Chapter 9 IFRSWill It Become the Reporting Standard for U.S. GAAP?
Objectives• Become familiar with the History of the Standard Setting Bodies in the U.S.• Understand why International Accounting Standards have emerged as universally accepted• Understand why the U.S. is considering either converging U.S. GAAP with IFRS or the conversion from U.S. GAAP to IFRS• Review the SEC “Work Plan” for determining the practicality of adopting IFRS• Examine the current status of the FASB/IFRS convergence efforts
GAAP• 1920s and 1930s• The 1934 Act the Securities and Exchange Commission• The FASB
International Financial Reporting Standards• The IASB – IFRS – IFRS for SMEs• European Union• Norwalk Agreement
Pressures on GAAP• Sarbanes Oxley and other regulations• Additional global capital markets• NYSE
IFRS-GAAP Reconciliation• Reconciliation required on Form 20-F prior to 11/15/2007• No longer requires U.S. listed foreign companies to reconcile• U.S. companies not allowed to use IFRS• Unfair advantage – over 75% of companies completing the form 20-F reconciliation reported more income under IFRS than under GAAP.
SEC Roadmap• November 2008, the SEC proposed “Roadmap”• SEC Conditions• Implementation
SEC Conditions• Improvements in accounting standards• Accountability and funding of the IASC Foundation• Improvement in the ability to use interactive data for IFRS reporting• Education and training of U.S. preparers and users
SEC “Work Plan”• Is IFRS sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S.?• Would the standard setting body for IFRS be independent in the process and not influenced by outside pressures?• How will investor understanding and education of IFRS be accomplished?
SEC “Work Plan”• How will U.S. laws and regulations such as tax laws and regulatory reporting be impacted by any changes?• What will be the impact on the companies, both large and small, regarding changes in the accounting systems, changes to contractual arrangements, corporate governance considerations and litigation issues?• While those that prepare and audit the financial statements be able to adequately do this?
Sufficient Development• The comprehensiveness of IFRS• The auditability and enforceability of IFRS• The comparability of IFRS across jurisdictions
Independent Standard Setting• Oversight of the IFRS Foundation• Composition of the IFRS Foundation and the IASB• Funding of the IFRS Foundation• IASB Standard Setting Process
Investor Understanding and Education• Conduct Research• Gather Input
Regulatory Environment• Manner in which SEC fulfills mission• Industry Regulators• Federal and State Impacts• Audit regulation and standard setting• Broker-dealer and investment company• Public vs. Private
Impact on Issuers• Accounting systems, controls, and procedures• Contractual arrangements• Corporate governance• Accounting for litigation contingencies• Smaller issuers vs. larger issuers
Human Capital Readiness• Education and Training• Auditor Capacity
FASB/IFRS Convergence• Revenue Recognition• Leases• Financial Instruments• Presentation of Other Comprehensive Income• Fair Value Measurements