The SEC proposed a roadmap to phase in mandatory use of IFRS by U.S. public companies beginning in 2014. The roadmap is conditional on meeting milestones related to IFRS quality, oversight, and acceptance by 2011. If milestones are met, the SEC will consider requiring all public companies to use IFRS. Some companies operating in industries where IFRS is more commonly used may begin using IFRS as early as 2009. The roadmap proposes phasing in mandatory IFRS over three years beginning in 2014. It also discusses revisions to regulations that would be needed to accommodate IFRS filings.

1. Defining Issues ®
KPMG LLP
November 2008, No. 08-47
Proposed Roadmap for
Mandatory IFRS Filings
by U.S. Public Companies
The SEC proposed a “roadmap” for phasing in mandatory IFRS filings by U.S. public
companies beginning for years ending on or after December 15, 2014.1 The roadmap is
conditional on progress towards “milestones” that would demonstrate improvements in
both the infrastructure of international standard setting and the preparation of the U.S.
financial-reporting community. If the conditional milestones are satisfactorily achieved
by 2011, the SEC would then consider rulemaking to phase in requirements for U.S.
public companies to file financial statements using IFRS as issued by the IASB. However,
the proposed roadmap excludes registered investment companies and registered broker-
dealers from its consideration. Some U.S. public companies that operate within an “IFRS
industry” would be permitted to begin using IFRS as soon as next year’s financial statements
if the proposal is adopted unchanged. The comment period ends February 19, 2009.
If the proposal is adopted, the final roadmap would next be published in the SEC’s Codification
of Financial Reporting Policies, a step that would allow the SEC to update or revise the
The Milestones 1 roadmap, including its timeline, as circumstances change.
Optional IFRS Filings by The Milestones
Some Companies Operat- The proposal would commit the SEC staff to monitor four of seven identified milestones
ing in “IFRS Industries” 2 through 2011. If the SEC believes these four are achieved by 2011, it would also consider
Anticipated Rulemaking 3 whether IFRS as issued by the IASB is a globally accepted set of accounting standards and
whether it is consistently applied when determining whether to mandate its use by U.S.
Phased-in Mandatory Use
public companies.
of IFRS 3
Revisions to Regulations These four milestones would be monitored by the SEC staff between now and 2011:
S-X and S-K 3
• Improved IFRS. The IASB would have to continue to improve IFRS through its independent
standard setting and its convergence work with the FASB. The proposal “urges the [FASB
and IASB] to continue working towards the completion of their joint work plan estimated
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to be completed in 2011,” but it does not identify either a specified level of convergence
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1 SEC Release No. 33-8982, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International
Photo: GettyImages/Stockbyte/The Map House of London dv115019
Financial Reporting Standards by U.S. Issuers, available at www.sec.gov.

2. Defining Issues November 2008, No. 08-47 2
incorporate IFRS, and the CPA and other
or completion of specific projects as to reporting in IFRS as issued by the IASB
relevant professional exams would need to
conditions of the milestone. The proposal and would have to be approved by the SEC
cover IFRS.
mentions that when the SEC addresses staff. Companies meeting both of these
mandating the use of IFRS in 2011, it will criteria would qualify:
The remaining three milestones are part
also consider whether the standards are
of the roadmap, but are not among the • The candidate U.S. company is in an
high in quality and sufficiently compre-
conditional milestones that are prerequisites industry group that reports using IFRS
hensive, whether the standard-setting
for the Commission’s rulemaking activity and more commonly than any other set of
process is robust and independent with
are as much action steps as milestones. financial-reporting standards. For this
input and consideration of views from
purpose, the relevant industry-group
• Early, limited use of IFRS where it would
investors and other affected parties, and
companies would be the 20 largest
enhance financial-reporting compara-
whether the standards, when implemented,
companies in the industry measured by
bility for U.S. investors. This would
are capable of improving the effectiveness
market capitalization.
coincide with the staff’s monitoring
of financial reporting and providing
activity in connection with the first • The candidate U.S. company is one of the
financial information useful to investors.
four milestones already described. It 20 largest companies in the industry.
• Satisfactory accountability and funding also could provide useful input for the
Candidate companies would be required to
of the IASC Foundation. The Trustees of
Commission’s anticipated decision on
use a single, published, “widely-accepted”
the IASC Foundation appoint members
whether to mandate the use of IFRS
industry source when determining the
of the IASB, are responsible for its
for all U.S. registrants and improve the
industry group and identifying its members.
funding, and oversee standard-setting
ability of users of financial information
The proposal allows choice in the classi-
activities. The proposal points out that the
and others to comment on future
fication scheme. Potential candidates
SEC will consider the degree to which
proposals on the use of IFRS in the U.S.
could use the North American Industry
the Foundation has a secure, stable, and
Classification System codes at the
• Anticipated rulemaking in 2011.
equitable funding mechanism that allows
three-digit level, the Standard Industrial
Assuming satisfactory achievement
the IASB to function independently of any
Classification codes at the two-digit level,
of the first four milestones, the SEC
specific constituent group. The SEC would
or the International Standard Industrial
will determine whether it is in the
also consider how effectively regulators
Classification codes at the “Division”
interest of U.S. investors to proceed
oversee the Foundation.
level. In addition, candidate companies
with rules that would require all U.S.
• Improved ability to benefit from IFRS could use other published and widely
public companies to use IFRS.
reporting in XBRL.2 The SEC has
accepted industry classification schemes at
• Phased-in, mandatory use of IFRS.
proposed rules that would require
a similar level of detail, such as the Industry
The proposal says that the SEC is
public companies to provide financial
Classification Benchmark at the “Sector”
considering an approach that would
information formatted in the XBRL
level or the Global Industry Classification
phase in requirements for the implemen-
computer language.3 The level of detail in
Standard at the “Industry” level.
tation of IFRS over a three-year period,
the existing IFRS XBRL taxonomy would
When determining the top 20 companies in
beginning with the largest companies for
have to be improved, according to the
the industry, market capitalization would
years ending on or after December 15,
proposal, in order to realize the benefits of
have to be determined on the same day
2014, rather than having all U.S. public
IFRS reporting in XBRL.
for all companies. Market capitalization
companies convert to IFRS at one time.
• Progress in education and training. The refers to the worldwide market value of a
proposal holds that a significant investment Optional IFRS Filings by
company’s outstanding voting and nonvoting
in preparing investors, management and Some Companies Operating
common equity securities determined from
financial-statement preparers, auditors, in “IFRS Industries”
a “widely-accepted” source. The date for
audit committees, specialists (such as U.S. public companies that meet two criteria
the determination would have to be within
actuaries and valuation professionals), and would be allowed to begin filing IFRS
180 days of the date that the SEC receives
regulators would be needed before IFRS financial statements as soon as for years
a request for a no-objection letter with
is widely understood in the U.S. College ending on or after December 15, 2009.
respect to the company’s determination of
and university curricula would need to However, the permission would be restricted
its eligibility. Companies would then need
2 XBRL is an abbreviation of “Extensible Business Reporting Language.
”
3 SEC Release No. 33-8924, Interactive Data to Improve Financial Reporting, available at www.sec.gov.
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3. Defining Issues November 2008, No. 08-47 3
to determine the basis of accounting used company must also explain the material IFRS by all U.S. public companies would
by each of the 20 identified companies. An adjustments to the statements of cash flows. affect investors and other market participants.
industry would be considered an “IFRS Under the proposed roadmap, U.S. public
The proposal requests comments on whether
industry” only if IFRS is used by more of the companies adopting IFRS would have to
there should be an ongoing requirement to
20 members of the industry group than any provide three years of audited IFRS financial
disclose outside of the financial statements
other basis of accounting. For example, if 8 information in all annual filings with the
an unaudited reconciliation of IFRS to U.S.
companies use IFRS, 7 use U.S. GAAP, and Commission, including the filing in the year
GAAP amounts. Under such a requirement,
5 use other bases of accounting, the industry IFRS is initially adopted. Finally, because
the balance sheet, statement of compre-
would be an IFRS industry. Conversely, if 7 the roadmap is to be published as a financial
hensive income, statement of cash flows, and
companies use IFRS, 7 use U.S. GAAP, and reporting release rather than a rule, the timing
statement of equity would be reconciled from
6 use other bases of accounting, the industry outlined in the roadmap could more easily be
IFRS to U.S. GAAP, not just in the year IFRS
would not be an IFRS industry. modified depending on progress towards the
is first adopted, but also in each subsequent
achievement of the milestones.
A U.S. company that concluded it is eligible year until the SEC decides whether to require
to elect to use IFRS would then be required all U.S. public companies to begin using Phased-in Mandatory Use of IFRS
to submit a description of its analysis of IFRS. This proposal, if adopted, would Under the proposal, the mandatory use of
eligibility to the Division of Corporation compel companies that elect to adopt IFRS IFRS would be phased in over three years
Finance. The company would need to obtain early to maintain financial records on both beginning with large accelerated filers for
a no-objection letter from the staff in order a U.S. GAAP and IFRS basis. The prospect fiscal years ending on or after December 15,
to file using IFRS. However, receipt of a of the obligation could affect eligible 2014, followed by accelerated filers for fiscal
no-objection letter would not commit the companies’ decisions about whether to adopt years ending on or after December 15, 2015,
company to begin using IFRS. The company IFRS early. and by all other filers for fiscal years ending
would have up to three years from the date of on or after December 15, 2016.
The supplemental U.S. GAAP information
the SEC staff response to begin using IFRS.
would have to be certified by the principal The proposal does not address the method
Companies electing to adopt IFRS would executive and financial officers as required by the SEC would use to mandate IFRS for
be required to do so in an annual report on Sections 302 and 906 of the Sarbanes-Oxley U.S. public companies. One of the options
Form 10-K containing three years of audited Act and would be subject to the disclosures would be for the FASB to continue to be the
IFRS financial statements. Initial adoption and certifications relating to disclosure designated standard setter for purposes of
of IFRS would not be permitted in a Form controls and procedures. However, the establishing financial-reporting standards
10-Q, registration statement, proxy, or other preparation of the supplemental information, for filings with the SEC. Under this option,
information statement. Audits would continue the underlying books and records used to the FASB would incorporate all current
to be conducted in accordance with PCAOB prepare it, and the related internal accounting provisions of IFRS and all future changes
audit standards. controls and procedures would not be to them directly into U.S. GAAP. This type
subject to management’s assessment of of approach has been used in a number of
IFRS 1 provides guidance to companies
internal control over financial reporting jurisdictions that have adopted IFRS.
preparing their first set of IFRS financial
under Section 404 of the Sarbanes-Oxley Act
statements.4 It requires each company to Revisions to Regulations S-X and S-K
or the independent auditor’s report on the
disclose in the notes an audited reconcil- Regulation S-X contains the requirements for
effectiveness of the controls.
iation from U.S. GAAP to IFRS of its the form and content of financial statements
equity at the date of transition and at the Anticipated Rulemaking included in filings with the SEC. The SEC
end of the latest period presented in its The proposed roadmap envisions the SEC staff has begun a comprehensive review of
most recent annual financial statements considering in 2011 whether to mandate all SEC rules relating to financial reporting
under U.S. GAAP. IFRS 1 also requires that all U.S. public companies apply IFRS so that it can make recommendations to the
each company to provide a reconciliation as issued by the IASB in their filed financial Commission on amendments that may be
of its total comprehensive income “for statements. The SEC would consider needed to fully implement IFRS reporting. In
the latest period in the most recent annual achievement of the first four milestones and the mean time, in order to accommodate the
financial statements.” The objective is to the results of a study that would be conducted limited early use of IFRS the new category
enable users to understand the material by the SEC’s Office of the Chief Accountant “IFRS issuer” would be incorporated into
adjustments from U.S. GAAP to IFRS. The on how the mandatory implementation of Regulation S-X, and it would allow those
4 IFRS 1, First-time Adoption of International Financial Reporting Standards.
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,
International, a Swiss cooperative. All rights reserved. 16334STM

4. companies to prepare their financial statements in accordance with IFRS as issued by the
IASB. However, the reach of this proposed change would go beyond the limited number of
earlier users. It would establish requirements that could affect all future IFRS filings.
The SEC would establish a new Article 13 in Regulation S-X that sets out requirements
governing the application of SEC Rules and Regulations that apply to any issuer that prepares
financial statements in accordance with IFRS as issued by the IASB for filings with the SEC.
New Article 13 would apply to IFRS financial statements filed by a U.S. company, a foreign
private issuer, or an issuer with regard to nonissuer financial statements pursuant to Rule 3-05,
3-09, or 3-14 of Regulation S-X.
Under New Article 13, the financial statements would have to contain a note in which the
issuer unreservedly and explicitly states compliance with IFRS as issued by the IASB, and
the accountant’s report would have to include an opinion on whether the financial statements
comply with IFRS as issued by the IASB. Issuers using IFRS would generally not be
required to comply with other provisions of Regulation S-X that specify financial presen-
tation, disclosure content, or recognition and measurement of amounts within the financial
statements. However, in many instances an IFRS issuer might be permitted to follow these
types of provisions because they would be acceptable accounting policy choices under IAS 8.5
In addition, disclosures similar to those specified by Regulation S-X may be necessary in IFRS
financial statements to fully comply with the general requirement for fair presentation under
IAS 1.6 The requirements in both Article 11, Pro Forma Financial Information, and Article 12,
This is a publication of KPMG's Form and Content of Schedules, would apply in their entirety to IFRS issuers.
Department of Professional
An IFRS issuer that changes the comprehensive set of accounting principles used in preparing
Practice—Audit
its primary financial statements to IFRS would have to prominently disclose the following
212-909-5600
information outside the financial statements in its first annual report on Form 10-K:
Contributing authors:
Paul H. Munter • That the financial statements are prepared using IFRS,
Holger Erchinger
• The reasons for the change,
Kristopher A. McKinley
• The corporate governance process followed in electing to make the change, and
Earlier editions are available at:
www.us.kpmg.com/definingissues
• The date the issuer submitted its request to the SEC demonstrating that it met the criteria to
change to IFRS and the date the SEC issued its letter of no objection.
Defining Issues® is a registered trademark of KPMG LLP.
© 2001-2008 KPMG LLP a U.S. limited liability partnership and a member
,
firm of the network of independent member firms affiliated with KPMG
International, a Swiss cooperative. All rights reserved. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss
Registrants should not treat the descriptive and summary statements in this newsletter as a
cooperative. 16334STM
substitute for any accounting requirements, yet-to-be developed rules, or any related rules and
proposals. When complying with related filing requirements, registrants should consult the
text of all relevant final rules and accounting requirements, consider their particular circum-
stances, and consult their accounting and legal advisors.
5 IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
6 IAS 1, Presentation of Financial Statements.