S. GAAP, with roughly 10 times the volume of text in its standards, is clearly more rules-based. With that, it provides guidance for specific types of transactions and for particular industries. Those who favor a principles-based approach point to the futility of writing rules. IASB Vice Chairman Tom Jones recently said, "We don't interpret, because every time you put in new words, smart people can get around those words." Those who favor a rules-based approach think IFRS leaves too much to discretion, opening the door for abuse in financial reporting.

In the midst of the debate, it's important for corporations not to become distracted from the underlying issues and trends, or surprised by the coming changes in U.S. GAAP.

Whatever the SEC ultimately decides to do with the road map, U.S. GAAP will be forever influenced by globalization and the trend toward a single set of high-quality accounting standards. This influence will have real implications for the day-to-day practices of the corporate finance function.

We've already worked through convergence of U.S. GAAP standards regarding stock-based compensation, business combinations and fair-value measurements. The two standards-setting bodies are now hard at work crafting significant changes to principles of revenue recognition, lease accounting and financial statement presentation. From an accounting perspective, each will be revolutionary.

If current proposals are finalized, all leases will be capitalized by the lessee and the operating lease will no longer exist. The current maze of U.S. GAAP guidance on revenue recognition will be retired in favor of a single asset-and-liability approach where contract assets (the right to receive cash or other consideration) and contract obligations (the duty to deliver goods or services) drive the recognition of revenue. Additional convergence projects include liability and equity distinctions, income taxes, financial instruments. Most are slated to conclude and be presented to companies for implementation in 2011.

With these new standards imminent, corporate finance organizations should be preparing for change now. This means reviewing discussion papers for each of these topics and beginning to understand the impact each will have on operations. It also means adapting to more principles-based global standards by improving technical accounting capabilities, specifically the ability to analyze new standards, develop specific accounting policies to reflect them, and draft additional disclosures that come with principles-based global standards. Expect to spend more time working with independent accountants and gaining their support for these new policies.

Don't conclude from the current debate that IFRS will be delayed or abandoned. SEC action related to the road map is truly secondary to globalization and the need for financial reporting that is consistent across various regions and cultures.

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