The draft SEC Roadmap to IFRS has been issued and commented upon. Now it is time for the SEC to get to work on making its plans for IFRS clear. Based on recent comments by Chairman Shapiro and Chief Accountant Kroeker, they appear to be moving toward providing clarity on IFRS.
Specifically, SEC Chairman Schapiro revisited the IFRS issue on Sept. 18 when she stated, “I expect we will speak a little later this fall about what our expectations are with respect to IFRS”. She also said “it would be ideal if we can have a single set of high-quality accounting standards that worked globally.” SEC Chief Accountant James Kroeker bolstered her remarks on October 30 at a premier US Conference on International Financial Reporting Standards. During his speech and responding to questions afterward he commented that “There will be follow-up on the roadmap this fall.” Asked to define the word “fall,” he noted that “fall ends on Dec. 21”.
SEC’s Strategic Plan For Fiscal Years 2010–2015
In its strategic In June 2009, the U.S. Department of the Treasury published key objectives for reform of the financial regulatory system. (Financial Regulatory Reform: A New Foundation) Among other things, these reforms focus on raising international regulatory standards and cooperation, including working toward improvement of accounting standards in the wake of the credit crisis and the development of a single set of high-quality global accounting standards.
G20 Leaders
Chief Accountant Kroeker’s remarks contained similar themes as a recent G20 Leadership meeting where the G20 leaders called on international accounting bodies to “redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011.” They also commented that the “International Accounting Standards Board’s (IASB) institutional framework should further enhance the involvement of various stakeholders.”
Whatever you think about IFRS, the future seems sure. The world wants a single set on high quality, global accounting standards and IFRS will be that standard (it already is for the rest of the world).
Prepare Now
What can you do to prepare? Here are a few ideas for your consideration.
- Stay IFRS aware
- Stay aware of SEC action on IFRS
- Learn about the FASB and IASB Convergence efforts
- Analyze the effects of stable, converged IFRS standards on your organization and follow progress on standards still being converged
- Conduct an IFRS impact assessment
- Begin to develop a Judgment Framework that can formalize your processes for making business judgments and accounting standard application judgments.
- Identify internal and external talent that can assist in the transition to IFRS
- Develop a high level plan for transitioning to IFRS
- Begin to identify potential impacts to accounting, tax, technology and other business processes.
- Look for ways to normalize global accounting policies, practices and procedures to reduce the cost of global financial and regulatory reporting. Consider utilizing technologies like XBRL
Are you ready to report results under IFRS?
We are still waiting for the SEC to make its decision on the IFRS Roadmap. Thankfully they are beginning to indicate that they are focused on high quality global accounting standards again. Recent comments were made by Chairman Shapiro at the IOSCO Technical Committee Conference in Basel Switzerland on October 8, 2009:
“The crisis has highlighted importance of implementing and enforcing high quality and consistent accounting standards around the world. The SEC has of course played a leadership role in fostering this ideal and I remain committed to the goal of a global set of high-quality accounting standards. I also believe that there are issues that will be critical to address as we at the SEC consider the input we have received on last year’s proposed roadmap on the role of international standards in the U.S. It is with the principles and ideas I just outlined in mind that I am committed to focusing our efforts this fall to following up with a work plan that expands upon the concepts proposed in the roadmap.
The entire text of her speech is at: http://www.sec.gov/news/speech/2009/spch100809mls.htm
The SEC has put convergence of US GAAP and IFRS back on its agenda after months of silence and speculation about what the regulators would do about IFRS. SEC Chief Accountant James Kroeker said convergence of US Generally Accepted Accounting Principles and International Financial Reporting Standards is “going to be a priority of the staff over the coming weeks and months.”
Kroeker said the SEC would be turning its attention back to the proposed roadmap to International Financial Reporting Standards by the fall. In reviewing through the more than 200 comment letters that the SEC received, Kroeker noted that most of the comments agreed on the need for a single set of global high-quality accounting standards. “It’s like motherhood and apple pie,” he said. “How do you object to the idea that accounting standards in the U.S. be the same as globally?” The comments from there are divergent as to how and when the US should transition to IFRS. Most commenters were against the idea about adopting early without some sort of committment by the SEC on IFRS.
The Financial Accounting Standards Board and the International Accounting Standards Board have been working on converging their standards, but the boards have been challenged by the current economic situation and are behind in reaching convergence goals by 2011. Kroeker also commented that the SEC would continue to issue its own staff accounting bulletins to provide incremental guidance on standards, even with respect to IFRS. “If it’s in the interest of the protection of investors, absolutely we’re going to share our views,” he said.
The IASB issued IFRS for SMEs (small and medium-sized entities) in July 2009. Could IFRS for SMEs be right for your company? Is using two different standards to disclose the same transaction a good idea? Most of the world uses IFRS, so a very large number of small and medium-sized entities will be able to use a different set of standards from the larger counterparts – even for similar transactions.
IFRS for SMEs simplifies IFRS for the purpose of easing the financial reporting burden on private companies. The intent of IFRS for SMEs is to provide a simplified, cost-effective set of standards for smaller companies with general purpose financial statements. As a self-contained standard of about 230 pages it appears to deliver on its promise of simplifying financial reporting for small and medium sized entities.
IFRS for SMEs lists five types of simplifications from full IFRS. The simplifications are listed below.
- Some full IFRS topics are omitted because they are not relevant to most SMEs. The omitted topics include:
- Earnings per share
- Interim financial reporting
- Segment reporting
- Special accounting for assets held for sale
- IFRS for SMEs includes simplified reporting options, so some full IFRS accounting policy options are not allowed Examples of the omitted options include:
- Financial instrument options, including available‐for‐sale, held‐to‐maturity and fair value options
- The revaluation model for property, plant and equipment as well as intangible assets
- Proportionate consolidation for investments in jointly‐controlled entities
- Measurement is driven by circumstances for investment property rather than allowing an accounting policy choice between the cost and fair value models
- Various options for government grants.
- Many of the recognition and measurement principles that are in full IFRS are simplified in IFRS for SMEs. The simplifications include:
- Financial instruments:
- Financial instruments meeting certain criteria are measured at cost or amortized cost. All other financial instruments are measured at fair value through profit or loss.
- IFRS for SMEs utilizes a simplified principle for derecognition.
- Hedge accounting, including the detailed calculations, is simplified for SMEs.
- Goodwill and other indefinite‐life intangible assets are always amortized over their estimated useful lives or ten years if the useful life cannot be estimated reliably.
- Investments in associates and joint ventures can be measured at cost unless there is a published market price quotation.
- Research and development costs must be expensed as incurred.
- Borrowing costs must be expensed as incurred.
- Property, plant and equipment and intangible assets ‐ Residual value, useful life and depreciation method for items of property, plant and equipment, and amortization period/method for intangible assets, need to be reviewed only if there is an indication they may have changed since the most recent annual reporting date (full IFRSs require an annual review).
- Defined benefit plans:
- All past service cost must be recognized immediately in profit or loss.
- All actuarial gains and losses must be recognized immediately either in profit of loss or other comprehensive income.
- An entity is required to use the projected unit credit method to measure its defined benefit obligation and the related expense only if it is possible to do so without undue cost or effort.
- Income tax ― Requirements follow the approach set out in the Board’s ED Income Tax, published in March 2009, which proposes a simplified replacement for IAS 12 Income Taxes.
- No separate held‐for‐sale classification ― Instead, holding an asset (or group of assets) for sale is an impairment indicator.
- Biological assets ― the fair value through profit or loss model is required for biological assets only when fair value is readily determinable without undue cost or effort. Otherwise, SMEs follow the cost‐depreciation‐impairment model.
- Equity‐settled share‐based payment ― the directors’ best estimate of the fair value of the equity‐settled share‐based payment is used to measure the expense if observable market prices are not available.
- Financial instruments:
- Substantially fewer disclosures
- Simplified redrafting
To support the implementation of the IFRS for SMEs the IASC Foundation is developing comprehensive training material. The Foundation is also working with international development agencies to provide instructors for regional workshops to ‘train the trainers’ in the use of the training material, particularly within developing and emerging economies.
IASB publishes IFRS for SMEs IFRS for SMEs Fact Sheet IFRS for SMEs FAQs
IFRS for SMEs is intended to be used by Small and Medium sized Entities, which are entities that publish general purpose financial statements for external users and do not have public accountability. An entity has public accountability under the IASB’s definition if it files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; or it holds assets in a fiduciary capacity for a broad group of outsiders. Examples of entities that hold assets in a fiduciary capacity include banks, insurance companies, brokers and dealers in securities, pension funds and mutual funds. It is not the IASB’s intention to exclude entities that hold assets in a fiduciary capacity for reasons incidental to their primary business (for example, travel agents, schools and utilities) from utilizing IFRS for SMEs.
Practically speaking, IFRS for SMEs is not viewed as an accounting framework for entities that are not of the size nor have the resources to use full IFRS. In the United States, the term “SME” would encompass many private companies.
IFRS will eventually become the public financial reporting standard for the United States. The only question that’s unanswered is when will the United states convert. When we do convert to IFRS, what best practices should we utilize? Here are ten best practices for your consideration. Comment to this post with other best practices you think we should employ.
My Top 10:
Tone at the Top: When converting to IFRS it is essential that employees know that the conversion effort has the support and backing of the executive management team. Conversion teams need sponsorship and support. When conversion teams know that management supports their efforts, they are more confident to carry out difficult conversion tasks. Management needs to support the time and resources needed to complete conversion activities.
Utilize a disciplined project management methodology: The most successful large projects utilize a disciplined project management approach. The conversion to IFRS is a very large effort that will involve and affect many areas within an organization. Conversion teams need to be held accountable for assigned tasks. Roadblocks and conversion issues need to be actively managed. A disciplined project management approach will provide the needed accountability.
Understand your conversion timeline: Pick a conversion date then stick to it and prepare for it. Having a firm conversion date will encourage employee “buy in”. With the conversion date in mind, establish accountability dates and milestones to encourage progress during your conversion project. Hold conversion teams accountable for acheiving results on a timely basis.
Identify the areas other than financial reporting that will be affected: The conversion to IFRS is more than an accounting exercise. When a company changes to IFRS it certainly impacts the financial reporting numbers and disclosures, but there is much more involved. Debt covenants and financial agreements (and other legal agreements) are impacted. There are new amounts to track, report and disclose leading to processes being impacted. Information systems must evolve to allow for new processes and new financial reporting needs. Human resources must be involved due to the need to manage contractors and consultants that assist in the conversion. Tax differences will change due to all the actual financial amounts changing. There is much to do in an IFRS conversion!
Be effective with training: Training must be appropriately timed and at the appropriate depth. Training that is too early will be forgotten before use. Providing in-depth training to non-financial employees is not cost effective. Remember your students’ needs as you deliver rightly timed training at the right topical depth.
Communication: Communicate early, but not too early. Employees and external stakeholders need to know what’s going on with your IFRS conversion. Be direct so that your message will be clearly understood. Make sure your messages are properly timed and appropriately comprehensive. Manage the expectations, especially for external stakeholders.
Learn from European experiences: The Europeans have been through the IFRS conversion process. We would be wise to learn lesson from their experiences. What worked for the Europeans and what didn’t? What did they wish they had done differently? What are they doing now to improve their financial reporting processes that would have been more effectively done during the conversion to IFRS.
Benefit from IFRS Conversion: There are many opportunities to benefit from the conversion to IFRS. When all business units across the globe speak the same accounting language, accounting operations can be consolidated into one global shared service center. Under IFRS financial reporting becomes more transparent. When accounting standards are international, policies and procedures can be rationalized globally. Processes and internal controls can be standardized because everyone speaks the same financial reporting language. Worldwide competitiveness is improved since competitors already use IFRS. The cost of raising capital is reduced and every capital market is accessable. Take advantage of IFRS conversion opportunities.
Perform an Impact Assessment: Performing an impact assessment today will identify how your company will be impacted by IFRS in the future. Because each company is unique, each IFRS conversion will need to be unique. Knowing how your company is impacted will facilitate development of your IFRS project plan, establishment of your IFRS conversion timeline and early identification of key employees to involve in the conversion effort. Understanding how your company will be affected will enable you to tailor your conversion to your company’s needs. You can perform your impact assessment yourself or involve the talent and expertise of firms like Jefferson Wells to perform the impact assessment for you.
What IFRS Best Practices will you utilize?
Financial Reporting in the United States will be impacted by IFRS in the near term. This will occur through accounting standard convergence, impacts to international business transactions, the adoption of IFRS by counterparties and subsidiaries, the financial influence of IFRS on the consolidated results of multinational companies and ultimately the adoption of IFRS by the SEC. A transition from US GAAP to IFRS is like learning to speak a new language. Because such a transition has pervasive implications, most companies should be concerned with IFRS now.
Leading companies are beginning to employ the best practice of considering how IFRS may impact current decisions and transactions. As some companies consider long term contractual relationships, acquisitions, system implementations, tax planning and similar longer term arrangements, they are beginning to assess how the eventual adoption of IFRS may impact the outcome of their decisions. The eventual adoption of IFRS will impact many strategic and business issues and will require a significant amount of time and resources in the coming years. It is best to begin thinking how you should address IFRS today and in the future
Companies that begin to strategically address IFRS today, even in light of the today’s economic concerns and the possibility of a protracted IFRS adoption timeline, will be better positioned to take advantage of the benefits of moving to a single set of global financial reporting standards within their organizations. By moving to a single standard, companies will be able to migrate to a single global accounting platform, a single set of accounting policies and procedures, a consolidated global financial reporting office and similar efficiencies or cost savings initiatives.
A Strategic Approach to IFRS
Now is the time to develop a thoughtful, measured and strategic plan for maintaining IFRS awareness and strategically addressing IFRS transition considerations. If they have not done so, most companies should consider the following as they strategically address the IFRS impact on their organizations:
- Perform an IFRS business impact assessment to identify business, accounting, tax, systems, controls, workforce-and investor related issues
- Closely monitor US GAAP and IFRS convergence activities as well as IFRS regulatory actions
- Begin to consider the impact of IFRS on today’s business decisions, contractual commitments and financial transactions
- Control the timing and strategies used by non-US subsidiaries as they may be required to adopt IFRS earlier than the rest of the organization.
- Incorporate IFRS strategies into long term plans to make sure that IFRS is considered as the US moves gradually toward adoption.
- Consider some of the more complex transition issues that may involve significant time and effort to adopt. Plan now to address complex transition issues in a gradual and thoughtful way.
- Be alert for smaller transitions and easy wins that can build momentum and confidence as you move toward IFRS
Gain a competitive advantage by developing strategic IFRS adoption plans today that can make the most of IFRS related changes tomorrow.
The preliminary Roadmap to IFRS was issued by the SEC and commented on by accounting professionals, investors, academia and others. The SEC, who issued the Roadmap in the first place, is now led by a new chairman who seems more interested in enforcement than in a single set of high-quality global financial reporting standards. Economic concerns have taken center stage, which may lead to delays in the mandatory IFRS adoption date. Despite all of these concerns, I remain convinced that a US move to IFRS will still occur. My expectation is that the SEC will need to move forward with a revised Roadmap to IFRS later this year. It would not surprise me to see a delay in the mandatory adoption date. IFRS is coming. The issue is when will it be required, not if it will be required. How shall we prepare for IFRS’ eventual arrival while we wait for the SEC to make its move? Consider these ideas as you begin to prepare.
Stay Current on the IFRS and US GAAP Convergence: The US GAAP side of the convergence are the accounting standards we use now. We need to stay on top of the convergence because it will help us now and as we begin to transition to IFRS.
Keep up with Global Conversion to IFRS: Non-US subsidiaries are being impacted by IFRS. As more countries convert to IFRS, foreign pressure on US companies and US capital markets will continue to rise. Virtually every large country is currently utilizing IFRS or will be by 2011. Large multinational companies will need to deal with their non-US subsidiaries IFRS reporting requirements.
Stay IFRS Aware: As the transition to IFRS ramps up, stay engaged on learning about IFRS. Use this time to educate your staff and yourself about IFRS.
Perform an IFRS Impact Assessment: Perform an IFRS Impact Assessment to determine how the transition to IFRS will affect your company. You could also hire a third party with IFRS expertise, like Jefferson Wells, to perform the Impact Assessment for you.
Begin to Identify Key Employees who Could Participate in Transition Teams: The transition to IFRS will affect many areas of your company. The transition process is best handled by multiple teams with a central steering committee and a hands-on project manager. Many disciplines will be required for the most successful transitions.
Begin to Develop a Judgment Framework: A judgment framework will help guide decision making as Accounting Standards move from rules based to principles based.
Monitor Rule Making Activities: Someone in your company should monitor the activities of the SEC, the FASB and the IASB. By being aware of rule-making activities your company can be informed as you begin to plan your transition.
Learn from Early Adopters: Learn from the conversion experiences of Europe and Canada. What best practices were utilized? Which transition activities worked well and which didn’t work well? What transition areas were the most difficult? What areas require subject matter experts? Learning the answers to questions like these from the experiences of those who have successfully completed the transition to IFRS can yield great benefits for your transition effort
Network with Peers in your Industry and with IFRS Skills: Developing a network of peers will provide a community of ideas, successful strategies, unique skill sets, and resources from which to draw during your transition. Industry peers could play a key role in assisting each other in addressing transition topics specific to your industry.
Determine If and When to Outsource: Many companies will need to outsource. There are a number of skill sets required for a significant transition like the transition from US GAAP to IFRS. A few of the skill sets needed may include IFRS expertise, project management, change management, policy and process development, technology transition, tax expertise, legal document negotiation and the like. If your company does not have employees with these skills or cannot develop them in time to begin the transition process, outsourcing is a good way to acquire these skills. Outsourcing can also provide additional people resources when needed.
Begin to include IFRS in your Decision Making Process: As your company makes decisions, begin to include how those decisions would affect a transition to IFRS. For example, if a major acquisition or system implementation were planned, how would it affect the IFRS transition? What would the resulting financial statements look in IFRS? Including the IFRS impact on longer-term decisions is especially important.
Don’t do Too Much Too Early: If your transition date is December 31, 2016, you would be wise to avoid doing too much too early. For example, you wouldn’t want to spend significant time and money educating your staff on IFRS when you won’t be using those skills for a few years. The key is to make the right preparations at the right time so learnings are fresh and can be utilized to their fullest degree.
This post is the seventh of seven posts about progress on the IFRS Roadmap milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
The first four milestones are conditions precedent to the adoption of IFRS in the United States. The remaining three milestones pertain to the experience of adopting IFRS and how IFRS should be adopted in the United States.
Sequencing of companies required to use IFRS
In my view, the eventual adoption of IFRS in the United States is certain. What is not certain is when IFRS will be adopted here and whether IFRS adoption will be sequenced as proposed in the SEC’s preliminary IFRS Roadmap or adopted all at once using a “big bang” approach. I expect the SEC’s new leadership to shed some light on its views later this year when a revised roadmap is likely to be issued. It would not surprise me if they elected to defer mandatory adoption a couple of years due to current economic pressures. This seventh roadmap milestone involves the SEC’s decision on whether, when and how to sequence the adoption of IFRS.
The SEC proposed its IFRS Roadmap on November 14, 2008 and the comment period for the proposed Roadmap ended April 20, 2009. Under the proposed Roadmap, the SEC envisioned a sequenced approach to adoption pursuant to which a limited number of US filers would be permitted at their option to adopt IFRS early beginning for fiscal periods ending after December 15, 2009. The mandatory adoption of IFRS would follow with large accelerated filers implementing IFRS for fiscal years ending on or after December 15, 2014, accelerated filers implementing IFRS for years ending on or after December 15, 2015, and non-accelerated filers implementing IFRS for years ending on or after December 15, 2016. This timetable is thought to allow filers time to implement IFRS books, records and internal accounting controls for the fiscal year end reporting periods from 2012 to 2014 for large accelerated filers, 2013 to 2015 for accelerated filers, and 2014 to 2016 for non-accelerated filers.
The staged approach is based on the premise that larger SEC filers would be better able to allocate resources to the IFRS transition more quickly than smaller filers. By staging or sequencing IFRS adoption, the SEC would also allow later adopters the ability to learn from the adoption experiences of larger filers. In addition, a staged transition may also help manage resource demands on consultants and other market participants.
While sequenced adoption of IFRS permits some transition cost avoidance, sequencing would result in non-comparability of financial information due to application of the IFRS transition provisions at differing dates. Staging the transition would temporarily create a two GAAP system in the United States for at least three years. Further, it would require investors to be familiar with IFRS and U.S. GAAP as well as how each affects the financial statements of target companies when comparing investment alternatives.
The SEC’s desire to “ratify” its Roadmap as late as 2011 is contingent on achieving satisfactory results with respect to each of the seven roadmap milestones. Ratifying the roadmap timetable as late as 2011 limits the amount of clarity that IFRS adopters have when choosing whether to adopt IFRS early beginning in 2009. This is likely to reduce early adoption of IFRS due to roadmap uncertainty. In addition, approving the Roadmap in 2011 allows very little time to plan for an orderly and efficient transition to capturing IFRS accounting information beginning in the periods 2012 to 2014 for large accelerated filers.
With the current roadmap uncertainty, what should you do now to prepare for the eventual adoption of IFRS by your company?
This post is the sixth in a series of posts about progress on the IFRS Roadmap milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
The first four milestones are conditions precedent to the adoption of IFRS in the United States. The remaining three milestones are definitely influential to the ultimate decision to adopt IFRS but seem to be less prominent. These milestones pertain to the experience of adopting IFRS and how IFRS should be adopted in the United States.
Timing of future rulemaking
The SEC decision on when to migrate to IFRS has been the topic of much speculation. Under former Chairman Cox, the SEC was a strong advocate of moving to IFRS. During his term the mandatory reconciliation to U.S. GAAP for foreign private issuers was eliminated for those who file with the SEC using IFRS as issued by the IASB. In addition, the commissioners voted to issue a draft Roadmap to IFRS (“Roadmap”) for public comment. The Roadmap envisions migrating to IFRS beginning in 2014 with some companies eligible to adopt early for fiscal period ending after December 15, 2009.
The tone at the SEC appears to have changed under the leadership of Chairman Schapiro. Schapiro commented about IFRS during her senate confirmation hearing by mentioning her concerns regarding the roadmap. “I will take a deep breath and look at this entire area again carefully and I will not necessarily feel bound by the existing roadmap that is out for public comment,” Schapiro declared, adding “I will proceed with great caution so we don’t have a race to the bottom,”. During her confirmation hearing Schapiro made her views clear when she said, “the cost to switch from U.S. GAAP to IFRS is going to be extraordinary” and “we have to think carefully about whether imposing those sorts of costs on U.S. industry really makes sense.”
When the SEC issued its draft Roadmap for public comment, they predicated the transition to IFRS upon seven milestones. Based on the progress made on these milestones, one of which considers the timing of future IFRS rulemaking, a decision would be made about when to transition by 2011. The SEC is hoping to analyze the results of early adopter experiences (see last post). A favorable outcome on early adopter experiences would be a harbinger for earlier (“on-time”2014 adoption) adoption of IFRS and unfavorable experiences would point toward a delay in adoption.
There are risks to adopting IFRS and to not adopting IFRS. The risks of adopting IFRS are relatively intuitive such as cost of adoption, adoption error or omission risk, risk of limited or no ROI on adoption, lack of expertise risk and so on. What is less intuitive is the risk of not adopting IFRS. Some of these risks include lack of access to global capital markets, lack of comparability with international competitors, lack of cost reduction through international efficiencies (elimination of multiple GAAPs, multiple accounting policies, multiple accounting applications, and the like).
Most people agree that having a single global accounting and reporting standard would be a very good thing. With about 120 countries using IFRS and one country using U.S. GAAP, it is clear that there is only one way a global accounting standard will be achieved is if the U.S. adopts IFRS. By 2011 we will be the only major nation in the world not using IFRS. It seems clear that U.S. adoption of IFRS is ultimately inevitable.
I am expecting the SEC to issue a revised Roadmap to IFRS later this year. It would not surprise me if the commissioners delayed adoption a couple of years. We will learn what their thinking is about the timing of future rulemaking then.
Will you be ready to adopt IFRS? How will IFRS affect your company?
This post is the fifth in a series of posts about progress on the IFRS Roadmap milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
The first four milestones are conditions precedent to the adoption of IFRS in the United States. The remaining three milestones are definitely influential to the ultimate decision to adopt IFRS but seem to be less prominent. These milestones pertain to the experience of adopting IFRS and how IFRS should be adopted in the United States.
Evaluating the early adoption experiences of a limited group of companies
The fifth IFRS milestone involves the SEC’s evaluation of the IFRS adoption experiences of companies that elect to adopt IFRS early. The SEC has set forth rules that would allow some companies to adopt IFRS as early as fiscal years ending after December 15, 2009. To adopt early, a company would need to meet both of the following criteria:
- IFRS would have to be the most-often-used set of standards by the 20 largest companies in an entity’s industry
- The entity must be among the largest 20 public companies by market capitalization in its industry. Industries are defined by a company’s two digit SIC code.
The SEC’s has a method for determining eligibility and a process for requesting a letter of no-objection to file using IFRS (as published by the IASB). Qualifying companies would be permitted to file financial statements based on IFRS for fiscal years ending after December 15, 2009
Whether the early adoption experience is positive or negative, it may influence the decision to mandate the use of IFRS for U.S. companies. Of greater concern is how many eligible companies will choose to adopt IFRS early. The nature of the IFRS Roadmap is that the decision whether to adopt is subject to the SEC’s “go”/“no-go” vote to be taken by 2011. In the public meeting where the SEC commissioners voted to approve the IFRS Roadmap, one of the commissioners stated that staying with U.S. GAAP had to “on the table” when the SEC votes whether to adopt IFRS. If a company early adopts IFRS the commissioner anticipated that they would need to be able to return to U.S. GAAP if necessary, an obvious disincentive to early adoption.
Yet there may be advantages to early adoption. Global companies could reap significant cost reductions from using one accounting standard in all of their locations throughout the world. Companies may want to adopt early, despite the risks for one or more of the following reasons
- Implementation of a truly global finance function
- Beginning to implement streamlined global processes and procedures
- The ability to comparable financial results across the organization globally
- Development of common technology platforms and applications
- Sharing resources globally across the organization
- Better comparability to competitors that use IFRS
- A significant amount of revenue or operations operating in countries that require IFRS
There could be other benefits as well including improved financial results from the change in to principles based accounting standards, improved access to global capital markets, streamlined M&A activities, streamlined audits, simplified global tax planning, etc.
Are you ready to adopt IFRS…early?
This post is the fourth in a series of posts about progress on the IFRS Roadmap milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
Updating the education of U.S. Accountants
University professors are beginning to analyze global accounting convergence and the potential adoption of IFRS by the United States. One such abstract is located here. A few IFRS textbooks are also becoming available including “IFRS 2008: Interpretation and Application of International Accounting and Financial Reporting Standards 2008” by Barry J. Epstein and Eva K. Jermakowicz and “Applying International Accounting Standards” by Keith Alfredson, Ken Leo, Ruth Picker, Paul Pacter and Jennie Radford.
Universities are beginning to prepare for inclusion of IFRS in their accounting curricula. Students are also beginning to realize that they will need to learn more about IFRS because it will be important in the future, even though it adds significantly to their curriculum.
In February 2009, a major CPA firm announced the awarding of $700,000 in grants to 26 colleges and universities to accelerate the preparedness of U.S. accounting students for eventual adoption of IFRS. Major CPA firms are also making a significant amount of information on IFRS available in the form of online materials and free webcasts.
Updating the licensing of U.S. accountants
In 2008, the AICPA issued an Exposure Draft that proposed inclusion of IFRS in the uniform CPA exam. The Exposure Draft proposed that the IFRS conceptual framework be tested and that additional testing of international standards occur if IFRS becomes generally accepted in the United States (the comment period has ended). The exposure draft proposing inclusion of IFRS in the CPA exam and comments to the exposure draft are available at http://www.cpa-exam.org/cpa/exposure_draft.html. The proposed content and skill specifications may be found there as well.
“The CPA Examination tests the knowledge and skills that are relevant for entry-level CPAs. In doing so, the public is protected,” said Craig Mills, executive director of Examinations for the AICPA. “That’s why the AICPA Board of Examiners, which oversees the exam, is already assessing strategies to incorporate IFRS into the exam.” Coverage of IFRS on the Exam is expected by the year 2012, but possibly sooner.
The AICPA published a request for volunteers to develop question on IFRS for the uniform CPA Exam. Volunteers will participate in a two-day workshop on preparing multiple-choice questions facilitated by AICPA test development experts. Additional development workshops will be organized throughout 2009 and 2010 (dates and locations to be arranged). A short presentation before each workshop will provide an overview of the CPA Exam and instruction on the multiple choice question development process. Applicants may send a resume or curriculum vitae to rwarias@aicpa.org
This is week three of reviewing progress on the IFRS Roadman milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
Facilitating the use of interactive data (XBRL) under IFRS
Early this year the International Accounting Standards Committee Foundation (IASC Foundation) released the 2009 IFRS Taxonomy for comment. The comment period ended March 24. Development and approval of an IFRS Taxonomy is essential to being able to utilize XBRL for IFRS reporting. Taxonomies describe in detail the contextual information related to data tags used to describe and report business information.
The IASC Foundation also published an IFRS Taxonomy Module Manager with viewer functionality and an IFRS tool for use in open code environments (like Java, Groovy and Google Web Toolkit). XBRL is an open standard standard that is used to store and transport business information.
It is clear that the IASC Foundation is trying to facilitate the use of XBRL for IFRS reporting. Having issued a draft 2009 IFRS Taxonomy as well as a Taxomony Manager, IFRS tool and XBRL viewer for IFRS, the initial steps toward achieving the SEC’s third milestone are obviously underway. The IASC foundation is beginning to enable XBRL use for IFRS reporting.
We are in week two of reviewing progress on the IFRS Roadman milestones. As a reminder, here is a list of the Milestones. The SEC will judge progress on these milestones as a pre-requisite for moving forward with a mandate for IFRS adoption.
IFRS Roadmap Milestones
- Improving Specific Accounting Standards
- Improving the Structure and Funding of the IASB
- Facilitating the use of interactive data (XBRL) under IFRS
- Updating the Education and licensing of U.S. Accountants
- Evaluating the early adoption experiences of a limited group of companies
- Timing of future rulemaking
- Sequencing of companies required to use IFRS
Our topic this week is progress on improving the structure and funding of the IASB. The International Accounting Standards Board (IASB) is trying to improve its structure and funding. To date they have made progress, but still need to continue to work on establishing a structure and funding approach that global securities regulators will support. The most significant area left to be addressed is funding. Here is a summary of the progress made by the IASB.
- The IASC Foundation governs the IASB and consists of 22 Trustees (six each from North America, Asia/Oceana and EU coupled with four Trustees from any region)
- Phase 1 of IASC constitutional modifications were recently announced. The constitutional changes were made in an attempt to address recommendations made by the G-20 in their November 2008 financial crisis summit meeting
- An IFRS Oversight Board was established. Members consist primarily of Securities Regulators (representatives from the SEC, the European Commission, the Japan Financial Services Agency, and the Emerging Markets & Technical Committees of the International Organization of Securities Commissions)
