IFRS!IFRS!

What is IFRSWhat is IFRS

International Financial Reporting International Financial Reporting StandardsStandards

Who Establishes IFRS?Who Establishes IFRS?

International Accounting International Accounting Standards Board (IASB)Standards Board (IASB)

Why Do We Care?Why Do We Care?

Use of IFRS is widespreadUse of IFRS is widespread More than 15,000 companies listed More than 15,000 companies listed

overseas use IFRSoverseas use IFRS In 2011, India and Canada, among In 2011, India and Canada, among

others, will convert their financial others, will convert their financial reporting systems to IFRSreporting systems to IFRS

This will add at least 12,000 additional This will add at least 12,000 additional companies to the list of companies companies to the list of companies reporting under IFRSreporting under IFRS

In the past, companies who wished to In the past, companies who wished to list securities in the US had to reconcile list securities in the US had to reconcile their financial statements to show the their financial statements to show the nature and cause of differences in nature and cause of differences in earnings based on their reporting earnings based on their reporting standards and US GAAP on a Form 20-Fstandards and US GAAP on a Form 20-F

As of 2007, the SEC removed this As of 2007, the SEC removed this restriction for companies using IFRS restriction for companies using IFRS and now allows foreign registrations to and now allows foreign registrations to use IFRS without reconciliationuse IFRS without reconciliation

The SEC is in the process of The SEC is in the process of publishing a proposed roadmap publishing a proposed roadmap (more on this later) that is moving (more on this later) that is moving toward allowing or requiring U.S. toward allowing or requiring U.S. companies to use IFRS. companies to use IFRS.

This could mean that U.S. GAAP is no This could mean that U.S. GAAP is no longer used…and we are talking longer used…and we are talking about a timeframe from 2009 – about a timeframe from 2009 – 2016..2016..

The FASB, SEC, AICPA, and the Big-4 The FASB, SEC, AICPA, and the Big-4 Accounting firms (KPMG, PWC, Deloitte Accounting firms (KPMG, PWC, Deloitte Touche, and E&Y) all favor the adoption of a Touche, and E&Y) all favor the adoption of a set of high quality international reporting set of high quality international reporting standards, and the consensus is growing that standards, and the consensus is growing that IFRS will be that standard.IFRS will be that standard.

““The AICPA supports one set of high-quality The AICPA supports one set of high-quality global accounting standards for public global accounting standards for public companies,” said Barry Melancon, AICPA companies,” said Barry Melancon, AICPA president and CEO.  “We believe the capital president and CEO.  “We believe the capital markets ultimately will insist on IFRS for markets ultimately will insist on IFRS for public companies. Today’s action by the SEC public companies. Today’s action by the SEC continues a robust and thoughtful debate continues a robust and thoughtful debate that is critical as the transition occurs.” that is critical as the transition occurs.”

Why Global Accounting Why Global Accounting Standards?Standards? Enhanced worldwide Enhanced worldwide

comparability for investorscomparability for investors Enhanced quality of reportingEnhanced quality of reporting

– Some national GAAPs are weekSome national GAAPs are week Possibly a lower cost of capitalPossibly a lower cost of capital More company-friendly US More company-friendly US

securities market for foreign securities market for foreign listingslistings

Reduced reporting costsReduced reporting costs No need to develop and maintain No need to develop and maintain

national standardsnational standards For audit firms and companies:For audit firms and companies:

– Easier movement of auditors and Easier movement of auditors and accountants across bordersaccountants across borders

IASBIASB

The International Accounting The International Accounting Standards Committee was founded Standards Committee was founded in 1973. At that time, it was in 1973. At that time, it was composed of volunteers who met composed of volunteers who met three times a year. They issued three times a year. They issued statements called International statements called International Accounting Standards (IASs); they Accounting Standards (IASs); they issued 41 such standards.issued 41 such standards.

As the demand grew for international As the demand grew for international reporting standards, IOSCO (The reporting standards, IOSCO (The International Organization of Securities International Organization of Securities Commissions, of which the U.S. SEC is a Commissions, of which the U.S. SEC is a member) issued a mandate that the member) issued a mandate that the IASC develop a core set of standards, IASC develop a core set of standards, and determined that if they were and determined that if they were successful, the SECs of member successful, the SECs of member countries would consider pursing countries would consider pursing international standards for their international standards for their jurisdictions.jurisdictions.

To meet this mandate, it was To meet this mandate, it was necessary to restructure the IASCnecessary to restructure the IASC

In 2001, the first restructuring In 2001, the first restructuring occurredoccurred– Full time IASB based in LondonFull time IASB based in London– 14 members14 members– Issue IFRS (old IASs remain in force Issue IFRS (old IASs remain in force

unless superseded or revised)unless superseded or revised)

USE OF IFRS USE OF IFRS WORLDWIDEWORLDWIDE For domestic LISTEC companiesFor domestic LISTEC companies IFRS required for all: 85 IFRS required for all: 85 IFRS required for some: 4IFRS required for some: 4 IFRS permitted 24IFRS permitted 24 IFRS are used by UNLISTED IFRS are used by UNLISTED

companies in over 80 jurisdictionscompanies in over 80 jurisdictions

EuropeEurope

EU, EAA, and SwitzerlandEU, EAA, and Switzerland IFRS is used by all listed entitites (about IFRS is used by all listed entitites (about

8,000) in consolidated statements.8,000) in consolidated statements. In the EU, IFRS must be “endorsed” by In the EU, IFRS must be “endorsed” by

the Unionthe Union One modification with respect to One modification with respect to

reporting on derivatives (IAS 39) so the reporting on derivatives (IAS 39) so the audit report reads “IFRSs a adopted by audit report reads “IFRSs a adopted by the EU”the EU”

The modification affects just a few The modification affects just a few companies (less than 100)companies (less than 100)

The endorsement mechanism in The endorsement mechanism in the EU results in time lags.the EU results in time lags.

(NOTE: The SEC only accepts (NOTE: The SEC only accepts IFRS as published in English by IFRS as published in English by the IASB for U.S. filings without the IASB for U.S. filings without reconciliation)reconciliation)

Asia-PacificAsia-Pacific

Nearly word-for word convergence: Nearly word-for word convergence: Australia, New Zealand, Hong KongAustralia, New Zealand, Hong Kong

Modifications, time lags, some not Modifications, time lags, some not adopted: Singapore, Thailand, adopted: Singapore, Thailand, Malaysia, Philippines, ChinaMalaysia, Philippines, China

Own standards: Japan (convergence Own standards: Japan (convergence program in place), Taiwainprogram in place), Taiwain

2011 adoption of IFRS planned: India, 2011 adoption of IFRS planned: India, KoreaKorea

North AmericanNorth American

Canada, planned conversion to Canada, planned conversion to IFRS in 2011IFRS in 2011

USAUSA

Permitted for foreign SEC Permitted for foreign SEC registrants since March 2009registrants since March 2009

Proposed roadmap for US Proposed roadmap for US adoptionadoption

Latin Latin America/CaribbeanAmerica/Caribbean IFRS required in Brazil by 2010 for IFRS required in Brazil by 2010 for

all listed companies, banksall listed companies, banks IFRS phased in from 2009-2011 in IFRS phased in from 2009-2011 in

Chili and over a dozen smaller Chili and over a dozen smaller jurisdictionsjurisdictions

Middle East and AfricaMiddle East and Africa

Many countries require IFRS, Many countries require IFRS, although there are often country-although there are often country-specific idiosyncraciesspecific idiosyncracies

Financial Reporting Financial Reporting EnvironmentsEnvironments US – strong enforcement by SECUS – strong enforcement by SEC Long traditionof strict, detailed Long traditionof strict, detailed

accounting standardsaccounting standards Publication of audited financial Publication of audited financial

statements by publicly traded statements by publicly traded companiescompanies

Many other countriesMany other countries

Strong company laws with moderate Strong company laws with moderate to weak enforcement by regulatorsto weak enforcement by regulators

Less litigationLess litigation Diverse auditing culturesDiverse auditing cultures Private as well as public companies Private as well as public companies

must often publish financial must often publish financial statements, often auditedstatements, often audited

CANADA, UK, USCANADA, UK, US

Public sector has long accepted Public sector has long accepted private sector accounting private sector accounting standardsstandards

EUEU

Public sector is suspicious of Public sector is suspicious of private-sector accounting private-sector accounting standards, questioning if they are standards, questioning if they are in the public interestin the public interest

Its ever-lengthening endorsement Its ever-lengthening endorsement process detracts from worldwide process detracts from worldwide comparabilitycomparability

IFRS as adopted by the EU may IFRS as adopted by the EU may foreshadow further deviations foreshadow further deviations from IFRSfrom IFRS

Most countries converge national Most countries converge national GAAP with IFRS.GAAP with IFRS.

Some adopt IFRS as published by Some adopt IFRS as published by the IASBthe IASB

IFRS is becoming more rules-IFRS is becoming more rules-based (1,200 pages in 2000; based (1,200 pages in 2000; 2,700 pages in 2008)2,700 pages in 2008)

IFRS vs US GAAPIFRS vs US GAAP

IFRS: Principles-based standards IFRS: Principles-based standards with limited application guidancewith limited application guidance

US: Rules-based standards with US: Rules-based standards with specific application guidancespecific application guidance

Some DifferencesSome Differences

Measuring GoodwillMeasuring Goodwill Disclosure of segment liabilitiesDisclosure of segment liabilities Basis for consolidationBasis for consolidation LIFOLIFO Deferred tax assetsDeferred tax assets Revaluation of PP&E and quoted Revaluation of PP&E and quoted

intangibles through equityintangibles through equity Development costsDevelopment costs

Gains on sale and leasebackGains on sale and leaseback Investments in real estateInvestments in real estate Agricultural assetsAgricultural assets Actuarial gains and lossesActuarial gains and losses Vested past service costVested past service cost Joint venturesJoint ventures Measuring impairmentMeasuring impairment Reversals of write-downsReversals of write-downs

SEC to Propose Roadmap SEC to Propose Roadmap for Potential Mandatory for Potential Mandatory IFRS FilingsIFRS Filings On August 27, 2008, the SEC decided On August 27, 2008, the SEC decided

to issue a proposed IFRS Roadmap.to issue a proposed IFRS Roadmap. The SEC proposed specific rule The SEC proposed specific rule

changes that would permit the use of changes that would permit the use of IRFS for certain U.S. issuers.IRFS for certain U.S. issuers.

The Roadmap proposal will be The Roadmap proposal will be published in the Federal Register published in the Federal Register within 60 days.within 60 days.

The proposal acknowledges that IFRSs The proposal acknowledges that IFRSs have the potential to become the have the potential to become the global set of accounting standardsglobal set of accounting standards

A timetable for adoption in the U.S. is A timetable for adoption in the U.S. is proposed.proposed.

Assuming certain milestones are Assuming certain milestones are achieved, the SEC is considering a achieved, the SEC is considering a mandatory transition to IFRSs starting mandatory transition to IFRSs starting in 2014.in 2014.

The proposed roadmap would commit The proposed roadmap would commit the SEC staff to monitor the progress the SEC staff to monitor the progress toward achieving milestones. toward achieving milestones.

IF, in 2011, the SEC deems there has IF, in 2011, the SEC deems there has been adequate progress toward been adequate progress toward achieving the milestones, they would achieving the milestones, they would consider adopting final rules requiring consider adopting final rules requiring U.S. public companies to use IFRS. U.S. public companies to use IFRS.

The proposed roadmap includes a The proposed roadmap includes a potential phased transition over potential phased transition over three years beginning with large three years beginning with large accelerated filers in 2014, accelerated filers in 2014, followed by accelerated filers in followed by accelerated filers in 2015, and concluding with non-2015, and concluding with non-accelerated filers in 2016.accelerated filers in 2016.

MilestonesMilestones

IFRS continued improvement. IFRS would be IFRS continued improvement. IFRS would be improved largely through continued efforts b improved largely through continued efforts b the IASB and the FASB to converge IFRS and the IASB and the FASB to converge IFRS and U.S. GAAP. U.S. GAAP.

Funding and accountability of the Funding and accountability of the International Accounting Standards International Accounting Standards Committee Foundation. Accountability would Committee Foundation. Accountability would be strengthened by establishing a be strengthened by establishing a “monitoring group’ and its funding process “monitoring group’ and its funding process would be stabilized by basing int on shared would be stabilized by basing int on shared obligations undertaken by jurisdictions using obligations undertaken by jurisdictions using IFRS.IFRS.

Improvement in the ability to use Improvement in the ability to use interactive date (e.g., XBRL) for IFRS interactive date (e.g., XBRL) for IFRS reporting. That is, the technical reporting. That is, the technical capability to communicate financial capability to communicate financial information in the XBRL computer information in the XBRL computer language based on the coding terms language based on the coding terms specified in a ‘taxonomy’ would have to specified in a ‘taxonomy’ would have to be available. be available.

Education and training in IFRS in the Education and training in IFRS in the United States.United States.

Limited early use by eligible entities. Limited early use by eligible entities. This milestone would give certain U.S. This milestone would give certain U.S. issuers the option of using IFRS for issuers the option of using IFRS for fiscal years ending on or after fiscal years ending on or after December 15, 2009. December 15, 2009. – A majority of peer-group companies report A majority of peer-group companies report

using IFRS as issued by the IASBusing IFRS as issued by the IASB– The U.S. company is one of the top 20 The U.S. company is one of the top 20

peer group companiespeer group companies– (potentially more than 110 companies (potentially more than 110 companies

representing approximately 14% of total representing approximately 14% of total U.S. market capitalization.)U.S. market capitalization.)

On the basis of the progress toward On the basis of the progress toward meeting milestones 1-4, and the meeting milestones 1-4, and the experience gained from milestone 5, experience gained from milestone 5, the SEC will determine in 2011 the SEC will determine in 2011 whether to require mandatory whether to require mandatory adoptoin of IFRS for all U.S. issuers. adoptoin of IFRS for all U.S. issuers. If so, the SEC will determine the date If so, the SEC will determine the date and approach for a mandatory and approach for a mandatory transition to IFRS.transition to IFRS.

ResourcesResources

http://www.iasplus.com/index.htmhttp://www.iasplus.com/index.htm http://www.iasplus.com/resource/http://www.iasplus.com/resource/

0808aaaifrsresources.pdf0808aaaifrsresources.pdf