Most officers not prepared to give up control of established U.S. accounting standards, survey finds

Financial services industry executives say that the cost, risk and burden of regulatory compliance are top concerns, according to a survey of nearly 400 senior U.S. finance executives at the third annual PricewaterhouseCoopers Finance Executives Forum.

Concern about the decline of U.S. competitiveness has also increased significantly since last year’s forum, when it ranked fifth on the list of future industry concerns. When asked what the biggest challenge for the industry as a whole would be over the next two to three years, the top response given was the “decline of U.S. competitiveness in the global marketplace” followed by “competition for talent.”

“Financial services firms operate in an increasingly complex and heavily regulated environment, one in which the bar is high, by design, to ensure the highest level of investor protections. The rigor of compliance and controls has helped make our capital markets system one of the strongest in the world,” says Timothy Ryan, chairman of the U.S. financial services industry practice of PricewaterhouseCoopers.

“Despite our strength, however, there is concern that the United States may be losing its dominance for reasons that are not necessarily due to our regulatory environment,” adds Ryan. “It faces new competition that never existed in the global capital markets system. We must work to identify the true root causes of the perceived decline of U.S. competitiveness and propose solutions that do not undermine confidence in the capital markets.”

PwC also found that a number of projects by the Financial Accounting Standards Board are having a significant impact on the financial industry, with the biggest issue for finance executives being fair valuation.

When asked what business performance issue will have the most significant impact on their organization’s business or finance team over the next 12 months, nearly one-third (32%) said “simplifying financial reporting,” the top answer given. Approximately one-quarter said either “operationalizing risk management” (26%) or “systems integration” (22%).

Additionally, 88% of survey respondents agreed that there should be a single global set of financial reporting standards. Yet more than two-thirds (68%) said they are not prepared to give up control of established U.S. accounting standards. When asked specifically what the reporting standard should be, 34% said IFRS, the standard used largely by the rest of the world outside the U.S.; 44% suggested keeping two standard setters in the world, but continue to work toward converging standards; and, 13% said standards should be something other than either U.S. GAAP or IFRS.

Over half (55%) of survey respondents said they expect there to be a single global financial reporting standard by 2015. Another 22% don’t expect convergence until 2020. Only 6% expect convergence by 2010 and 7% think that true convergence will never take place.

“Requiring reconciliation between the two standards has been viewed by some as an enormous burden on foreign issuers,” says Raymond Beier, partner and leader of strategic analysis and policy at PwC. “Yet the world is shrinking and it is only a matter of time before the two most dominant standards converge.”

One in five financial services industry executives said they believe that the U.S. economy will enter into a recession within the next 12 months. While only 10% said that the decline in the housing market would be the biggest challenge their organization will face in the year ahead, 30% said that they were concerned or extremely concerned about the adverse impact that subprime mortgage market issues could have on their organization. The majority (49%) were only somewhat concerned about the subprime issue, and 21% said they are completely unconcerned about it.