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Slide 1 - Welcome to Grant Thornton Client Experience for The ... Slide 1 - Welcome to Grant Thornton Client Experience for The ... Presentation Transcript

  • The Current State of IFRS
  • The Current State of IFRS Objectives & Agenda
    • What is IFRS?
    • Convergence
    • Resources
    Objectives Agenda
    • Recognize what IFRS is and when it will become important
  • What is IFRS? IASB Structure Trustee Appointments Advisory Group IASC Foundation IASB IFRIC SAC IFRS high quality, enforceable and global advises advises reports creates appoints oversees funds appoints appoints reports interprets
  • What is IFRS? IASB Standards and History
      • 1973 International Accounting Standards (IAS)
    • 2001 SIC Interpretations (SIC)
    2001 International Financial Reporting Standards (IFRS) ↓ Present IFRIC Interpretations (IFRIC)
  • IASB Standards Jurisdictional adoption process IASB two year post-implementation review Published IFRS Feedback Statement Exposure Draft (ED) Discussion Paper (DP) (Optional)
    • Input from:
    • Advisory Council
    • Working Group
    • International Groups; Analysts; Preparers; Audit technical partners
    • Special interest groups
    • Local standard-setters
    • Regulators
    • Political groups
    Agenda Decision RESEARCH PROPOSALS PROPOSALS Public Consultation Public Consultation
  • What is IFRS? 8 IFRSs in effect at 1 January 2008 Operating Segments IFRS 8 Financial Instruments: Disclosures IFRS 7 Exploration for and Evaluation of Mineral Resources IFRS 6 Non-current Assets Held for Sale and Discontinued Operations IFRS 5 Insurance Contracts IFRS 4 Business Combinations IFRS 3 Share-based Payment IFRS 2 First-time Adoption of International Financial Reporting Standards IFRS 1
  • What is IFRS? 29 IASs in effect at 1 January 2008 Property, Plant and Equipment IAS 16 Leases IAS 17 Revenue IAS 18 Income Taxes IAS 12 Construction Contracts IAS 11 Events After the Reporting Period IAS 10 Accounting Policies, Changes in Accounting Estimates & Errors IAS 8 Statement of Cash Flows IAS 7 Inventories IAS 2 Presentation of Financial Statements IAS 1
  • What is IFRS? 29 IASs in effect at 1 January 2008, continued Accounting and Reporting by Retirement Benefit Plans IAS 26 Consolidated and Separate Financial Statements IAS 27 Investments in Associates IAS 28 Financial Reporting in Hyperinflationary Economies IAS 29 Related Party Disclosures IAS 24 Borrowing Costs IAS 23 The Effects of Changes in Foreign Exchange Rates IAS 21 Accounting for Government Grants and Disclosure of Government Assistance IAS 20 Employee Benefits IAS 19
  • What is IFRS? 29 IASs in effect at 1 January 2008, continued Agriculture IAS 41 Investment Property IAS 40 Financial Instruments: Recognition and Measurement IAS 39 Intangible Assets IAS 38 Provisions, Contingent Liabilities and Contingent Assets IAS 37 Impairment of Assets IAS 36 Interim Financial Reporting IAS 34 Earnings per Share IAS 33 Financial Instruments: Presentation IAS 32 Interests in Joint Ventures IAS 31
  • What is IFRS? 24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 27 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders SIC 25 Income Taxes – Recovery of Revalued Non-Depreciable Assets SIC 21 Operating Leases – Incentives SIC 15 Jointly Controlled Entities – Non-Monetary Contributions by Venturers SIC 13 Consolidation – Special-Purpose Entities SIC 12 Government Assistance – No Specific Relation to Operating Activities SIC 10 Introduction of the Euro SIC 7
  • What is IFRS? 24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment IFRIC 6 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 5 Determining whether an Arrangement contains a Lease IFRIC 4 Members’ Shares in Cooperative Entities and Similar Instruments IFRIC 2 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 1 Intangible Assets – Web Site Costs SIC 32 Revenue – Barter Transactions Involving Advertising Services SIC 31 Service Concession Arrangements: Disclosures SIC 29
  • What is IFRS? 24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction IFRIC 14 Customer Loyalty Programmes IFRIC 13 Service Concession Arrangements IFRIC 12 IFRS 2 – Group and Treasury Share Transactions IFRIC 11 Interim Financial Reporting and Impairment IFRIC 10 Reassessment of Embedded Derivatives IFRIC 9 Scope of IFRS 2 IFRIC 8 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 7
  • What is IFRS? Current State Source: Deloitte – www.iasplus.com Countries that require or permit IFRSs for domestic entities Countries seeking convergence with, or pursuing adoption of, IFRSs
  • Activity 1 Principles vs. Rules
    • Discuss the advantages for a more or less principles-based standard for each category.
    Take 5 minutes to complete Work Satisfaction Skill Set Litigation Regulators Clients More Rules (less principles-based) Fewer Rules (more principles-based) Category
  • Group check
    • IFRS are pure principles-based standards
      • True
      • False
  • Group check Debrief
    • IFRS are pure principles-based standards
      • True
      • False
  • Group check
    • U.S. GAAP are not based on sound, accepted accounting principles
      • True
      • False
  • Group check Debrief
    • U.S. GAAP are not based on sound, accepted accounting principles
      • True
      • False
  • What is IFRS? Principles vs. Rules U.S. GAAP IFRS Principles Only Rules Only
  • Financial Statement Comprise: IFRS GAAP
    • Balance sheet
    • Income statement
    • A statement showing either:
      • All changes in equity; or
      • Changes in equity other than those arising from capital transactions with owners and distributions to owners (called a Statement of Recognised Income and Expense (SORIE))
    • Cash flow statement (no exemptions)
    • Accounting policies and explanatory notes (IAS 1.8)
    • Balance sheet
    • Income statement
    • Statement of comprehensive income. This statement may be combined with the income statement or the statement of changes in stockholders’ equity (SFAS130.22)
    • Statement of changes in stockholders’ equity.
    • Alternatively, disclosure of changes in the separate accounts comprising stockholders' equity (in addition to retained earnings) could be made in the notes to financial statements (APB 12.10)
    • Statement of cash flows (limited exemptions; see Section 2.5)
    • Notes to financial statements
  • Comparison of IFRS and US GAAP IFRS GAAP
    • A finance lease is not determined by a bright lines test. Instead, IAS 17 lists factors normally indicating a finance lease, including any of the following (IAS 17.10):
    • Transfer of ownership by end of lease term
    • Lessee has option to purchase asset on such favourable terms such that option exercise is reasonably certain at inception
    • Lease is for major part of asset's life, even if no purchase option exists
    • Present value of minimum lease payments at inception amounts to at least substantially all of the fair value of the leased asset
    • Leased assets are specialised such that only the lessee can use them without major modification
    • A capital lease is one that meets one or more of the following criteria (SFAS 13.7):
    • Lease transfers ownership of the property to the lessee by the end of the lease term
    • Lease contains a bargain purchase option
    • Lease term is equal to 75 percent or more of the estimated economic life of the leased property.*
    • Present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by the lessor and expected to be realized by the lessor.*
    • For the lessor to classify a lease as a capital lease, the following additional criteria must also be met (SFAS 13.8):
  • What is IFRS? Principles vs. Rules
    • Industry accounting not adequately addressed
      • Insurance contracts
      • Extractive activities
    • No IFRS equivalent
      • In absence of a standard that specifically applies,
        • Management should use judgment
        • Should not conflict with IFRS
        • May also consider other GAAP
  • The Current State of IFRS Objectives & Agenda
    • What is IFRS?
    • Convergence
    • Resources
    Objectives Agenda
    • Recognize what IFRS is and when it will become important
    • Communicate key points about IFRS to your clients
  • Convergence Definition
    • Where transactions or events are the same or similar, the accounting should be the same, or there should be enough transparency in the disclosures to allow the reader to understand the differences.
    (Plus a continuing effort by standard setters to reduce differences between systems over time.)
  • Convergence Movement toward one set of standards - benefits Investor confidence and understanding Lower risk premium Lower cost of capital
  • Convergence Movement toward one set of standards - benefits Greater transparency Greater credibility Greater comparability between companies wherever they are Greater cross-border capital flows Most efficient allocation of capital Thriving economies
  • Convergence Movement toward one set of standards - obstacles
    • National pride
    • Endorsement process
    • Legal issues
    • Standard setters
    • Language
  • Group check
    • Which of the following is most correct?
      • U.S. GAAP and IFRS are already converged
      • U.S. GAAP and IFRS are not converged but will be eventually
      • U.S. GAAP and IFRS will never be converged
      • U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets
  • Group check Debrief
    • Which of the following is most correct?
      • U.S. GAAP and IFRS are already converged
      • U.S. GAAP and IFRS are not converged but will be eventually
      • U.S. GAAP and IFRS will never be converged
      • U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets
  • Convergence U.S. Convergence – FASB/IASB
    • 2002 Norwalk Agreement
    • 2006 Memorandum of Understanding (MOU)
    • 2008 Memorandum of Understanding (MOU)
  • Convergence U.S. Convergence – FASB/IASB
    • FASB adopts IASB standard
      • Fair value option (SFAS 159)
      • Research and development assets acquired in a business combination (SFAS 141 – revised 2007)
    • IASB adopts FASB standard
      • Borrowing costs (IAS 23 – revised 2007)
      • Segment disclosures (IFRS 8)
  • Convergence U.S. Convergence - FASB/IASB
    • Short–term convergence
    • Short-term projects deferred
    • Government grants
    • Impairment
    Research and development Subsequent events Joint arrangements (joint ventures) Investment properties Income taxes (joint project) Income taxes (joint project) To be examined by the IASB To be examined by the FASB
  • Convergence U.S. Convergence – FASB/IASB
    • Major joint projects
    • Consolidations
    • Derecognition
    • Fair value measurement
    • Financial instruments
    • Financial statement presentation
    • Leases
    • Liabilities and equity distinctions
    • Post-employment benefits (including pensions)
    • Revenue recognition
  • Convergence U.S. Convergence – FASB/IASB
    • Conceptual Framework – joint project
    • Mentioned in the 2008 MOU; however no specific timetable
    • Major joint projects will take account of ongoing Conceptual Framework projects
  • Convergence U.S. Convergence - SEC
    • Roadmap – 7 milestones
    • Improvements in accounting standards
    • Funding and accountability of IASCF
    • Improved ability to use XBRL for IFRS
    • Education and training on IFRS in the U.S.
    • Limited early use by select few
    • Anticipated future rulemaking
    • Potential implementation sequence – FYE on or after 15 December
      • Large Accelerated Filers 2014
      • Accelerated Filers 2015
      • Non-Accelerated Filers 2016
  • What’s your opinion?
    • Within the next few years the FASB will be irrelevant and should disband
      • True
      • False
  • Convergence U.S. Convergence - SEC
    • Policy issues
    • International Organization of Securities Commissions (IOSCO)
    2000 Concept Release April 2005 Roadmap March 2007 Roundtables December 2007 Final Rule December 2007 Roundtables July 2007 Proposing Release August 2007 Proposing Release
  • Convergence Rest of the world Required starting 2011 India Must use Accounting Standards for Business Enterprises, which are close but not exactly IFRS. Companies listed in Hong Kong have choice of IFRS or HK FRS China Required starting 2009 Chile Required starting 2011 Canada Required starting 2010; optional before Brazil National standards described as IFRS equivalent Include unreserved statement of compliance Australia and New Zealand Required starting 2011 (awaiting approval) Argentina Required (as adopted by EU) Europe Status Country
  • Convergence Rest of the world, continued Status Country Not permitted; concept release out for comment USA Must use IFRS in existence at 19 May 2004 Uruguay Permitted Turkey Permitted Switzerland Required South Africa Singapore IFRS – changed several IFRSs and did not adopt others Singapore Required for banks Russia Required Peru Permitted Mexico Required starting 2011; permitted 2009 South Korea Japanese GAAP to converge to IFRS by 2011 Japan
  • Convergence Application
    • Jurisdictional variations
    • Different interpretations
    • Small and Medium-sized Entities (SMEs)
  • What’s your opinion?
    • Choose either View A or View B
    The SEC should decide what is best for the U.S. markets and mandate IFRS when it is ready The SEC should allow market forces to determine when to allow IFRS in the U.S. View B View A
  • Activity 2 Are companies ready for IFRS?
    • Discuss the characteristics of a company that is unprepared to adopt IFRS and one that is prepared.
    Take 2 minutes to complete Prepared Company Unprepared Company
  • Activity 2 Debrief
    • Budgets for a project to evaluate what will change if it switches to IFRS
    • Project team includes accounting, reporting, operations and IT
    • Produces pro forma statements two years prior to changeover
      • Highlights how reported results will change
      • Allows better evaluation of transition options
      • Highlights needed changes in information requirements & IT
    • Waits until the switch to IFRS is mandatory
    • Has the accounting staff prepare excel spreadsheets to support top-level adjustments to its U.S. GAAP statements
    • Misses some items that are caught at the last minute by the GT audit team
    • Disclosures are so poorly written it gets several comment letters from the SEC on its late filing
    Prepared Client Unprepared Client
  • Next Steps What you need to know
    • Whether and when to switch to IFRS
    • Required
    • Competition
    • Cost / benefit
    • Future developments
  • How will movement to IFRS impact Financial Reporting? Concerns:
    • Data collection
    • Potential impact on tax liability
    • Potential increased volatility in reporting
    • Potential change in patter of earnings
    • Potential increased financial disclosures
  • How will movement to IFRS impact Financial Reporting? Benefits:
    • Potential cost savings
    • Opportunity to review and improve process
    • Potential impact on tax liability
    • Increased access to funds and markets
  • Top Twenty Issues to Consider
    • 1 IAS 1 Presentation issues: judgments and estimates
    • 2 IAS 1 Presentation issues: primary statement formats
    • 3 IAS 36 Impairment disclosures
    • 4 IFRS 3 Goodwill justification disclosure
    • 5 IFRS 3 Other business combination issues and disclosures
    • 6 IFRS 7 Financial instruments: disclosures
    • 7 IAS 12 Deferred tax accounting and disclosure
    • 8 Accounting policies general messages
    • 9 Accounting policies specific problems: revenue
    • 10 Accounting policies specific problems: financial instruments
    • 11 IFRS 1 Explanation of transition to IFRS
    • 12 IFRS 5 Non-current assets held for sale and discontinued operations
    • 13 IAS 14 Segment information
    • 14 IAS 37 Provisions disclosure
    • 15 IAS 39 Financial instruments: recognition and measurement
    • 16 Standards in issue not yet effective
    • 17 Operating items and exceptional items
    • 18 Comparative information
    • 19 IAS 19 Employee Benefit Disclosures
    • 20 Detail counts don't forget
  • The Current State of IFRS
    • What is IFRS?
    • Convergence
    • Resources
    Objectives Agenda
    • Recognize what IFRS is and when it will become important
    • Communicate key points about IFRS to your clients
    • IFRS Resource Center
      • http://www.grantthornton.com/portal/site/gtcom/menuitem.91c078ed5c0ef4ca80cd8710033841ca/index561b974be30c92e309882716712c24c3.html?vgnextoid=bb444cfadd5d3110VgnVCM1000003a8314acRCRD
    Grant Thornton Resources
  • For additional information, visit these Web sites:
    • AICPA
    • International Financial Reporting Standards (IFRS) – An AICPA Backgrounder at www.ifrs.com
    • For the latest information on the status of IFRS and educational opportunities visit www.ifrs.com
    • IASB
    • Memorandum of Understanding with the FASB:
      • http://www.iasb.org/Current+Projects/Memorandum+of+Understanding+with+the+FASB.htm
    • IFRS summaries:
      • http://www.iasb.org/IFRS+Summaries/IFRS+and+IAS+Summaries+English+2008/IFRS+and+IAS+Summaries+English.htm
    • FASB
    • Overview of International Activities: http:// www.fasb.org/intl /
    • SEC
    • International Financial Reporting Standards Road Map: http://www.sec.gov/spotlight/ifrsroadmap.htm