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IFRS Roadmap Milestones: Part 5

June 28, 2009

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?

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