1. Three Steps Financial
Executives Should Ta k e
To w a r d s I F R S
GET GLOBAL AND GAIN AN EDGE BY UNDERSTANDING
INTERNATIONAL STANDARDS EARLY

2. the standard, rather than designing transactions to
Three Steps Financial Executives
manipulate a result that conforms to a stated rule.
Should Take Towards IFRS
However, such a system may also result in individual
interpretations that vary widely in practice, and thus may
GET GLOBAL AND GAIN AN EDGE BY UNDERSTANDING
lead to less comparable financial reporting. Hence, while
INTERNATIONAL STANDARDS EARLY
the U.S. is trending toward IFRS, actionable change will be
slow, deliberate, and will incorporate lessons learned from
As if technology and the U.S. economic struggles haven’t
counterparts around the world.
made for enough of a roller coaster for international
business in the past few years, globalization is really just
What IFRS means to Public Companies
getting started. More change is to come, and the increasing
dialog about International Financial Reporting Standards For public companies and at its most basic level, IFRS
(IFRS) indicates that the future will demand a truly global means an easier global system. Today, multinational
perspective. companies must undertake the complex task of reconciling
or converting reports to meet current U.S. guidelines under
Migrating to IFRS will bring the U.S. into alignment with
GAAP and IFRS, which often means maintaining two or
reporting and disclosure guidelines for companies abroad,
more sets of records to produce a consolidated set of
and the SEC took a major step in 2007 when it agreed to
financial statements. That process invokes higher
allow foreign companies filing in the U.S. to use IFRS
accounting costs and increased risk; moving to IFRS will
without reconciliation to U.S. GAAP. Further, the
literally put U.S. filers on the same page as their foreign
Financial Accounting Standards Board (FASB) has been
equivalents.
converging U.S. accounting standards with IFRS since
October 2002, which has had a significant influence on For those that operate
new accounting standards in recent years. Despite this, on a global scale, the
changing the decades-old system in the U.S. will be a migration will be
tremendous challenge. critical to maintaining
fluid financial
While it remains to be seen whether IFRS will be worth the
relationships with
effort, for some it is already a source of optimism for global
regulators on multiple
growth. A move to IFRS is expected to boost business, as
continents. In the
“approximately 50 percent of respondents said convergence
near-term the
to a single set of international standards…for [Small to
education process will
Mid-Sized Enterprises] is important to economic growth in
be significant – full
their countries.”1 The groundwork has already been laid:
teams of internal
more than 12,000 companies in nearly 100 countries
financial professionals will eventually have to be retrained
operate under IFRS. The European Union, Australia, New
to gain a full understanding of IFRS.
Zealand and Israel follow the standards, and Canada and
Japan are headed in the same direction. What IFRS means to Private Companies
IFRS will represent a fundamental shift in how accounting For private companies, IFRS is less about compliance and
standards are promulgated and implemented. Current more about opportunity. As global business becomes the
accounting standards in the U.S. are generally referred to as norm, those that operate distribution centers,
“rules-based”, whereas IFRS are considered to be consultancies, or other divisions in foreign countries will be
“principles-based.” This change in ideology will require a better armed to interface with partners and suppliers. That
corresponding shift in the way we think about the means less friction with overseas vendors and more
application of accounting principles. Some believe that opportunity to initiate relationships that would otherwise
following a principles-based system will lead to making encounter the stumbling block of disconnected financial
accounting decisions that are consistent with the intent of statements.
2

3. Of even greater significance, IFRS will come into play as Step 2: Educate
potential merger and acquisition activity materializes.
Many feel that without a hard and fast deadline, no real
Having parallel reporting in place will allow for seamless
movement will be initiated. However, given the immense
fusion of financial departments.
educational gap that exists, financial executives should
begin to familiarize themselves in order to maximize global
Three Steps to IFRS
opportunities. The SEC is reviewing a proposal to allow
Preparedness
U.S. companies to file under IFRS voluntarily, with a
With so much uncertainty around when and how U.S.
mandated deadline to be set in the future. Further, the
GAAP will converge with IFRS and when regulators will
uniform CPA examination in the U.S. is considering an
allow or require issuers to report under IFRS, financial
exposure draft that would incorporate new testing
executives must stay ahead of the curve to be ready for
requirements of IFRS on future exams.
changes. Here are three early stage steps towards IFRS:
The most fundamental consideration is to get educated as
Step 1: Keep your radar on
to what IFRS represents and how it differs from current
accounting practices under U.S. GAAP (see table on page
Even as momentum gathers around IFRS, there are still a
4). It is too premature, without clear guidance from the
number of roadblocks to overcome. Most notably, the SEC
standards making bodies, to begin a full-scale
must determine the timing and manner in which the
implementation plan, but it is not too premature to begin
transition will be made. Until they take that step, the
the education process and develop a hit list of the expected
FASB will continue forward with its convergence efforts,
financial reporting changes.
and financial executives and their advisors must stay closely
tuned in to IFRS updates and actions.
Step 3: Coordinate and Prepare to Mobilize
For the time being, newly introduced or revised standards
A word of caution: though education is paramount,
are being modeled on IFRS to help them ease into the
executives should not yet attempt to bring their entire
system. This supports a gradual shift in standards as the
accounting team up to speed with IFRS. Things are very
industry moves towards an eventual deadline, although no
likely to change over the next few years, so it is best to have
single approach has distinguished itself as the most
an internal IFRS “champion” that departments can look to
successful. Indeed, every country that has moved to IFRS
for expertise and guidance without over-doing it.
“has tailored its approach to its existing system of
regulation,” noted Patricia O’Malley, coordinator of the Along those lines, leaders should ensure that external
International Financial Reporting Interpretations financial advisors are keeping abreast of these forthcoming
Committee of the International Accounting Standards changes. If external reporting is critical to the business,
2
Board, at a FASB conference on IFRS held on June 16. then auditors and financial counsel should be positioning
themselves today to support its evolving needs.
Whether via a hard and fast deadline or a phased approach,
the American Institute of CPAs (AICPA) has been one of It is also not too soon to confirm that internal audit
the most vocal proponents of moving IFRS along. The committees and external stakeholders such as investors and
organization recently launched www.ifrs.com as an bankers are keeping abreast of the potential changes to the
information resource, and in April conducted a poll of U.S. reporting environment.
CPAs to gauge expectations. While 55 percent of 1,240
With these wheels in motion, U.S. companies looking to
respondents said that they expect the move to IFRS to
compete across borders will be better armed for global
directly impact their work, 59 percent said they have not
business. And looking to the future, financial executives
begun to prepare for adoption.3 34 percent of respondents
will be on solid footing for changes that may have an effect
said they would need three years to prepare, and 31 percent
on issues including corporate governance, financial
said they would need four to five years.4
performance targets, and financial covenants.
3

4. There are significant differences between IFRS and the current standards under U.S. GAAP. They can and will be overcome
with time, but present an implementation challenge as they stand today. The differences can fill several pages, but some key
and commonly encountered examples are:
US. GAAP IFRS
Last In-First Out (LIFO) is an acceptable costing method. LIFO is prohibited.
Accounting for
Inventory
Two-step method is utilized. Single-step method (making write-downs more likely).
Impairment Write-downs
No similar provisions as those under IFRS. Limited disclosures are permitted if it would be prejudicial
Accounting for
to a position in a dispute with another party.
Contingencies
Covenant failures may be waived by the lender subsequent Debt must be reported as a current liability, unless the
Debt Covenants
to a reporting period. lender agreed to waive the covenant failure(s) prior to the
balance sheet.
Extensive guidance for recognition of revenue, including Limited guidance.
Revenue Recognition
industry-specific guidance.
Generally, comparative financial statements are presented; Comparative information must be disclosed in respect of
Financial Periods
however, a single year may be presented in certain the previous period for all amounts reported in the financial
Required
circumstances. Public companies must follow SEC rules, statements.
which require balance sheets for the two most recent years,
while all other statements must cover the three-year period
ended on the balance sheet date.
No general requirement within U.S. GAAP to prepare the IAS 1 Presentation of Financial Statements does not prescribe
Layout of Balance Sheet
balance sheet and income statement in accordance with a a standard layout, but includes a list of minimum items.
and Income Statement
specific layout; however, public companies must follow the These minimum items are less prescriptive than the
detailed requirements in Regulation S-X. requirements in Regulation S-X.
Present all changes in each caption of stockholders’ equity At a minimum, present components related to “recognized
Changes in Equity
in either a footnote or a separate statement. income and expense” as part of a separate statement
(referred to as the SORIE if it contains no other
components). Other changes in equity either disclosed in
the notes, or presented as part of a single, combined
statement of all changes in equity (in lieu of the SORIE).
SEC regulations define certain key measures and provide Certain traditional concepts such as “operating profit” are
Disclosure of
requirements and limitations on the ability of public not defined; therefore, diversity in practice exists regarding
Performance Measures
companies to disclose non-GAAP measures within the line items, headings and subtotals presented on the income
financial statements. Any non-GAAP measures presented statement when such presentation is relevant to an
must be reconciled to the corresponding GAAP understanding of the entity’s financial performance.
measurement.
1 IFAC 2007 Global Leadership Survey, November 27, 2007, web.ifac.org/download/Global_Survey-Summary.pdf
2 Exasperation, resignation on IFRS, Compliance Week, June 24, 2008
3 AICPA Publishes IFRS.com Website to Inform Members and Financial Professionals About International Accounting Standards, AICPA Press Release, May 19, 2008
4 AICPA Calls for Three to Five Year Timeline for Reasonable Transition to IFRS, AICPA Press Release, June 17, 2008
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