PHASE 2009 - Prentice Hall Accounting Symposium for Educators
San Diego, CA
February 21-22, 2009
IFRS: Implications For Education
Charles W. Lamden School of Accountancy
San Diego State University
Norbert Tschakert spoke as a panelist during Tom Hood’s Presentation on IFRS. Tom
Hood is the Executive Director and CEO of the Maryland Association of CPA’s. Norbert
Tschakert lectured IFRS at the Helmut Schmidt University in Hamburg, Germany, and
currently lectures the Graduate Seminar in International Accounting at the Charles W.
Lamden School of Accountancy at San Diego State University.
Useful Internet Resources*
*See Appendix for further Links
The globalization of business and finance has led to the successful
mass adoption of IFRS in more than 113 countries.
The Chairman of the IASB, Sir David Tweedie, expects that 150
countries will mandate or allow IFRS within the next three years.
Canada, India and Japan will adopt IFRS in 2011.
Mexico will adopt IFRS by 2012.
Both of our Neighbors are adopting IFRS. Because of the comparable
period requirement under IFRS 1 (First time adoption of IFRS), companies
in both countries are currently working on the transition to IFRS.
Dr. Norbert Tschakert 9
Economic Reality (cont’d)
IFRS are used by SEC foreign registrants without reconciliation to
IFRS are used by foreign subsidiaries of U.S.-based multinationals.
IFRS are used by U.S. subsidiaries of non-U.S. multinationals for
the purpose of consolidation.
SEC taking steps to allow U.S. companies to adopt IFRS (SEC
Roadmap to IFRS).
Dr. Norbert Tschakert 10
Do you want to have job security for the next 20 years?
Do you want to advance quickly in your career?
Do you want to have the option to have an international career?
Do you want to have a ‘Certificate in IFRS’ that will be beneficial for
your career? (-> www.icaew.com)
Young business professionals are expected to have up to date
knowledge and are relied upon as sources of ‘new knowledge’.
Having knowledge where to research specific IFRS questions and
having a basic understanding of IFRS will greatly distinguish you
Dr. Norbert Tschakert 11
Preparation For Job-Market
IFRS have been implemented into Big4 Interview Questions.
Candidates are expected to have a basic knowledge of IFRS and
should be able to answer simple questions regarding the History of
IFRS, give examples of differences to US-GAAP and be familiar with
IFRS 1 (First Time Adoption of IFRS).
IFRS will be part of the CPA Exam starting 2011.
Dr. Norbert Tschakert 12
Have A Reasonable Scope
Right now the goal is to get students ready for the job market, to
enable them to research IFRS topics on their own and to ensure a
basic understanding of IFRS. An initial limited scope facilitates the
implementation in the classroom.
The scope of the class can be increased as IFRS become more
relevant in the U.S.
Presenting the details on ‘Financial Instruments’ or ‘Impairment
Testing for Cash Generating Units’ will likely lead to student
frustration and should be reserved for more advanced and
Dr. Norbert Tschakert 14
Provide An Overview Knowledge
Do not get caught up with teaching the details of only a few
Rather focus on providing a broad knowledge of IFRS and introduce
more standards at a quicker pace.
To establish a foundation for the class, make sure to teach the
principles and core definitions first. Use the ‘Glossary of Terms’
available at the end of the IFRS Original Pronouncement.
Dr. Norbert Tschakert 15
Work With The Original Text
Working with the original text will foster student understanding, will
increase student acceptance of the material presented and will
increase student ability to research IFRS on their own.
Secondary literature and publications should be reviewed carefully
for accuracy. IFRS Publications may contain errors.
Due to the evolving nature of IFRS it is crucial to only use Textbooks
that were updated recently.
Dr. Norbert Tschakert 16
Use E-Learning Modules
Dr. Norbert Tschakert 17
Invite Guest Speakers And Involve Your
Students In The Class
Guest Speakers are able to illustrate the relevance of IFRS based
on their experience. The perspective of presenters from foreign
countries that already went through the adoption of IFRS is
particularly valuable. These speakers are able to come to class via
Confront your students with Discussion Papers, Exposure Drafts
and Comment Letters available on www.iasb.org and discuss
publications. This is probably the best educators can do in the
classroom to enable students to develop ‘professional judgment’, a
vital skill for the application of IFRS. Group Presentations on these
topics are a great way of involving students in the class.
Dr. Norbert Tschakert 18
Introduce The Topic With Accounting History
And Accounting Theory
In 1494, Luca Pacioli published the book ‘Summa de arithmetica,
geometria, proportioni et proportionalita’ . The resulting ‘Venetian
method’ became the standard accounting method used amongst
Italians, Dutch, Germans, and English alike.
The fundamental issues in Accounting have been extensively
addressed through the work on ‘Accounting Theories’.
From here the transition can be made to the current situation for
which I use the following controversial slide…
Dr. Norbert Tschakert 19
After Hundreds Of Years…
Accounting Data is
- Easy to manipulate (creative/managerial accounting)
- Of limited relevance to verify going concern
- Of limited relevance for economic decisions
Financial Analysis is
- Not looking at all aspects of a company
Dr. Norbert Tschakert 20
Accounting does not fulfill the expectations and is far from being perfect.
Is IFRS the Solution?
While this is difficult to answer at present, this question can be used as
the ‘lead question’ that students should form an opinion on during the
class. It is noteworthy, that compared to the many Accounting Scandals
under U.S. GAAP, there has not been a single major Accounting
Scandal under IFRS - worldwide.
What is the reason for this?
Thesis: IFRS forces companies to use rigor and discipline and to
establish stronger business ethics and a stronger corporate governance.
Dr. Norbert Tschakert 21
Citations make the topic interesting and enable an early class
KPMG: International Financial Reporting Standards: Views on a
financial reporting revolution, 2006, www.kpmg.com
Current Press Articles
Dr. Norbert Tschakert 22
Former Chairman Christopher Cox Versus
Successor Mary Schapiro
Cox: ‘An international language of disclosure and transparency is a
goal worth pursuing on behalf of investors who seek comparable
financial information to make well-informed investment decisions.’
Shapiro: ‘When it comes to international accounting standards, it’s
critical that these standards are converged in a way that does not kick
off a race to the bottom. American investors deserve and expect high
standards of financial reporting, transparency, and disclosure - along
with a standard setter that is free from political interference and that
has the resources to be a strong watchdog. At this time, it is not
apparent that the IASB meets those criteria, and I am not prepared to
delegate standard-setting or oversight responsibility to the IASB.’
Dr. Norbert Tschakert 23
Global Head of Audit KPMG UK
‘IFRS brings more discipline and more rigor. Companies say that if
IFRS continue to base themselves on economic realities then they
look at their own businesses differently and it helps them manage
themselves better. Companies need to feel the figures are equally
relevant for decision-making.’
Dr. Norbert Tschakert 24
‘If you were to look back from the year 2020 to the year 2001 you
would say ‘What chaos!’ and ‘What inefficient capital markets!’
People will look back and say, ‘How did those people get along
then?’ It will be like we now say, ‘How did people get along without
cell phones?’ When you are in the middle of it, it is always difficult. It
is important just to keep on towards that end goal.’
Dr. Norbert Tschakert 25
Sir David Tweedie
‘We can’t have endless changes. People will become demented.’
‘Understandability has been a bit of a casualty. We all make
accounting much more complicated than it needs to be. Some of the
standards we inherited are too complicated. There is now a cottage
industry of technical people understanding and interpreting them.
We have somehow got to return IFRS to the profession. We have
got to do better than this.’
Dr. Norbert Tschakert 26
Sir David Tweedie
Tweedie’s response during a hearing in the UK Parliament to a
question about whether the IASB inappropriately caved in to political
pressure to amend IAS 39 to allow companies to stop measuring
some financial assets at fair value (Q 186):
‘I think we experienced something that, I hope, firstly, we never see
again in standards setting, but I think there was just a blunt threat to
blow the organization away. That came very, very rapidly… I think
accounting in Europe would have been totally out of control if they
had used the option to take the 'carve out'. Our problem was we
originally intended to have at least a week to find out whether, in
fact, we had managed to get our standards equivalent, as far as
reclassification is concerned, with the United States. We did not
have a week…’
Dr. Norbert Tschakert 27
Chair of Accounting Advocacy Committee,
UK Society of Investment Professionals
‘Companies that used to tell us that they owned their subsidiaries
now tell us that they don’t.’
Dr. Norbert Tschakert 28
Director, Securities and Futures Commission,
‘All three groups (regulators, auditors, clients) say they want
principles-based accounting and financial reporting but all of them
prefer the easy life and that means precise rules to get certainty.
People will chant the mantra of principles while asking for ever more
‘There are too many frolics in the accounting standards. They are
too academic… It is driven by theory rather than something which
serves the interests of the investor. They have got too tied up with
the theoretical basis of standards.’
Dr. Norbert Tschakert 29
‘People in financial services companies are implementing almost
‘With fair values you have to enter a theoretical world. I don’t know
how you can manage it. Once you are beyond an observable market
you are in a land of fantasy. I don’t know who can sign off over
relevant, but unreliable numbers.’
Dr. Norbert Tschakert 30
Vice President for Accounting, Planning and
Reporting and Chief Accounting Officer, Daimler
‘The rules need to be more practicable and more acceptable for
preparers. Sometimes we feel that they only come up with answers
for the academics. The higher degree of complexity boosts costs of
staff, IT Systems and related processes and it is also harmful to the
understandability. Financial reporting is supposed to be for the
normal investor and not just for experts.’
Dr. Norbert Tschakert 31
The Strengths Of Rules-Based Standards
+ Increased Comparability among financial statements
+ Increased verifiability for auditors and regulators
+ Reduced opportunities for earnings management
through the use of judgments
+ Improved communication of standard setters’
+ No requirement for a very strong ‘professional
judgment’ on the part of accountants and auditors.
Dr. Norbert Tschakert 33
The Weaknesses Of Rules-Based Standards
- Increases the overall complexity of applying a given
- Management can structure transactions to meet the form
of the rules while not conforming to the underlying
substance (form over substance)
- Can drastically depart from the underlying principle
- The Business landscape is dynamic and ever changing,
rules are not able to keep pace
- Rules can be obsolete by the time they are issued
Dr. Norbert Tschakert 34
Structure Of IFRS
An IFRS or IAS is typically made up of some or all of the following
- Introduction (IN) Use the Structure of the
- Objectives IFRS for the Structure of
- Scope your Lecture. Work with
- Definition of terms used the Original Text.
- Body of the standard (core text)
- Effective date and transitional provisions
- Application Guidance (AG)
- Approval by IASB
- Basis for Conclusion (BC), Dissenting Opinions by IASB members
- Implementation Guidance (IG)
- Illustrative Examples (IE)
Dr. Norbert Tschakert 35
IASC - International IASB - International
Accounting Standards Accounting Standards
SIC - Standing IFRIC - International
Interpretations Financial Reporting
Committee Interpretations Committee
• IAS 1 thru IAS 41(29 are • IASC and SIC
still in effect) standards carried
• SICs (only 11 of 33 are still forward, plus:
in effect - others have • IFRS 1 thru IFRS 8
been incorporated into • IFRIC 1 thru IFRIC 16
Dr. Norbert Tschakert 36
Compliance With IFRS
Compliance with IFRS includes the following:
- All active standards (IASs and IFRSs)
- All active interpretations (SICs and IFRICs)
- IFRS requires presentation of comparative period
Must make explicit and unreserved statement of compliance
Bold and plain type paragraphs have equal authority
Standards and Application Guidance are authoritative, Implementation
Guidance is “non-authoritative”
Disclose application of standards or interpretations before effective date
Inappropriate accounting treatments not rectified by disclosure
Dr. Norbert Tschakert 37
IFRS Hierarchy - IAS 8: Accounting Policies,
Changes In Accounting Estimates And Errors
IAS 8 establishes a “hierarchy” when choosing IFRS accounting policies:
1. Apply any specific IFRS; consider any relevant application guidance
2. Refer to other IFRSs dealing with similar or related issues
3. IFRS Framework
4. Consider pronouncement of other standard-setting bodies (with similar
conceptual framework) or industry practices
E.g., U.S. GAAP may be appropriate when IFRS is silent,
Framework does not give additional guidance, and U.S. GAAP is
not inconsistent with the guidance in standards or interpretations
which deal with similar issues or the IFRS Framework.
Dr. Norbert Tschakert 38
Consistency of Accounting Policies - IAS 8: Accounting
Policies, Changes In Accounting Estimates And Errors
Some IFRS allow alternative Methods:
Benchmark Allowed Alternative
Important: The terminology ‘Benchmark’ and ‘Allowed Alternative’
does not indicate that one alternative is preferable over the other.
Choose and apply one method for the consolidated entity
– For all transactions/items or
– If expressly permitted, for all transactions/items, etc. in a
category of items
– If expressly permitted on a transaction-by-transaction basis
Dr. Norbert Tschakert 39
An asset is a resource controlled by the entity as a result of past
events and from which future economic benefits are expected to
flow to the entity. An asset is recognized in the balance sheet when
it is probable that the future economic benefit will flow to the entity
and the asset has a cost or value that can be measured reliably.
A liability is a present obligation arising from past events. A liability
is recognized in the balance sheet when it is probable that an
outflow of resources embodying economic benefits will result from
the settlement of a present obligation and the amount at which the
settlement will take place can be measured reliably.
Dr. Norbert Tschakert 40
SEC IFRS Roadmap:
Proposed Phased Approach
Targeted U.S. issuers Type First IFRS
Limited early eligible Optional Fiscal years ending on
entities or after 15 December
Large accelerate filers Mandatory Fiscal years ending on
or after 15 December
Accelerated filers Mandatory Fiscal years ending on
or after 15 December
Non-accelerated filers Mandatory Fiscal years ending on
or after 15 December
Financial Statements will include two years of comparative Financial Statements
Dr. Norbert Tschakert 41
Milestones To Be Achieved For A Potential
Use Of IFRS By U.S. Issuers
1. Improvements in Accounting Standards
A Memorandum of Understanding between FASB and IASB outlines
projects expected to be completed through 2011.
2. Accountability and Funding of the IASC Foundation
IASCF must develop an independent and reliable funding
3. Improvement in the Ability to Use Interactive Data (XBRL) for
4. Education and Training
The SEC will consider the state of preparedness of U.S. issuers,
auditors, users and educators.
Dr. Norbert Tschakert 42
Milestones To Be Achieved For A Potential
Use Of IFRS By U.S. Issuers (cont’d)
5. Limited Early Use of IFRS Where This Would Enhance Comparability
for U.S. Investors
6. Anticipated Timing of Future Rulemaking by the Commission
The SEC will decide about mandatory use of IFRS in 2011. The main
criteria will be, if IFRS will benefit investors & the public interest.
7. Implementation of the Mandatory Use of IFRS
As mentioned in proposed phased approach.
Dr. Norbert Tschakert 43
Selected IFRS Internet Resources
International Accounting Standards Board (www.iasb.org)
American Institute of Certified Public Accountants (www.ifrs.com)
Ernst & Young (www.ey.com/ifrs)
European Commission (http://ec.europa.eu/internal_market/accounting/ias_en.htm)
European Financial Reporting Advisory Group (www.efrag.org)
The Federation of European Accountants (www.fee.be)
The Committee of European Securities Regulators (www.cesr-eu.org)
Chartered Accountants of Canada (www.cica.ca)
The Institute of Chartered Accountants of England and Wales (www.icaew.com)
International Association for Accounting Education and Research (www.iaaer.org)
Association of Chartered Certified Accountants (www.accaglobal.com)
Financial Accounting Standards Board (www.fasb.org)
Dr. Norbert Tschakert 45
Selected IFRS Internet Resources (cont’d)
Chartered Financial Analyst Institute (www.cfainstitute.org)
Securities and Exchange Commission (www.sec.gov)
SEC Roadmap to IFRS (http://www.sec.gov/spotlight/ifrsroadmap.htm)
American Institute of Certified Public Accountants (www.aicpa.org)
Public Company Accounting Oversight Board (www.pcaobus.org)
International Auditing and Assurance Standards Board (www.ifac.org/IAASB)
UN Conference on Trade and Development (www.unctad.org)
International Organization of Securities Commissions (www.iosco.org)
Financial Stability Forum (www.fsforum.org)
XBRL International (www.xbrl.org)
Dr. Norbert Tschakert 46