IFRS vs.

US GAAP
Anthony P. Pencek, CPA IMA NERC-Mystic, CT September 20, 2010

Accountant¶s Cartoon

Acrobat Document

International Financial Reporting Standards (IFRS) vs. US Generally Accepted Accounting Standards (GAAP)
What does it mean for you?

Convergence!!!!
Dictionary Definition: Convergence means ³to tend or move toward a common point or result.´ Goal± Comparability and Consistency

Common Traits of Both IFRS and GAAP
‡ Rules or guidelines issued to assist in preparing and issuing financial statements for use by the Regulatory Bodies, Investors and Other interested parties. Analogy of. ‡ Both are issued by a consensus of educated and expert individuals in accounting who are appointed to a Board. Hold hearings, comments from auditors, users are welcomed. ‡ International Accounting Standards Board (IASB) vs. Financial Accounting Standard Board (FASB)

Why So Much Press on IFRS? ‡ Hottest Topic in Accounting. its going to elsewhere like London. Why? ‡ Global Economy Demands It. ± Foreign Purchase and/or Ownership of US Companies ‡ Recent---Anheuser-Busch Companies By InBev . Hong Kong and Dubai.Urgency!!! ± Economy Growth Stimulus ‡ Survey by International Federation of Accountants (IFAC) ± Financial Capital Markets are changing ‡ NYC is not the Financial Capital of the World. etc.

± Wiley Publishing now puts out a yearly IFRS book similar to the GAAP and GAAS books.Why So Much Press on IFRS? (Continued) ‡ Need for comparability of information on public companies around the world ± US companies use US GAAP while foreign companies use IFRS. Analysts using which one? ± Sarbanes-Oxley Act of 2002 is presenting a competitive disadvantage to US Companies in the global financial Markets. .

9% ‡ Not Important ± 1% ‡ Website to get the survey. http://www.IFAC Survey Results on Economic Growth with IFRS Adaptation ‡ Very Important to Economic Growth.org/globalsurvey .55% ‡ Important to Economic Growth ± 35% ‡ Somewhat Important to Economic Growth .ifac.

Paris.000 companies in almost 110 countries have adapted IFRS. European Union (EU) began to require the IFRS on its members states whose securities are listed on the EU ± regulated stock exchange. etc. . (London. ‡ 2005.) to prepare its financial statements.Who is using IFRS today? ‡ 12.

in Russia and many Caribbean Nations countries have moved to IFRS. Singapore and New Zealand  Commonly 2011. it is expected that all major countries will have adopted IFRS to some extent  China and Japan will be substantially converged to IFRS  Substantial majority of Global Fortune 500 will report under IFRS  Others recently announced implementation programs. South Africa. including Australia. such as Canada. Korea and Israel  Approximately  Many 1/3 of US Foreign Private Issuers are in Canada major NON-US Capital Markets are impacted  All .History of IASB and IFRS TODAY  Over TOMORROW  By 100 countries around the world require or permit the use of some form of IFRS the EU for all listed companies in  Mandatory  Permitted for non-listed companies in some member states used in Central and Eastern Europe.

Who is using IFRS today? (Continued) ‡ Australia. . ‡ Canada. who had previously planned convergence with US GAAP. ‡ India will be using the IFRS for 2009. New Zealand and Israel have almost completely accepted IFRS as their national standards. ‡ Japan¶s Accounting Standards Board has planned convergence with IFRS by 2011. ‡ More countries are looking into adapting. now has plans to require IFRS for publicly accountable entities in 2011.

What is the United State status on adoption? See Next Slides .

but When.When will IFRS standards be required or not? ‡ The question is not ³if the IFRS standard will be required to be used. ‡ FASB is now stating that any new standard being proposed will be close to IFRS standards.´ ‡ Time line given for full adaptation is year 2015. . (See earlier slide of timeline) What is going to happen with the new administration? Madoff situation had an effect on compliance. but more than likely sooner.

people. systems.Potential Implementation Based Timeline on 2015 implementation date Continued IFRS/US GAAP convergence milestones must be met by 2011 2010 ‡Put team together ‡Train ‡Keep track of convergence 2011 ‡Impact analysis ‡Create formal plan 2011-2014 ‡Fill SME gaps ‡Impact on processes/IC ‡Develop communicati on plan 2011-2014 2015 ‡Choose IFRS 1 options ‡Make policy choices ‡Restate /reaudit ‡Issue financial statements Train/monitor progress: Numbers. processes Based on SEC proposal to begin IFRS for large accelerated filers in 2014 Proprietary & Confidential Trade Secret Protected .

allowing US issuers theto US to use IFRS requirement for reconciliation option GAAP Concept Release to FPI s using IFRS as adopted by IASB Approved proposal to eliminate the reconciliation to US GAAP for foreign filers.Momentum to Adopt IFRS in the US April 2005 SEC Chief Accountant article regarding progress on P reconciliation for foreign filers convergence Roundtable discussions held on the impact of IFRS on US Capital Market ± SEC holds roundtablesfor elimination of the reconciliation overwhelming support discussions Summer 2007 November 2007 SEC eliminates the issued for comment. SEC issues initial roadmap effective immediately August 2008 February 2010 Propose adoption in US New SEC reinforces roadmap .

FASB and the SEC ‡ SEC began preliminary talk about an international standard core way back in 1988 to be integrated with GAAP. ‡ In 2008.History of IFRS. SEC Chairman Cox issued a statement that use of IFRS for reporting purpose requirements in the US would be accepted and no need to reconcile the financials to US GAAP. ‡ FASB signed Norwalk Agreement with IASB in 2002 and updated in 2008 to move IFRS adaptation faster. .

There are 41 IAS and eight IFRS standards published. and does not include all the authoritative literature. ‡ Principles are used for IFRS ‡ Rules and/or Interpretations are used in GAAP . FASB standards has over 170 issued. ‡ US GAAP is in three books about nine inches thick.Some Major Differences between US GAAP and IFRS ‡ IFRS standards published is only one book about two inches thick.

Write Up of Intangibles Possible. ± Impairment of Write downs to Net Realizable Value is a single step process for IFRS while US GAAP uses a two step process. FIFO must be used for inventory costing method. Making the write down more easily. costs of drugs in Canada. ‡ Reasonable estimate.Some Major Differences between US GAAP and IFRS (Continued) ‡ Specific differences ± LIFO does not exist in IFRS standards. . ‡ Article in Strategic Finance ±July 2009 ± Research & Development costs get capitalized. impairment has occurred.

Some Major Differences between US GAAP and IFRS (Continued) ‡ Contingencies have a different probability threshold and measurement objective.e. GAAP ‡ No specific industry instruction or guidance. ‡ After year curing of debt covenant violations is not allowed. i. Percent of Completion and Completed contract on Long term construction projects. . ‡ Revenue recognition is less extensive in IFRS vs.

Some Major Differences between US GAAP and IFRS (Continued) ‡ Indirect Method of Statement of Cash Flows vs. Direct Method ± Major difference is the Operating Activities -Direct Method has Cash Receipts from customers and Cash paid to suppliers and employees ‡ Indirect method has differences between non cash current assets and current liabilities and starts with net income or loss ‡ Direct Method must be used in IFRS .

‡ Direct Method has Income Taxes paid could be shown on either the Operating.Some Major Differences between US GAAP and IFRS (Continued) ± Also on the Cash Flow statement ‡ Direct Method use Dividends received on investments may be put under Operating Activities ‡ Indirect Method uses the non cash expenses like depreciation and amortization within the Operating Activities. Financing or Investing Activities depends on relationship or all three activities. .

.Some Major Differences between US GAAP and IFRS (Continued) ‡ Balance Sheet Presentation Difference ± Long Term Assets and Liabilities are listed first on IFRS statements. starts with current assets and liabilities.See slide ± On GAAP Statements. Intangibles impairment test is different.See slide ± Write up of assets due to appreciation is allowed for IFRS. .

British Airways Balance Sheet Acrobat Document .

Google Inc. Balance Sheet Acrobat Document .

. and net income or net loss.Some Major Differences between US GAAP and IFRS (Continued) ‡ Earnings per Share (EPS) ± IFRS has only Basic and Diluted EPS on continuing operations and net profit or loss per share ± US GAAP has Basic and Diluted from continuing operations. discontinued operations. extraordinary items. cumulative effect of changes in accounting policy.

4 BIL ± IF USED US GAAP STANDARDS. ITS OPERATING PROFIT OF $2. ETC. THEY WOULD HAD SHOWN A LOSS DUE TO NOT CAPITALIZING RESEARCH EXPENDITURES. .EXAMPLE OF EARNINGS DIFFERENCE IFRS VS GAAP ‡ DAIMLER BENZ ± IFRS STANDARDS IN PLACE FOR YEAR 2006.

Limitation of IFRS ‡ Pick and Choose which standards to be enforced or used by companies within its borders by government -French Government recently voted to allow certain industries. the wine industry to be exact. Safeguarding it. concept of Just In Time ________Are these really IFRS Standards??________ . Insurance on it. to sidestep certain IFRS standards to help that industry. -Japan¶s Firms definition of Finished Goods Inventory or Merchandise Inventory has it as a liability not an asset due to .Storage Charges.

Limitation of IFRS (Continued) ‡ Enforcement of the Standards ± No SEC like in the United States who oversees the GAAP standards ± What is the punishment for non compliance? ± Is there comparability among nation¶s financial reporting if you can chose what standards will be used? .

Offering seminars for partners and also staff on IFRS. May 2008. ‡ Educating AICPA member firms and local CPA state societies about what IFRS requirements. . to modify rule # 203 of Professional Code of Conduct to recognize IASB as an international accounting standard setter.AICPA Proactive to IFRS Adaptation ‡ Allowing private firms and not for profit firms to report under the IFRS ‡ Voted recently.

CMA exam will also have it incorporated on it? . and educational institutions to get current soon to be professionals ready for using IFRS on the job. textbook authors. ‡ Keeping information flowing to members and the US CPA¶s voice be heard on these IFRS committees.AICPA Proactive to IFRS Adaptation (Continued) ‡ Working with Academia. ‡ Incorporating questions about IFRS into the Uniform CPA exam starting 1/1/2011.

AY 2009-10 it will increase to 24% AY 2010-11 it will be about 30% AY 2011-12 it will be over 50% . Separate Class on IFRS??? ‡ Get schools to educate the professors on IFRS. Budget concerns and enrollment.UNIFORM SYLLABUS.Academia response to IFRS ‡ Schools must educate Administrators of pressing need to learn IFRS ‡ Fit IFRS into already full slate of curriculum within the classroom. ‡ KPMG-AAA survey ± ± ± ± Academic Year (AY) incorporate IFRS into curriculum.

Have several audit teams. changed curriculum ± Educating client¶s personnel with new requirements to be in compliance with IFRS.Accounting Firms Response ± Sending employees to get training in London. etc. . etc. and work with that office to learn IFRS requirements ± Changing audit work programs and procedures to make the transition smoother. Pass on the cost to clients? ± Working with Academia the need to have graduates ready to hit the road running. one IFRS. GAAP.

Suggestions for Compliance .

. Was it a waste of time and energy? ‡ Will IFRS assist in getting firm a strategic competitive advantage over other firms.WHAT DOES IT MEAN TO BUSINESSES? ‡ How does it affect the tax structure and FIN 48 and Schedule M3 that must be completed ‡ What does it do for management reporting systems and Financial Accounting Systems? ‡ What are the new industry measurements or indicators? ‡ What happens to PCAOB requirements from Sarbanes Oxley Act of 2002.

IC Report Acrobat Document .Google. Inc.

British Airlines Auditor¶s Report Acrobat Document .

Acrobat Document . Inc.Auditor¶s Report-Google.

explaining the inconsistencies between years when implemented? What will be required to be restated? Educating them. .WHAT DOES IT MEAN TO BUSINESSES? (Continued) ‡ What does it do for tax planning and tax deferred liabilities and assets on the balance sheet? ‡ What about Investor relationships.

. and the effect of them on the loans. pass it on to customers ‡ Discussing with banks over the debt covenants.WHAT DOES IT MEAN TO BUSINESSES? (Continued) ‡ Costs of training of the company personnel on the new standards.

Community College in NJ gave a money back guarantee on learning? Free retraining?? ‡ How do I read the financial statements and analytical information for comparability? Cost? ‡ Per my clients. how do I explain the differences between the two? NO EASY WAY!! ‡ Is this coming to the privately held companies that I work on? Probably!!! . Retraining must be done.What does it mean to me? ‡ If the IFRS are being made mandatory. as an professional the accounting degree earned recently may not be relevant.

Looking forward to it.What does it mean to me? (Continued) ‡ What is next change or challenge. MST in 1986 and the tax law dramatically changed later that year. are I ready? Is my firm ready? ‡ Challenge to keep up. . If you got your Masters Degree in Taxation. Competitive Advantage? ‡ Example.

. Asset capitalization was not easy task.SEC Hearing on IFRS ‡ Panel on US Financial Services and IFRS recap: ± IFRS creates more work or interpretation to determine whether you put it on the Financial Statements ± US GAAP gives you more guidance ± Entity recognition is a problem. Example used where 200 leased vehicles had to be capitalized due to control of vehicle.

SEC Hearing on IFRS (Continued) ‡ On Panel. Japan. John Smith. regulators. Sweden. China. -Panelists stated time consuming and costly to use IFRS. An American IASB member. -Are they getting better information to the creditors. South Africa. France and United Kingdom. investors and management were questioned? Are the interested parties getting value for this exercise? MAYBE?? . -Mentioned that on the board there are 14 members and they are from United States.

IASB issued International Financial Reporting Standard for Small and Medium Sized Entities (IFRS for SME¶s). no Earnings per Share (EPS).Recent Developments -IFRS ‡ Issuance in 2009. ± For example. no Interim reporting or Segment reporting are needed ± No Fair Value determination of Long term assets are needed to complete financial statements .

Latest Proposals on Financial Statement Presentation ± Overall Project Goal ± Develop a common standard on organization and presentation of information in financial statements ± Improve: ‡ The usefulness of information provided to users of financial statements (in making decisions as providers of capital) ‡ Communication between management and users of financial statements .

2008 ± Comments received April 14. 2009 ± Exposure draft expected in 2010 .Latest Proposals on Financial Statement Presentation-(Cont¶d) ± Status of Project ± IASB/FASB joint project ± formerly known as the ³Performance Reporting Project´ ± Discussion paper issued October 16.

Latest Proposals on Financial Statement Presentation-(Cont¶d) ± Objectives ± Three objectives for financial statement presentation: ± Cohesiveness ± flow of information should follow through all of the different statements ‡ Relationships are clear: statements are complimentary ± Disaggregation ± more information should be shown separately ‡ Common sections and categories: more line items ± Ability to assess liquidity and cash flow ‡ Ability to meet financial commitments and invest in business opportunities .

Latest Proposals on Financial Statement Presentation-(Cont¶d) ± Statement of Financial Position ‡ Grouped by operating. totals and subtotals ± Statement of Comprehensive Income ‡ One statement ‡ More disaggregation (function. nature) ± Statement of Cash Flows ‡ Direct method ± New reconciliation schedule ‡ Reconcile cash flows to comprehensive income ‡ In notes . financing (no longer by assets liabilities and equity) ‡ Disaggregate assets and liabilities into short term and long term. investing.

Latest Proposals on Financial Statement Presentation-(Cont¶d) Acrobat Document .

In www. IMA National Conference. www. June 2010 .org ‡ AICPA IFRS website. KPMG-AAA Survey. www. an AICPA Backgrounder ‡ AICPA Website. ‡ Colleen Cunningham. CPA talk on IFRS.Marketwatch.aicpa.com.Bibliography ‡ AICPA.ifrs. International Financial Reporting Standards (IFRS).com ‡ University Professors Weigh in on Building IFRS in Curricula.

Bibliography (Continued) ‡ International Federation of Accountants website. www. contact and website.org ‡ SEC website.gov ‡ Price Waterhouse Cooper¶s Website.tv ‡ Bruce Pounder. CFM articles in Strategic Finance. www.sec. www.com . BPounder@leveragedlogic.iafc. CMA.pwc.

OTHER ACCOUNTING ISSUES ‡ FASB # 157.GET IT RIGHT OR GIVE ME ANOTHER SHOT XBRL± ALREADY AVAILABLE AND BEING USED TO REPORT UNDER IFRS . FAIR VALUE ACCOUNTING ± LEHMAN BROTHERS DEMISE-MAYBE? ± MULLIGAN STANDARD.

Questions???? ‡ Thank you!! ‡ Best Wishes for a wonderful conference!!! .