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Preparing For IFRS

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Preparing For IFRS

  1. 1. MFA – Moody, Famiglietti & Andronico, LLP Copyright 2008.  Moody, Famiglietti & Andronico, LLP.  All Rights Reserved. Travis Drouin, CPA, CIA Partner November 19, 2008 Preparing for International Financial Reporting Standards (IFRS)
  2. 2. IFRS – What Is It? <ul><li>IFRS are an existing set of high-quality, country-neutral financial reporting standards </li></ul><ul><li>113+ countries already require or permit use of IFRS, and more plan to use </li></ul><ul><li>As a result of global convergence, individual GAAP and IFRS standards will change rapidly and significantly </li></ul><ul><ul><li>In 2002, IASB and FASB began convergence. </li></ul></ul><ul><ul><li>U.S. companies will migrate toward converged standards in the long-term – already en route! </li></ul></ul>
  3. 3. Short-Term Convergence Projects Already Completed <ul><li>Recent projects by the standard setters are already diminishing GAAP vs. IFRS differences: </li></ul><ul><ul><li>FAS 159: Fair Value Option </li></ul></ul><ul><ul><li>FAS 141R & IFRS 3R: Business Combinations </li></ul></ul><ul><ul><li>IAS 23R: Borrowing Costs </li></ul></ul><ul><ul><li>IFRS 8: Segment Reporting </li></ul></ul>
  4. 4. IFRS Background <ul><li>In November 2007, the FAF & FASB jointly issued a comment letter supporting convergence, stating: </li></ul><ul><ul><li>Transitioning U.S. companies to IFRS is best way to achieve global standards </li></ul></ul><ul><ul><li>Standard-setters should develop blue-print for transition, including dates </li></ul></ul><ul><ul><li>SEC should collaborate with other standard-setters to identify changes to sustain IASB </li></ul></ul>
  5. 5. IFRS Background <ul><li>In 2007, SEC announced it would allow foreign public companies to issue financial statements in the U.S. under IFRS </li></ul><ul><ul><li>Rule 33-8879 permits no reconciliation to GAAP </li></ul></ul><ul><li>During June of 2008, AICPA called for 3-5 year timeline for reasonable transition to IFRS for U.S. companies </li></ul>
  6. 6. IFRS Background <ul><li>In August of 2008, SEC announced roadmap to begin to permit registrants to file statements under IFRS </li></ul><ul><ul><li>Selected registrants have option to file IFRS statements for periods ending on or after December 15, 2009 </li></ul></ul><ul><ul><li>Conversion for certain filers would be mandated for years ending after December 15, 2014 </li></ul></ul>
  7. 7. IFRS vs. U.S. GAAP <ul><li>IFRS tend to be more principles driven, while U.S. GAAP is more rules driven </li></ul><ul><ul><li>More judgment needed with IFRS </li></ul></ul><ul><ul><li>Less IFRS implementation guidance </li></ul></ul><ul><ul><li>Fewer industry specific and regulatory interpretations with IFRS </li></ul></ul><ul><ul><li>Less comparability with IFRS </li></ul></ul>
  8. 8. IFRS vs. U.S. GAAP – Highlights of General Differences <ul><li>Consolidations – IFRS rules based on risks and rewards of ownership – more entities consolidated! </li></ul><ul><li>Revenue Recognition – IFRS principles are broad, with no industry guidance – potentially earlier recognition for multiple deliverable contracts, PCS and time-based licenses </li></ul><ul><li>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 </li></ul><ul><li>R&D – Under IFRS, development costs are capitalized, tracked, and evaluated for impairment </li></ul>
  9. 9. IFRS vs. U.S. GAAP – Highlights of General Differences (Continued) <ul><li>Asset Impairment – Under IFRS, one-step impairment test vs. recoverable amount, with revaluation permitted – More impairments. </li></ul><ul><li>Income Taxes – With IFRS, all deferred taxes are long-term and there is NO FIN 48 equivalent. </li></ul><ul><li>Inventories – Under IFRS, carry at lower of cost or net realizable value - NO LIFO, which could have major tax implications. </li></ul><ul><li>Lease Classification – Under IFRS, no bright line rules (e.g., 90% test). Lessee/Lessor classification should be parallel. </li></ul>
  10. 10. IFRS for Private Entities <ul><li>In June 2004, IASB issued Discussion Paper, “Preliminary Views on Accounting Standards for Small and Medium-sized Entities”. </li></ul><ul><li>In February 2007, IASB published Exposure Draft of “IFRS for Small and Medium-sized Entities” </li></ul><ul><li>Proposed IFRS for SME’s: </li></ul><ul><ul><li>Eliminates topics not generally relevant to SME’s </li></ul></ul><ul><ul><li>Provides fewer choices for accounting treatment </li></ul></ul><ul><ul><li>Simplifies recognition and measurement methods </li></ul></ul><ul><ul><li>Reduces required disclosures </li></ul></ul><ul><ul><li>Uses “plain English” language </li></ul></ul>
  11. 11. Planning and Coordination Considerations re: IFRS <ul><li>Ensure internal systems, processes and resources are able and ready! Start ASAP! </li></ul><ul><li>Consider risk management approach to transition plan – “What can go wrong?” </li></ul><ul><li>Communicate transition plans to external stakeholders well in advance of implementation (i.e., 2 years in advance) </li></ul><ul><li>Consider requirements for transition date and comparative periods </li></ul><ul><li>Ponder maintaining 2 sets of books during transition period </li></ul>
  12. 12. Steps in Adopting IFRS <ul><li>Develop project team and implementation timeline </li></ul><ul><li>Understand differences in IFRS vs. U.S. GAAP </li></ul><ul><li>Evaluate changes needed in accounting policies </li></ul><ul><li>Determine number and location of reporting entities and current IFRS knowledge (e.g., foreign subs) </li></ul><ul><li>Consider potential tax consequences of adoption </li></ul><ul><li>Consider system and IT opportunities (e.g., shared service centers) </li></ul>
  13. 13. Available Resources <ul><li>www.mfa-cpa.com </li></ul><ul><li>www.IASB.org </li></ul><ul><li>www.ifrs.com </li></ul><ul><li>www.SEC.gov </li></ul><ul><li>www.BDO.com/ifrs </li></ul>
  14. 14. Questions, Answers and Closing
  15. 15. MFA – Moody, Famiglietti & Andronico, LLP <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Copyright 2008.  Moody, Famiglietti & Andronico, LLP.  All Rights Reserved. </li></ul>

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