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International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. What is the IASB? The IASB is an independent accounting standard-setting body, based in London. It consists of 14 members from nine countries, including the United States. The IASB began operations in 2001 when it succeeded the International Accounting Standards Committee. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world. While the AICPA was a founding member of the International Accounting Standards Committee, the IASB's predecessor organization, it is not affiliated with the IASB. How widespread is the adoption of IFRS around the world? More than 12,000 companies in approximately 113 nations have adopted IFRS, including listed companies in the European Union. Other countries, including Canada and India, are expected to transition to IFRS by 2011. Mexico plans to adopt IFRS for all listed companies starting in 2012. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. Japan has introduced a roadmap for adoption that it will decide on in 2012 (with adoption planned for 2016). Still other countries have plans to converge (eliminate significant differences) their national standards with IFRS.
What is the possibility of the Securities and Exchange Commission substituting IFRS for GAAP? Many people believe that acceptance of IFRS in the United
the financial regulatory reform proposals President Obama released on June 17 called for accounting-standard setters to make substantial progress toward development of a single set of high-quality global accounting standards by the end of 2009. Companies may also benefit by using IFRS if they wish to raise capital abroad. What are the advantages of converting to IFRS? 6. Further. the SEC issued for public comment a roadmap that proposes a staged transition for mandatory adoption of IFRS by U. public companies. 5. many people also believe that U. a business can present its financial statements on the same basis as its foreign competitors. What could be the disadvantages of converting to IFRS? Despite a general consensus of the inevitability of the global acceptance of IFRS. 2008. appointed by President Obama. making comparisons easier. or if they have a foreign investor that must use IFRS. They may . Furthermore.States by the SEC for public companies are inevitable.S.S. the SEC has been expressing its support for a core set of accounting standards that could serve as a framework for financial reporting in cross-border offerings. On November 14. While new SEC Chairwoman Mary Schapiro. For many years. By adopting IFRS. and that something will be lost with full acceptance of IFRS. has indicated she is not necessarily committed to the roadmap issued under her predecessor (Christopher Cox).S. and has supported efforts of the Financial Accounting Standards Board (FASB) and the IASB to develop a common set of highquality global standards. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS. GAAP is the gold standard. companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. certain U. issuers without significant customers or operations outside the United States may resist IFRS because they may not have a market incentive to prepare IFRS financial statements.
have started using IFRS for their foreign subsidiaries where allowed by local law. Also.S. More convergence will make adoption easier and less costly and may even make adoption of IFRS unnecessary. Convergence means that the U. FASB and the IASB would continue working together to develop high quality.S. Who are the key players in the United States regarding the development and adoption of IFRS? The key players are the Securities and Exchange Commission.S. some U. believe that convergence alone will never eliminate all of the differences between the two sets of standards. public companies to adopt IFRS. which is working with the FASB on the convergence of GAAP and IFRS. 9. GAAP. however. however. What is the difference between convergence and adoption? Adoption would mean that the SEC sets a specific timetable when publicly listed companies would be required to use IFRS as issued by the IASB. 8. Supporters of adoption. the Financial Accounting Standards Board.S. compatible accounting standards over time. GAAP.S. an independent body that establishes and interprets U. such as Procter & Gamble. . which is responsible for the supervision and regulation of the securities industry. Have any major U. they must continue to prepare their financial statements under U. Several large multinational corporations. the AICPA has provided thought leadership to the IASB and the FASB on financial reporting topics.S.7. subsidiaries of foreign-owned companies are also using IFRS. and the IASB. believe that the significant costs associated with adopting IFRS outweigh the benefits. Through its Accounting Standards Executive Committee. companies begun transitioning to IFRS? Until the Securities and Exchange Commission issues a rule allowing or requiring U.
For example: IFRS does not permit Last In. What are some of the most important specific differences between IFRS and U. to the tracking of stock-based compensation. What other areas of the profession will IFRS affect? As IFRS grows in acceptance. IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date. Probably the best evidence of how much less detail IFRS contains is that IFRS fits into one book. such as actuaries and valuation 10. from information technology systems. Is the possible conversion to IFRS from U. most CPAs. for example. .000 pages of detailed rules and guidance. First Out (LIFO).When comparing IFRS and GAAP. It will affect many aspects of a U. what are some overall key differences I should be aware of? The biggest difference between U.S. U. 11. IFRS also contains relatively little industry-specific instructions. GAAP solely a financial reporting issue? Most CPAs will be affected to some extent because this is an issue that will have an impact far beyond just financial reports. 12. GAAP contains approximately 17. GAAP.S.S. financial statement preparers and auditors will have to become knowledgeable about the new rules. about two inches thick. Others.S. GAAP? Because of longstanding convergence projects between the IASB and the FASB. By contrast. is significantly less extensive than GAAP. Yet significant differences do remain. IFRS has a different probability threshold and measurement objective for contingencies. IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U. making write-downs more likely. GAAP and IFRS is that IFRS provides much less overall detail. depending on a company's industry and individual facts and circumstances. company's operations. 13. to tax reporting requirements. Its guidance regarding revenue recognition.S.S. most any one of which can result in significantly different reported results. the extent of the specific differences between IFRS and GAAP has been shrinking.
S. or another country's GAAP. publications. company would incur costs of between 0. U. Keep abreast of SEC developments regarding IFRS and its potential adoption by U. public companies. testing. publicly traded companies to the global standards. 14. or even mandatory.S. and of the various efforts to allow nonpublic companies to use IFRS as well. Professional associations and industry groups will be integrating IFRS into their training materials.S. . and colleges and universities will be including IFRS in their curricula. adoption of IFRS by all U. 15. be aware that the way financial statements are prepared differs based on whether a company is using IFRS. the Securities and Exchange Commission predicted that the largest U. GAAP.13% of revenue. staff training and implementing IT support could be significant. What are the likely costs of converting to IFRS? The costs would be determined largely by the size and nature of the respective company. While the initial cost to identify and quantify the differences between U.S.S. GAAP and IFRS. GAAP.S. Some textbooks are already covering IFRS.S.experts who are engaged by management to assist in measuring certain assets and liabilities. Also. registrants that adopt IFRS early would incur about $32 million per company in additional costs for their first IFRS-prepared annual reports. In its proposed roadmap to move all U. and certification programs. and that the average U. What should I do now? The bottom line is that CPAs need to begin to prepare for the day in the not-so-distant future when the Securities and Exchange Commission could designate a date for voluntary.S. New textbooks covering IFRS are currently being written and should be in circulation in the reasonably near future. the conversion also could result in an ultimate reduction of costs for capital and financial reporting related to operations. companies.125% to 0. primarily in a comparative presentation to their instructions on U. are not currently taught IFRS and will have to undertake comprehensive training.
Coverage of IFRS on the exam will begin by 2012. will private companies and not-for-profit organizations be required to adopt IFRS? The simple answer is no. private companies and not-for-profit organizations the choice whether to follow IFRS. such as the formation of independent audit committees. Workshops are being held this year and next to develop IFRS questions for the exam. Comment letters showed support for such a move. but possibly sooner. 18. The AICPA Board of Examiners in May 2008 released an exposure draft regarding content for the CPA Exam and inquired about adding IFRS. many privately held companies adopted provisions of the Sarbanes-Oxley Act. That said. yet allow users of those entities' financial statements to assess financial position. even if they are not mandated to do so.S. That removed a potential barrier and gives U. 19.S. IFRS for Small and Medium Entities was released on July 9. What might make some private companies or non-profit organizations in the United States adopt IFRS? The eventual adoption of IFRS by small businesses and notfor-profit organizations is likely to be market driven. . Many might take similar action regarding IFRS. and performance. 17. If the United States mandates IFRS for publicly traded companies. Will IFRS be incorporated into the Uniform CPA Exam? Yes. adoption of IFRS has been for U. The IASB has developed a version of IFRS for small and medium-size entities that would minimize complexity and reduce the cost of financial statement preparation. or even mandatory. public companies only.16. What actions are being taken that could allow private companies to follow IFRS? The AICPA's governing Council in May 2008 approved amending Rules 202 and 203 of the Code of Professional Conduct to recognize the IASB as an international accounting standard setter. 2009. cash flows. All the discussion thus far about the possibility of the Securities and Exchange Commission designating a future date for voluntary.
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