Dr. Epstein is the author of The Handbook of Accounting and Auditing, published by RIA, the tax and accounting business of Thomson Reuters.

He has been associated with this comprehensive reference work, and its semi-annual updates, for over 18 years.

Dr. Epstein served as the lead author of 26 annual editions of Wiley GAAP (1985 through 2010), 14 annual editions of Wiley IFRS (1997 through 2010), and several other works on U.S. GAAP and international accounting standards, all published by John Wiley & Sons.

Accounting Expert Barry Epstein Offers Litigation Avoidance Techniques in GAAP to IFRS Conversion

Scrutiny by CEOs, board members, and attorneys advised in anticipated accounting standards transition

CHICAGO—December 7, 2009- (Business Wire) – While many accountants focus on the practical implications of a likely conversion from U.S. generally accepted accounting principles (GAAP) to international financial reporting standards (IFRS)—such as staff training and software updates—international accounting expert Dr. Barry Jay Epstein, CPA (www.rnco.com), suggests that consideration also be given to potential litigation risks.

"The financial reporting implications of a transition from GAAP to IFRS are significant and warrant close examination," cautions Epstein, lead author of Wiley GAAP, Wiley IFRS and other accounting books. "Inappropriate IFRS conversion practices can lead to charges of securities fraud, white collar crime, or breach of contract in the form of investor deception through accounting principles shopping, or failure to stipulate specific accounting standards applicable to earn-out calculations or other contractual provisions."

With the Securities and Exchange Commission (SEC) expected to issue further guidance in the near term on the anticipated adoption of IFRS in place of U.S. GAAP, Epstein offers the following suggestions on often overlooked strategic considerations associated with changes in accounting standards.

Five Ways to Minimize Securities Litigation Risk in a GAAP to IFRS Transition

1. Performance metrics (e.g., bonus plans). Arrangements for compensation based on a financial statement caption - such as net income or income before interest, taxes, depreciation and amortization (EBITDA) – may need revision to adjust for possibly varying impact of IFRS. At the minimum, affected employees need to be made aware of change and provided assurances regarding likely impact on their compensation packages.

2. Debt covenants (e.g., key financial ratios) Compliance with various positive and negative covenants (e.g., EBITDA, debt service coverage ratio) may be affected by new measurement or classification rules under IFRS. Lenders need to be educated before changes take effect, and in some cases amendments (e.g., to "freeze" GAAP for covenant calculation purposes under pre-existing loans) may be negotiated, in order to ameliorate the impact, if any, of changes from GAAP to IFRS.

3. Tax accounting implications (e.g., inter-period tax allocations). IFRS does not permit LIFO inventory costing, and longstanding tax regulations require that any LIFO reserve be absorbed into taxable income. Unless the rules are relaxed, investors will find most formerly LIFO-using companies reporting higher earnings, larger inventories, but also reduced cash flows (due to higher taxes owed on inflated earnings), all of which can confuse investors and lead to sub-optimal decisions. Full, effective communications, ahead of the changeover, will be needed to avoid potential ramifications, including investor suits.

4. Fair value reporting rules, including recognition of impairments and recoveries, differ under IFRS. Already a very controversial and complex issue under GAAP, the application of fair value measurements under IFRS differ in some regards, which must be sufficiently communicated. Also, unlike under GAAP, in many instances previously recognized impairments are reversed under IFRS when values increase, making this a likely area for confusion among users of the financial statements.

5. M&A earn-out agreements. Many business acquisitions involve earn-out arrangements, under which sellers receive additional proceeds based on future performance by the acquired entity. Even under GAAP, this area was rife with disputes, since buyer could often alter accounting procedures to depress amounts (EBITDA, net income, etc.) upon which earn-out obligations were to be computed. The change to IFRS will further exacerbate the risk of disputes, which in some cases might be avoided by amending agreements (e.g., to "freeze" GAAP for measurement purposes under the contract).

About GAAP and IFRS Accounting Expert Dr. Barry Jay Epstein, CPA

International accounting expert Dr. Barry Epstein is a litigation partner in the Chicago accounting firm Russell Novak & Company LLP (www.rnco.com), where he provides technical consultation on Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), US and international auditing standards, and Sarbanes-Oxley audit committee compliance. He works extensively with attorneys and government agencies in the areas of securities litigation, white collar defense, financial reporting fraud, accountants’ liability, securitization accounting, and accounting for derivatives. See also www.ifrsaccountant.com and www.ifrsaccounting.com.

Contact:

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