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IFRS at A Glance

IFRS at A Glance

IFRS at A Glance: IFRS the growing acceptance of International Financial Reporting Standards (IFRS) as a basis for U.S. financial reporting represents a fundamental change for the U.S. accounting profession. The number of countries that require or allow the use of IFRS for the preparation of financial statements by publicly held companies has continued to increase. In the United States, the Securities and Exchange Commission (SEC) is taking steps to determine whether to incorporate IFRS into the financial reporting system for U.S. issuers and, if so, when and how.

IFRS at A Glance

IFRS at A Glance

IFRS at A Glance

Worldwide Momentum The international standard-setting process began several decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations unable to establish their own accounting standards. But as the business world became more global, regulators, investors, large companies and auditing firms began to realize the importance of having common standards in all areas of the financial reporting chain.

In a survey conducted in late 2007 by the International Federation of Accountants (IFAC), a large majority of accounting leaders from around the world agreed that a single set of international standards is important for economic growth. Of the 143 leaders from 91 countries who responded, 90% reported that a single set of international financial reporting standards was “very important” or “important” for economic growth in their countries.

IFRS at A Glance

Currently, more than 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies. The European Union (EU) requires companies incorporated in its member states whose securities are listed on an EU-regulated stock exchange to prepare their consolidated financial statements in accordance with IFRS.1 Australia, New Zealand and Israel have essentially adopted IFRS as their national standards.2 Brazil started using IFRS in 2010. Canada adopted IFRS, in full, on Jan. 1, 2011. Mexico will require adoption of IFRS for all listed entities starting in 2012. Japan is working to achieve convergence of IFRS and began permitting certain qualifying domestic companies to apply IFRS for fiscal years beginning April 1, 2010.

IFRS at A Glance

A decision regarding the mandatory use of IFRS in Japan is to be made around 2012. Hong Kong has adopted national standards that are equivalent to IFRS and China is converging its accounting standards with IFRS. Other countries have plans to adopt IFRS or converge their national standards with IFRS. In addition to the support received from certain U.S.-based entities, financial and economic leaders from various organizations have announced their support for global accounting standards. Leaders of the Group of 20 (G20) called for global accounting standards and urged the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to complete their convergence projects in 2011.

A summary of the IASB and FASB’s efforts regarding convergence is subsequently described. SEC Leadership in International Effort The Securities and Exchange Commission has for many years been a strong leader in international efforts to develop a core set of accounting standards that could serve as a framework for financial reporting in cross-border offerings. It has repeatedly made the case that issuers wishing to raise capital in more than one country are faced with the increased compliance costs and inefficiencies of preparing multiple sets of financial statements to comply with different jurisdictional accounting requirements.

In 2000, the International Organization of Securities Commissions (IOSCO), in which the SEC plays a leading role, recommended that its members allow multinational issuers to use 30 “core” standards issued by the IASB’s predecessor body in cross-border offerings and listings. A few years later, the SEC announced its support of a Memorandum of Understanding — the Norwalk Agreement — between the FASB and the IASB.

IFRS at A Glance

This agreement, concluded in Norwalk, CT, established a joint commitment to develop compatible accounting standards that could be used for both domestic and cross-border financial reporting. In a subsequent Memorandum of Understanding in September 2008, the FASB and the IASB agreed that a common set of high-quality, global standards remained their long-term strategic priority and established a plan to align the financial reporting of U.S. issuers under U.S. generally accepted accounting principles (GAAP) with that of companies using IFRS.

IFRS at A Glance

In 2007, the SEC unanimously voted to allow foreign private issuers to file financial statements prepared in accordance with IFRS as issued by the IASB without reconciliation to U.S. GAAP. Of even greater importance was the SEC’s Concept Release seeking input on allowing U.S. public companies to use IFRS when preparing financial statements.

In November 2008, the SEC issued a proposed roadmap that included seven milestones for continuing U.S. progress toward acceptance of IFRS. The roadmap generated significant interest and thoughtful comments from investors, issuers, accounting firms, regulators and others regarding factors the SEC should consider.

On Feb. 24, 2010, the SEC issued Release Nos. 33-9109 and 34-61578, Commission Statement in Support of Convergence and Global Accounting Standards, in which the SEC stated its continued belief that a single set of high-quality globally accepted accounting standards would benefit U.S. investors and expressed encouragement for the continued convergence of U.S. GAAP and IFRS. The releases also called for the development and execution of a “work plan” to enhance both the understanding of the SEC’s purpose and public transparency in regard to IFRS.

The work plan addresses many of the areas of concern highlighted in the comment letters to the 2008 roadmap. The SEC Work Plan The work plan includes consideration of IFRS, both as they currently exist and after the completion of the various convergence projects under way by the FASB and the IASB. Among other things, the work plan addresses some of the comments and concerns received in response to the SEC’s proposed roadmap issued in November 2008, including the following

IFRS at A Glance

Determining whether IFRS is sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S. reporting system Ensuring that accounting standards are set by an independent standard setter and for the benefit of investors Investor understanding and education regarding IFRS and how it differs from U.S. GAAP Understanding whether U.S. laws or regulations, outside of the securities laws and regulatory reporting, would be affected by a change in accounting standards Understanding the impact on companies both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations and litigation contingencies Human capital readiness – determining whether the people who prepare and audit financial statements are sufficiently prepared, through education and experience, to convert to IFRS On Oct. 29, 2010, the SEC released a progress report on its IFRS Work Plan.

The report provided details on progress and remaining research and analysis to be done as the SEC considers whether to incorporate IFRS into the U.S. financial reporting system for U.S. issuers. In 2011, assuming completion of the convergence projects and the SEC staff’s work plan, the SEC will decide whether to incorporate IFRS into the U.S. financial reporting system for U.S. issuers, and if

IFRS at A Glance

so, when and how. If the SEC determines to incorporate IFRS into the U.S. financial reporting system, the SEC believes the first time U.S. entities would be required to report under such a system would be no earlier than 2015. This timeline will be further evaluated as part of the work plan. The work plan is included as an appendix at the end of the SEC’s release.

The two boards have described what convergence means and their tactics to achieve it in two documents — the Norwalk Agreement issued in 2002 and the Memorandum of Understanding (MoU), originally issued in 2006 and updated in 2008. The MoU originally highlighted several major convergence projects between IASB and FASB scheduled for completion in 2011.

In response to the requests from the leaders of the G20, the IASB and FASB published a progress report, describing an intensification of their work program, including monthly joint board meetings and quarterly progress updates on these convergence projects. On Nov. 29, 2010, FASB and IASB issued a convergence progress report. In the report, the standard setters reaffirmed their priority projects for completion by June 30, 2011, or earlier. Joint priority projects include financial instruments.

IFRS at A Glance

And these are the things are going to get covered in International Financial Reporting Standards


1. The nature and operations of the IASB

  • Structure of the IFRSF/IASB
  • Extant standards of the IASB
  • The framework.

2. The status and use of IFRSs around the world

  • The use of IFRS around the world
  • The IASB roadmap
  • The annual IASB bound volume and its use.

3. Presentation and profit

  • IAS 1, Presentation of financial statements
  • IFRS 15, Revenue from contracts with customers
  • IAS 8, Accounting policies, changes in accounting estimates and errors.

4. Accounting for assets and liabilities – part 1

  • IAS 16, Property, plant and equipment
  • IAS 38, Intangible assets
  • IAS 40, Investment Property
  • IAS 36, Impairment of assets
  • IAS 23, Borrowing costs
  • IAS 20, Accounting for government grants and disclosure of government assistance
  • IAS 2, Inventories
  • IFRS 16, Leases
  • IFRS 5, Non-current assets held for sale and discontinued operations

5. Accounting for assets and liabilities – part 2

  • IFRS 13, Fair Value Measurement
  • IFRS 32, Financial instruments – presentation
  • IFRS 9, Financial instruments
  • IFRS 7, Financial instruments: disclosures
  • IFRS 2, Share-based payment
  • IAS 37, Provisions, contingent liabilities and contingent assets
  • IAS 10, Events after the reporting period
  • IAS 19, Employee benefits
  • IAS 12, Income taxes
  • IAS 41, Agriculture
  • IFRS 6, Exploration for and evaluation of mineral resources.

6. Group accounting

  • IFRS 10, Consolidated Financial Statements
  • IAS 27 (revised 2011), Separate financial statements
  • IFRS 3, Business Combinations
  • IAS 28 (revised 2011), Investments in associates and joint ventures
  • IFRS 11, Joint arrangements
  • IFRS 12, Disclosure of interests in other entities
  • IAS 21, The effects of changes in foreign exchange rates
  • IAS 29, Financial reporting in hyper inflationary economies.

7. Disclosure standards

  • IAS 7, Statement of cash flows
  • IAS 24, Related party disclosures
  • IAS 33, Earnings per share
  • IAS 34, Interim financial reporting
  • IFRS 4, Insurance contracts
  • IFRS 1, First time adoption of IFRS
  • IFRS 8, Operating segments.

8. Principal differences between UK/US GAAP and IFRS

9. Proposals for change

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