Preparing For IFRS - An Update
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Preparing For IFRS - An Update



A presentation prepared for the student body at UMass Lowell on the subject of International Financial Reporting Standards

A presentation prepared for the student body at UMass Lowell on the subject of International Financial Reporting Standards



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Preparing For IFRS - An Update Presentation Transcript

  • 1. Preparing for IFRS – An Update
    Travis M. Drouin, CPA, CIA
    April 26, 2010
    MFA – Moody, Famiglietti & Andronico, LLP
  • 2. MFA – Moody Famiglietti & Andronico, LLP
    100+ person CPA firm, with 14 partners
    Located in Tewksbury, MA, servicing clients throughout New England and New York / New Jersey areas
    Registered with the PCOAB to perform audits of SEC registrants
    Clients across a wide spectrum of industries, many of whom operate internationally
  • 3. Who am I?
    Methuen native who graduated UML in December 1992
    Entered public accounting with another regional firm, now called Caturano & Co.
    3 year respite from public with a venture capital firm from 1998 – 2001
    Joined MFA in 2001 and entered the partnership in 2005
    At MFA, areas of specialty include audits of technology companies (software, SAAS, hardware, etc.), IFRS, and internal controls (SOX, SAS 70, etc.)
  • 4. 4
    International Financial Reporting Standards (IFRS) – What Are They?
    IFRS are an existing set of high-quality, country-neutral financial reporting standards.
    113+ countries already require or permit use of IFRS, and more plan to use.
    As a result of global convergence, individual GAAP and IFRS standards will change rapidly and significantly.
    In 2002, IASB and FASB began convergence.
    U.S. companies will migrate toward converged standards in the long-term – already en route!
  • 5. 5
    Short-Term Convergence ProjectsAlready Completed
    Recent projects by the standard setters are already diminishing GAAP vs. IFRS differences:
    FAS 159: Fair Value Option
    FAS 141R & IFRS 3R: Business Combinations
    IAS 23R: Borrowing Costs
    IFRS 8: Segment Reporting
  • 6. 6
    IFRS Background
    In November 2007, the FAF and FASB jointly issued a comment letter supporting convergence, stating:
    Transitioning U.S. companies to IFRS is best way to achieve global standards
    Standard-setters should develop blue-print for transition, including dates
    SEC should collaborate with other standard-setters to identify changes to sustain IASB.
  • 7. 7
    IFRS Background (Continued)
    In 2007, SEC announced it would allow foreign public companies to issue financial statements in the U.S. under IFRS.
    Rule 33-8879 permits no reconciliation to GAAP
    During June of 2008, AICPA called for 3-5 year timeline for reasonable transition to IFRS for U.S. companies.
    Most recently, in February 2010, the SEC affirmed its intent to require use of IFRS in 2015 (early adoption, however, will not be an option)
  • 8. 8
    IFRS vs. U.S. GAAP
    IFRS tend to be more principles driven, while U.S. GAAP is more rules driven.
    More judgment needed with IFRS.
    Less IFRS implementation guidance.
    Fewer industry specific and regulatory interpretations with IFRS.
    Less comparability with IFRS.
  • 9. 9
    IFRS vs. U.S. GAAP – Highlights of General Differences
    Consolidations – IFRS rules based on risks and rewards of ownership – more entities consolidated!
    Revenue Recognition – IFRS principles are broad, with no industry guidance – potentially earlier recognition for multiple deliverable contracts, PCS and time-based licenses.
    Share-Based Payments – IFRS guidelines are different in various areas, including graded vesting, deferred tax benefits, awards for goods or non-employees, and liability vs. equity classification.
    R&D – Under IFRS, development costs are capitalized, tracked, and evaluated for impairment.
  • 10. 10
    IFRS vs. U.S. GAAP – Highlights of General Differences (Cont.)
    Asset Impairment – Under IFRS, one-step impairment test vs. recoverable amount, with revaluation permitted – More impairments.
    Income Taxes – With IFRS, all deferred taxes are long-term and there is NO FIN 48 equivalent.
    Inventories – Under IFRS, carry at lower of cost or net realizable value - NO LIFO, which could have major tax implications.
    Lease Classification – Under IFRS, no bright line rules (e.g., 90% test). Lessee/Lessor classification should be parallel.
  • 11. 11
    IFRS for Private Entities
    In June 2004, IASB issued Discussion Paper, “Preliminary Views on Accounting Standards for Small and Medium-sized Entities”.
    In February 2007, IASB published Exposure Draft of “IFRS for Small and Medium-sized Entities”
    On July 9, 2009 the IASB published an IFRS designed for use by SMEs:
    Eliminates topics not generally relevant to SME’s
    Provides fewer choices for accounting treatment
    Simplifies recognition and measurement methods
    Reduces required disclosures
    Uses “plain English” language.
  • 12. 12
    Planning and Coordination Considerations re: IFRS
    Ensure internal systems, processes and resources are able and ready! Start ASAP!
    Consider risk management approach to transition plan – “What can go wrong?”
    Communicate transition plans to external stakeholders well in advance of implementation (i.e., 2 years in advance).
    Consider requirements for transition date and comparative periods.
    Ponder maintaining 2 sets of books during transition period.
  • 13. 13
    Steps in Adopting IFRS
    Develop project team and implementation timeline.
    Understand differences in IFRS vs. U.S. GAAP.
    Evaluate changes needed in accounting policies.
    Determine number and location of reporting entities and current IFRS knowledge (e.g., foreign subs).
    Consider potential tax consequences of adoption.
    Consider system and IT opportunities (e.g., shared service centers).
  • 14. The CPA Exam
    Do I need to study IFRS for the exam?
    The AICPA is developing IFRS content questions currently
    No plans, as of yet, to incorporate IFRS materials into the exam
  • 15. IFRS – A jaded view
    Many do not believe that IFRS is warranted or necessary in the U.S.
    Is it a better set of standards?
    Will it improve financial reporting?
    Other thoughts?
  • 16. 16
    Available Resources
  • 17. 17
    Questions, Answers and Closing
  • 18. 18
    MFA – Moody, Famiglietti & Andronico, LLP
    Material discussed in this presentation is meant to provide general information and should not be acted on without obtaining professional advice tailored to your firm’s individual and specific needs. This information is for general guidance only and is not a substitute for professional advice.
    IRC Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.