IFRS_ by gabyion

VIEWS: 265 PAGES: 37

What is IFRS

   International Financial Reporting
Who Establishes IFRS?

   International Accounting Standards
    Board (IASB)
Why Do We Care?
   Use of IFRS is widespread
   More than 15,000 companies listed overseas
    use IFRS
   In 2011, India and Canada, among others,
    will convert their financial reporting systems
    to IFRS
   This will add at least 12,000 additional
    companies to the list of companies reporting
    under IFRS
   In the past, companies who wished to list
    securities in the US had to reconcile their
    financial statements to show the nature and
    cause of differences in earnings based on
    their reporting standards and US GAAP on a
    Form 20-F
   As of 2007, the SEC removed this restriction
    for companies using IFRS and now allows
    foreign registrations to use IFRS without
   The SEC is in the process of publishing
    a proposed roadmap (more on this
    later) that is moving toward allowing
    or requiring U.S. companies to use
   This could mean that U.S. GAAP is no
    longer used…and we are talking about
    a timeframe from 2009 – 2016..
   The FASB, SEC, AICPA, and the Big-4 Accounting
    firms (KPMG, PWC, Deloitte Touche, and E&Y) all
    favor the adoption of a set of high quality
    international reporting standards, and the
    consensus is growing that IFRS will be that
   “The AICPA supports one set of high-quality global
    accounting standards for public companies,” said
    Barry Melancon, AICPA president and CEO. “We
    believe the capital markets ultimately will insist on
    IFRS for public companies. Today‟s action by the
    SEC continues a robust and thoughtful debate that
    is critical as the transition occurs.”
Why Global Accounting
   Enhanced worldwide comparability
    for investors
   Enhanced quality of reporting
    – Some national GAAPs are week
   Possibly a lower cost of capital
   More company-friendly US securities
    market for foreign listings
   Reduced reporting costs
   No need to develop and maintain
    national standards
   For audit firms and companies:
    – Easier movement of auditors and
      accountants across borders

   The International Accounting
    Standards Committee was founded in
    1973. At that time, it was composed
    of volunteers who met three times a
    year. They issued statements called
    International Accounting Standards
    (IASs); they issued 41 such standards.
   As the demand grew for international
    reporting standards, IOSCO (The
    International Organization of Securities
    Commissions, of which the U.S. SEC is a
    member) issued a mandate that the IASC
    develop a core set of standards, and
    determined that if they were successful, the
    SECs of member countries would consider
    pursing international standards for their
   To meet this mandate, it was
    necessary to restructure the IASC
   In 2001, the first restructuring
    – Full time IASB based in London
    – 14 members
    – Issue IFRS (old IASs remain in force
      unless superseded or revised)
   For domestic LISTEC companies
   IFRS required for all:       85
   IFRS required for some:       4
   IFRS permitted               24
   IFRS are used by UNLISTED
    companies in over 80 jurisdictions
   EU, EAA, and Switzerland
   IFRS is used by all listed entitites (about
    8,000) in consolidated statements.
   In the EU, IFRS must be “endorsed” by the
   One modification with respect to reporting
    on derivatives (IAS 39) so the audit report
    reads “IFRSs a adopted by the EU”
   The modification affects just a few
    companies (less than 100)
   The endorsement mechanism in the
    EU results in time lags.
   (NOTE: The SEC only accepts IFRS as
    published in English by the IASB for
    U.S. filings without reconciliation)
   Nearly word-for word convergence:
    Australia, New Zealand, Hong Kong
   Modifications, time lags, some not adopted:
    Singapore, Thailand, Malaysia, Philippines,
   Own standards: Japan (convergence
    program in place), Taiwain
   2011 adoption of IFRS planned: India,
North American

   Canada, planned conversion to IFRS in
   USA
    Permitted for foreign SEC registrants
    since March 2009
    Proposed roadmap for US adoption
Latin America/Caribbean

   IFRS required in Brazil by 2010 for all
    listed companies, banks
   IFRS phased in from 2009-2011 in
    Chili and over a dozen smaller
Middle East and Africa

   Many countries require IFRS, although
    there are often country-specific
Financial Reporting
   US – strong enforcement by SEC
   Long traditionof strict, detailed
    accounting standards
   Publication of audited financial
    statements by publicly traded
Many other countries

   Strong company laws with moderate
    to weak enforcement by regulators
   Less litigation
   Diverse auditing cultures
   Private as well as public companies
    must often publish financial
    statements, often audited

   Public sector has long accepted private
    sector accounting standards

   Public sector is suspicious of private-
    sector accounting standards,
    questioning if they are in the public
   Its ever-lengthening endorsement
    process detracts from worldwide
   IFRS as adopted by the EU may
    foreshadow further deviations from
   Most countries converge national
    GAAP with IFRS.
   Some adopt IFRS as published by the
   IFRS is becoming more rules-based
    (1,200 pages in 2000; 2,700 pages in

   IFRS: Principles-based standards with
    limited application guidance

   US: Rules-based standards with
    specific application guidance
Some Differences

   Measuring Goodwill
   Disclosure of segment liabilities
   Basis for consolidation
   LIFO
   Deferred tax assets
   Revaluation of PP&E and quoted intangibles
    through equity
   Development costs
   Gains on sale and leaseback
   Investments in real estate
   Agricultural assets
   Actuarial gains and losses
   Vested past service cost
   Joint ventures
   Measuring impairment
   Reversals of write-downs
SEC to Propose Roadmap for
Potential Mandatory IFRS
   On August 27, 2008, the SEC decided
    to issue a proposed IFRS Roadmap.
   The SEC proposed specific rule
    changes that would permit the use of
    IRFS for certain U.S. issuers.
   The Roadmap proposal will be
    published in the Federal Register
    within 60 days.
   The proposal acknowledges that IFRSs have
    the potential to become the global set of
    accounting standards
   A timetable for adoption in the U.S. is
   Assuming certain milestones are achieved,
    the SEC is considering a mandatory
    transition to IFRSs starting in 2014.
   The proposed roadmap would commit
    the SEC staff to monitor the progress
    toward achieving milestones.
   IF, in 2011, the SEC deems there has
    been adequate progress toward
    achieving the milestones, they would
    consider adopting final rules requiring
    U.S. public companies to use IFRS.
   The proposed roadmap includes a
    potential phased transition over three
    years beginning with large accelerated
    filers in 2014, followed by accelerated
    filers in 2015, and concluding with
    non-accelerated filers in 2016.
   IFRS continued improvement. IFRS would be
    improved largely through continued efforts b the
    IASB and the FASB to converge IFRS and U.S.
   Funding and accountability of the International
    Accounting Standards Committee Foundation.
    Accountability would be strengthened by
    establishing a “monitoring group‟ and its funding
    process would be stabilized by basing int on shared
    obligations undertaken by jurisdictions using IFRS.
   Improvement in the ability to use interactive
    date (e.g., XBRL) for IFRS reporting. That
    is, the technical capability to communicate
    financial information in the XBRL computer
    language based on the coding terms
    specified in a „taxonomy‟ would have to be
   Education and training in IFRS in the United
   Limited early use by eligible entities. This
    milestone would give certain U.S. issuers
    the option of using IFRS for fiscal years
    ending on or after December 15, 2009.
    – A majority of peer-group companies report using
      IFRS as issued by the IASB
    – The U.S. company is one of the top 20 peer
      group companies
    – (potentially more than 110 companies
      representing approximately 14% of total U.S.
      market capitalization.)
   On the basis of the progress toward
    meeting milestones 1-4, and the
    experience gained from milestone 5,
    the SEC will determine in 2011
    whether to require mandatory
    adoptoin of IFRS for all U.S. issuers.
    If so, the SEC will determine the date
    and approach for a mandatory
    transition to IFRS.

   http://www.iasplus.com/index.htm
   http://www.iasplus.com/resource/080

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