IFRS.. Full ahead or caution?


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Where is the US going with IFRS?

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  • IFRS.. Full ahead or caution?

    1. 1. IFRS Abandon Ship or Smooth Sailing Ahead? Neal J. Hannon AAA Interactive Data Associates Stamford, CT 203-274-6806 [email_address]
    2. 2. Use of IFRSs Is Widespread! <ul><li>Used by more than 15,000 listed companies overseas </li></ul><ul><ul><li>Another 12,000 planned by 2011 </li></ul></ul><ul><li>Used by foreign subsidiaries of US-based multinationals </li></ul><ul><li>Used by SEC foreign registrants without reconciliation to US GAAP </li></ul><ul><li>Will probably be used by US companies in a few years </li></ul><ul><ul><li>Both SEC registrants and private companies </li></ul></ul>
    3. 3. More than 100 countries, including the members of the European Union and much of Asia, have already adopted and implemented IFRS. Israel is adopting IFRS this year, with Chile and South Korea set for 2009, Brazil for 2010, and Canada for 2011.
    4. 4. Use of IFRSs Is Widespread! <ul><li>FASB, SEC, AICPA, Big-4, and major US multinationals all strongly favor use of IFRSs </li></ul><ul><li>Designation of IASB under AICPA Rules 202-203 (May 2008) </li></ul><ul><ul><li>Potential for use of IFRS for Private Entities when it is finished early 2009 </li></ul></ul><ul><li>What will become of the FASB (and other national standard setters)? </li></ul>
    5. 5. <ul><li>Why global </li></ul><ul><li>accounting standards? </li></ul>
    6. 6. Why Global Standards? <ul><li>Enhanced worldwide comparability for investors </li></ul><ul><li>Enhanced quality of reporting </li></ul><ul><ul><li>Some national GAAPs are weak or outdated </li></ul></ul><ul><li>Possibly a lower cost of capital for companies adopting IFRSs </li></ul><ul><li>More company-friendly US securities market for foreign listings </li></ul>
    7. 7. Why Global Standards? <ul><li>Reduced reporting costs </li></ul><ul><ul><li>For instance, multinational with subs applying many GAAPs </li></ul></ul><ul><li>No need to develop and maintain national standards </li></ul><ul><li>For audit firms and companies: Easier movement of auditors and accountants across borders </li></ul>
    8. 8. Brief History <ul><li>IASC started 1973: </li></ul><ul><ul><li>Volunteer, part-time, met 3X/year </li></ul></ul><ul><ul><li>Issued IASs 1-41 + interpretations </li></ul></ul><ul><li>Restructured 2001: </li></ul><ul><ul><li>Full-time IASB based in London </li></ul></ul><ul><ul><li>14 members </li></ul></ul><ul><ul><li>Issues IFRSs </li></ul></ul><ul><ul><ul><li>Old IASs (most revised by IASB) remain in force </li></ul></ul></ul>
    9. 9. IASB Structure
    10. 10. Use of IFRSs Around the World Today, IFRSs are used by listed companies in over 100 jurisdictions For domestic listed companies: Number of Jurisdictions IFRSs required for all 85 IFRSs required for some 4 IFRSs permitted 24
    11. 11. Use of IFRSs Around the World Today, IFRSs are used by unlisted companies in over 80 jurisdictions For domestic unlisted companies: Number of Jurisdictions IFRSs required for all 28 IFRSs required for some 20 IFRSs permitted 36
    12. 12. Use of IFRSs Means All IFRSs! <ul><li>33 existing IASs (1 to 41, some deleted) issued by IASC 1973-2000: </li></ul><ul><ul><li>Most amended or replaced by IASB during 2003-2008 </li></ul></ul><ul><li>IFRSs 1-8 issued by IASB </li></ul><ul><li>Also Interpretations </li></ul>
    13. 13. Use of IFRSs by Listed Entities <ul><li>Europe (EU+EEA+ Switzerland): </li></ul><ul><ul><li>All listed (about 8,000 companies) </li></ul></ul><ul><ul><li>In consolidated financial statements </li></ul></ul><ul><ul><li>EU: One ‘modification’ (of IAS 39) </li></ul></ul><ul><ul><ul><li>Consequently, audit report refers to ‘IFRSs as adopted by the EU’ </li></ul></ul></ul><ul><ul><li>Endorsement mechanism results in time lags </li></ul></ul>
    14. 14. Use of IFRSs by Listed Entities <ul><li>Asia-Pacific: </li></ul><ul><ul><li>Nearly word-for-word convergence: Australia, New Zealand, Hong Kong </li></ul></ul><ul><ul><li>Modifications, time lags, some not adopted : Singapore, Thailand, Malaysia, Philippines, China </li></ul></ul><ul><ul><li>Own standards : Japan (convergence program), Taiwan </li></ul></ul><ul><ul><li>2011 planned : India, Korea </li></ul></ul>
    15. 15. Use of IFRSs by Listed Entities <ul><li>North America: </li></ul><ul><ul><li>Canada: planned 2011 </li></ul></ul><ul><ul><li>USA: </li></ul></ul><ul><ul><ul><li>Permitted for foreign SEC registrants since March 2008 </li></ul></ul></ul><ul><ul><ul><li>SEC studying domestic registrants ─ roadmap suggests 2014 </li></ul></ul></ul>
    16. 16. Use of IFRSs by Listed Entities <ul><li>Latin America/Caribbean: </li></ul><ul><ul><li>IFRSs required: Brazil (2010 all listed and banks), Chile (2009-2011 phased in), and over a dozen smaller jurisdictions </li></ul></ul><ul><li>Middle East and Africa: </li></ul><ul><ul><li>IFRSs required: Many countries </li></ul></ul>
    17. 17. US vs. the World? The stated objective of the 2002 “Norwalk Agreement” between FASB and the IASB is the development of high quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting. Clearly, this approach says let’s make both sets of standards better, not choose one set over the other.
    18. 18. Convergence Still On <ul><li>Sep 11, 2008 FASB, IASB To Complete Major Convergence Projects by 2011, Says MoU FASB expects to release proposals in 2008 on Subsequent Events and Income Taxes. </li></ul><ul><li>  </li></ul><ul><li>Similar to the ‘improve and adopt ” approach described by FASB Chairman Robert Herz in interviews and Senate testimony </li></ul><ul><li>  </li></ul><ul><li>Other matters noted in 2008 MoU Update: Conceptual Framework: Work is ongoing on the boards’ joint conceptual framework projects. </li></ul><ul><li>FASB and the IASB recognize the need for due process </li></ul><ul><li>Work Programs Include Other Matters: </li></ul><ul><ul><li>The boards “remain committed to completing the MoU projects because they represent a significant step toward the goal of a common set of high quality standards.” </li></ul></ul>
    19. 19. Principles Vs. Rules Principle: Drive safely Rule: 55 MPH Limit
    20. 20. Voices of Note <ul><li>The question about whether the world is going to global standards is no longer ‘if,’ but ‘when’. Switching to IFRS significantly reduces the cost of accounting and financial reporting for multi-national companies, which would otherwise have to translate and reconcile records prepared under various country-specific standards. </li></ul><ul><li>KPMG Chairman and CEO Timothy P. Flynn </li></ul>
    21. 21. Voices of Note <ul><li>“ 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,” said SEC Chairman Christopher Cox. </li></ul><ul><li>“ The increasing worldwide acceptance of financial reporting using IFRS, and U.S. investors’ increasing ownership of securities issued by foreign companies that report financial information using IFRS, have led the Commission to propose this cautious and careful plan. </li></ul><ul><li>Clearly setting out the SEC’s direction well in advance, as well as the conditions that must be met, will help fulfill our mission of protecting investors and facilitating capital formation.” </li></ul>
    22. 22. Voices of Note <ul><li>Meanwhile the IASB at the dawn of the 21st Century began to add meat to but left out many of the bright line rules. Hence it generated a reputation for principles-based standards instead of rules-based its milk toast &quot;politically correct&quot; starter-set of international standards. In many instances it copied FASB standards. </li></ul><ul><ul><li>Bob Jensen, Professor emeritus Trinity University. www.trinity.edu/rjensen </li></ul></ul>
    23. 23. Voices of Note <ul><li>&quot;We should start off [a financial reporting standard] with the core principle, which is really the 'true and fair' core of the standard.&quot; </li></ul><ul><li>Sir David Tweedie, Chairman IASB. </li></ul><ul><li>“ The idea of true and fair in accounting is little more than faith-based accounting , and most certainly not the appropriate starting point for any process of developing high-quality accounting standards.” </li></ul><ul><li>Tom Selling (www.accountingonion.com) </li></ul>
    24. 24. Voices of Note <ul><li>On accounting, SEC Chairman Cox has unveiled a roadmap where US companies would switch from US GAAP to IFRS by 2014 . Unthinkable only two years ago! A dramatic signal indeed. Following the EU's lead, the US is indicating it also wants to choose global standards. One set, in sight, at last. And of course we need to strengthen the governance of the IASB . That is why we are working hard with some of our major counterparts to install new, strengthened oversight mechanisms. </li></ul><ul><li>Charles McCreevy, European Commissioner for Internal Market 14 September 2008. </li></ul>
    25. 25. Voices of Note <ul><li>A precipitous move away from U.S. Generally Accepted Accounting Principles will undermine the U.S. regulatory system, and thereby &quot; put in jeopardy the thing that gives the U.S. a competitive advantage. All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?” </li></ul><ul><li>Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board </li></ul>
    26. 26. Voices of Note <ul><li>By the logic of others, which I can’t explain, fuzzy lines in accounting standards have come to be exalted as “principles-based” and bright lines are disparaged as “rules-based.”  </li></ul><ul><li>Tom Selling, author of The Accounting Onion blog </li></ul>
    27. 27. <ul><li>It is important to note that conversion to IFRS will require the retroactive restatement of certain historical periods presented within a company’s first set of IFRS based financial statements. Those restated periods could show a host of changes to a company’s key metrics, bottom-line performance and financial position. </li></ul><ul><li>Source: PriceWaterhouseCoopers, September 2008 </li></ul>
    28. 28. What Are the Major Differences?
    29. 29. Major Differences US GAAP - IFRS <ul><li>Revenue recognition </li></ul><ul><li>Expense recognition: share-based payments </li></ul><ul><li>Financial liabilities and equity </li></ul><ul><li>Consolidation </li></ul><ul><li>Assets—nonfinancial assets </li></ul><ul><li>Assets—financial assets </li></ul>
    30. 30. Major Differences US GAAP - IFRS <ul><li>Liabilities—taxes </li></ul><ul><li>Liabilities—other </li></ul><ul><li>Financial liabilities and equity </li></ul><ul><li>Derivatives and hedging </li></ul><ul><li>Consolidations </li></ul><ul><li>Business combinations </li></ul><ul><li>Other accounting and reporting topics </li></ul>
    31. 31. What If IFRS starts 12-31-11? <ul><li>Preparing IFRS financial statements for the three years ending December 31, 2011, would have a transition date of January 1, 2009. That would also be the date of the opening IFRS balance sheet. </li></ul><ul><ul><li>IFRS 1 requires that the opening IFRS balance sheet: </li></ul></ul><ul><ul><li>Include all of the assets and liabilities that IFRS requires; </li></ul></ul><ul><ul><li>Exclude any assets and liabilities that IFRS does not permit; </li></ul></ul><ul><ul><li>Classify all assets, liabilities and equity in accordance with IFRS; and </li></ul></ul><ul><ul><li>Measure all items in accordance with IFRS. </li></ul></ul><ul><li>These general principles are followed except where one of the optional exemptions or mandatory exceptions does not require or permit recognition, classification and measurement in accordance with IFRS. </li></ul>
    32. 32. IFRS Resources <ul><li>Download a comprehensive list: </li></ul><ul><ul><li>www.iasplus.com/resource/0808aaaifrsresources.pdf </li></ul></ul><ul><ul><li>Or http://fairfield-ais.wikispaces.com/IFRS+Resource+Page </li></ul></ul><ul><li>Most of the cited hyperlinks lead to additional resources </li></ul><ul><li>Most available for free </li></ul>
    33. 33. IFRS Resources <ul><li>Deloitte </li></ul><ul><ul><li>iGAAP 2009 – A Guide to IFRS Reporting (2 nd ed., 2,100 pages) </li></ul></ul><ul><ul><li>iGAAP 2008 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (4 th ed., 851 pages). </li></ul></ul><ul><ul><li>www.iasplus.com </li></ul></ul><ul><ul><li>IFRS e-Learning </li></ul></ul><ul><ul><li>IFRSs in your Pocket 2008 </li></ul></ul>
    34. 34. IFRS Resources <ul><li>Ernst & Young </li></ul><ul><ul><li>Ernst & Young International GAAP 2008 (2 volumes) </li></ul></ul><ul><ul><li>www.ey.com/ifrs </li></ul></ul><ul><ul><li>New academic resource center to be launched Sept. 2008 </li></ul></ul><ul><li>Grant Thornton </li></ul><ul><ul><li>http://faculty.gtexperience.com </li></ul></ul>
    35. 35. IFRS Resources <ul><li>KPMG </li></ul><ul><ul><li>KPMG IFRS Institute </li></ul></ul><ul><ul><ul><li>www.kpmgifrsinstitute.com/ </li></ul></ul></ul><ul><ul><li>KPMG faculty portal </li></ul></ul><ul><ul><ul><li>www.kpmgfacultyportal.com </li></ul></ul></ul><ul><ul><li>KPMG IFRG website </li></ul></ul><ul><ul><ul><li>www.kpmgifrg.com </li></ul></ul></ul><ul><ul><li>IFRS publications library </li></ul></ul><ul><ul><ul><li>www.kpmgifrg.com/pubs/index.cfm </li></ul></ul></ul>
    36. 36. IFRS Resources <ul><li>PricewaterhouseCoopers </li></ul><ul><ul><li>IFRS reporting website </li></ul></ul><ul><ul><ul><li>www.pwcglobal.com/ifrs </li></ul></ul></ul><ul><ul><li>IFRS Pocket Guide 2008 </li></ul></ul><ul><ul><li>’ IFRS Ready’ toolkit for educators </li></ul></ul><ul><ul><ul><li>www.pwc.com/faculty </li></ul></ul></ul><ul><ul><li>PWC IFRS Blog </li></ul></ul><ul><ul><ul><li>http://pwc.blogs.com/ifrs/ </li></ul></ul></ul>
    37. 37. IFRS Resources <ul><li>US SEC Global Accounting Page </li></ul><ul><ul><li>www.sec.gov/spotlight/ifrsroadmap.htm </li></ul></ul><ul><li>IASB </li></ul><ul><ul><li>www.iasb.org </li></ul></ul><ul><ul><li>Subscriptions and e-IFRS </li></ul></ul><ul><ul><li>Webcasts of meetings </li></ul></ul><ul><li>World Accounting Report </li></ul><ul><ul><li>www.i-financial.com/ </li></ul></ul>
    38. 38. IFRS Academic Resources <ul><li>IAAER </li></ul><ul><ul><li>www.iaaer.org </li></ul></ul><ul><ul><li>Offers very low-cost academic subscription to eIFRS (from IASB) </li></ul></ul><ul><ul><ul><li>Includes all IFRSs and other educational materials of the IASB $25 (academician) and $20 (student) </li></ul></ul></ul><ul><ul><ul><li>Normal price from IASB $400 </li></ul></ul></ul>
    39. 39. IFRS Resources <ul><li>AICPA </li></ul><ul><ul><li>IFRSs on CPA Exam: </li></ul></ul><ul><ul><ul><li>www.cpa-exam.org </li></ul></ul></ul><ul><ul><li>New IFRS website </li></ul></ul><ul><ul><ul><li>www.ifrs.com </li></ul></ul></ul><ul><li>Canadian Institute of CAs </li></ul><ul><ul><li>IFRS Transition Page: </li></ul></ul><ul><ul><ul><li>www.cica.ca/index.cfm?ci_id=39166&la_id=1 </li></ul></ul></ul>
    40. 40. IFRS Resources <ul><li>European Commission </li></ul><ul><ul><li>Accounting: </li></ul></ul><ul><ul><ul><li>http://ec.europa.eu/internal_market/accounting/index_en.htm </li></ul></ul></ul><ul><ul><li>This includes links to: </li></ul></ul><ul><ul><ul><li>EU accounting news </li></ul></ul></ul><ul><ul><ul><li>IFRS news and information </li></ul></ul></ul><ul><ul><ul><li>EU IFRS-related committees </li></ul></ul></ul><ul><ul><ul><li>EU IFRS directives and regulations </li></ul></ul></ul>
    41. 41. <ul><li>IFRS - How to Assess Your Financial Readiness Date: Tuesday, November 4, 2008 Time: 1:00 p.m. EDT Place: Online </li></ul><ul><li>The move to International Financial Reporting Standards (IFRS) is of extreme importance to finance professionals as it has already been adopted in Europe and will be required in Canada in 2011.  In the US growing evidence suggests that the SEC is accelerating measures to retire US GAAP and require all public companies to adopt IFRS. </li></ul><ul><li>The impact of IFRS will not only affect the finance function, but stretch to encompass key business decisions across the entire organization.  Having the right plan and systems in place is critical to ensure a smooth transition. But where do you start </li></ul><ul><li>Register Now for this LIVE Webcast </li></ul><ul><li>Join Deloitte and Longview Solutions as they offer helpful advice on key IFRS topics including: </li></ul><ul><li>The status of IFRS adoption in North America </li></ul><ul><li>How to assess your company’s IFRS readiness </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Processes </li></ul></ul><ul><ul><li>Support Systems </li></ul></ul><ul><li>Business Performance Management (BPM) as an enabler of IFRS </li></ul><ul><li>Featured Speakers: </li></ul><ul><li>Don Newell , Deloitte Partner, National IFRS Leader </li></ul><ul><li>Tony Wright , Director of Product Management, Longview Solutions </li></ul><ul><li>Sign up now and join us on November 4 for this educational webcast! </li></ul>
    42. 42. IFRS Resources for Educators <ul><li>Textbooks – some recent ones: </li></ul><ul><ul><li>Nobes and Parker </li></ul></ul><ul><ul><li>Roberts, Weetman and Gordon </li></ul></ul><ul><ul><li>Choi and Meek </li></ul></ul><ul><ul><li>Holt, Mirza and Orrell </li></ul></ul><ul><ul><li>Alfredson, Leo, Picker, Pacter et al </li></ul></ul><ul><li>Histories of the IASC: </li></ul><ul><ul><li>Camfferman and Zeff </li></ul></ul><ul><ul><li>Kirsch </li></ul></ul>
    43. 43. <ul><li>Credits for IASB history and IASB Resources: </li></ul><ul><li>Stephen Zeff, Rice University </li></ul><ul><li>and Paul Pacter, IASB </li></ul><ul><li>From a presentation to: </li></ul><ul><li>American Accounting Association </li></ul><ul><li>Anaheim, CA August 4, 2008 </li></ul>
    44. 44. <ul><li>Thank you. </li></ul><ul><li>Questions and comments? </li></ul><ul><li>For more: ficpa-ifrs.wikispaces.com </li></ul>Neal J. Hannon, AAA Interactive Data Associates Stamford, CT 203-274-6806 [email_address] “ Bridging the GAAP between XBRL and the SEC”