Case Study: Midsize Firms Working with IFRS
IFRS.com | April 3, 2009
Midsize CPA Firms Recognize Challenges and Opportunities of IFRS Adoption
The largest accounting firms -- the Big Four -- are all seriously focused on the move toward International Financial Reporting Standards (IFRS) in the United States. They’d better be. Despite uncertainty about the timing, many observers feel the ultimate adoption of IFRS in the U.S, is inevitable. Under the previous Administration, the Securities and Exchange Commission (SEC) proposed a roadmap that could lead to all U.S. public companies being required to use IFRS beginning in 2014.
Medium Size Firms Bide Their Time
Each of the Big Four has spent considerable resources becoming well versed in the nuances of the differences between the two sets of standards. Some midsize firms, however, are not quite ready to take the plunge.
"So far, IFRS is only about public companies," points out Stephen Bodine, a principal with LarsonAllen, a Minneapolis firm with offices in seven states. "We’re the largest CPA firm in Minnesota that doesn’t audit public companies. Less than one percent of our business relates to international standards."
But Bodine believes that it’s only a matter of time before international standards trickle down to the rest of the accounting population. "Once the SEC supports IFRS, I don’t see U.S. GAAP remaining current," he explains. "Private companies will begin to use IFRS just to stay up to date with the standards."
At the moment, LarsonAllen is getting its feet wet with a small but growing number of its clients that have been acquired by foreign companies. The firm has also picked up more than one client by being the regional member of Nexia International, a worldwide network of independent auditors.
"Things are changing," Bodine explains. "As recently as two years ago, a client that was a U.S. subsidiary of a foreign company would only ask us for a reporting package that would allow them to convert to whatever standards they were using. Now that exact same firm essentially refuses to work with U.S. GAAP."
LarsonAllen is preparing for the day when IFRS becomes the global standard by creating IFRS conversion models, taking part in IFRS conferences, and encouraging its people to take continuing professional education courses that will help get them up to speed. But Bodine is frustrated by the lack of guidance available. "We’ve been relying on practice aids from the Big Four, and it’s nice that the IASB (International Accounting Standards Board) and the IFAC (International Federation of Accountants) provide their standards on their websites," he says. "But we are constantly searching for other resources. I haven’t found a good pay service that is constantly being updated."
Already a Niche For Some
Jeffrey Deane, a partner with Pittsburgh’s Malin, Bergquist & Company, remembers that back in 2003, when the firm first started working with a client on IFRS, it was much more difficult than it is now to find information about international standards. "I remember going to training sessions in San Francisco and Chicago, but we had to monitor and interpret the various pronouncements by the IASB ourselves. Today there is a lot more access to information, particularly on the web."
Malin Bergquist, which has a staff of more than 120 in three offices in Western Pennsylvania, already considers international work a "sweet spot" niche specialty. Deane says that the firm began doing international work by accident in the mid 1970s, after a German national started a U.S. subsidiary of Dräger, a €2 billion German manufacturer of medical, safety, underwater and aerospace equipment. As the subsidiary grew nationally and internationally, it relied more and more on Malin Bergquist for help.
"At first the work was mostly tax consulting and accounting assistance," Deane explains, "including how to structure the company for ultimate tax savings. Then Dräger gradually started asking us to help them report their results using U.S. GAAP, German GAAP, and then most recently using IFRS."
Deane says that throughout the 1990s, there wasn’t a lot of pressure to become versed in IFRS. That changed for Malin Bergquist in 2003 when Dräger, which is publicly traded in Germany, started using IFRS.
The firm, which also still performs public company audits, has experienced much of its growth through the development of these niche groups. "More and more firms of our size have dropped out of auditing public companies, and may be wary of doing international work," he explains. "But we see it as a huge opportunity. In our profession, to differentiate yourself you have to develop a unique expertise. It’s a change of mindset. We encourage even our entry level staff to focus on developing expertise in a particular niche."
Malin Bergquist has gained significant market share of international clients in recent years, partly due to its membership in the firm association, CPAmerica International, and partly due to its own reputation. International work now comprises about 20 percent of the firm’s business, and Deane expects the niche to grow rapidly as the United States moves toward IFRS.
"We are very deliberate how we spend our marketing dollars, and we are specifically targeting foreign-owned companies," says Deane. The firm is particularly focused on companies with a connection to Germany and with operations within a 500 mile radius of Pittsburgh, which includes New York and Chicago. It even has created a website in the German language.
"We believe that if we are able to get in front of foreign owned companies with a ‘significant first meeting,’ we can show them the benefits of dealing with a quality regional firm," says Deane. "We feel that our talent and expertise, consistency of staff, heavy partner involvement, and the relationships we have with firms around the world set us apart." For more information about Malin Bergquist, visit www.malinbergquist.com.
For more information on IFRS resources, including news updates and educational programs, visit www.IFRS.com.
