MFA – Moody, Famiglietti & Andronico, LLP

Preparing for IFRS – An UpdateTravis M. Drouin, CPA, CIA

Partner

April 26, 2010

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MFA – Moody Famiglietti & Andronico, LLP

100+ person CPA firm, with 14 partners Located in Tewksbury, MA, servicing clients

throughout New England and New York / New Jersey areas

Registered with the PCOAB to perform audits of SEC registrants

Clients across a wide spectrum of industries, many of whom operate internationally

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Who am I?

Methuen native who graduated UML in December 1992 Entered public accounting with another regional firm, now

called Caturano & Co. 3 year respite from public with a venture capital firm from 1998

– 2001 Joined MFA in 2001 and entered the partnership in 2005 At MFA, areas of specialty include audits of technology

companies (software, SAAS, hardware, etc.), IFRS, and internal controls (SOX, SAS 70, etc.)

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International Financial Reporting Standards (IFRS) – What Are They?

IFRS are an existing set of high-quality, country-neutral financial reporting standards.

113+ countries already require or permit use of IFRS, and more plan to use.

As a result of global convergence, individual GAAP and IFRS standards will change rapidly and significantly.

– In 2002, IASB and FASB began convergence.– U.S. companies will migrate toward converged

standards in the long-term – already en route!

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Short-Term Convergence ProjectsAlready Completed

Recent projects by the standard setters are already diminishing GAAP vs. IFRS differences:– FAS 159: Fair Value Option– FAS 141R & IFRS 3R: Business Combinations– IAS 23R: Borrowing Costs– IFRS 8: Segment Reporting

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IFRS Background

In November 2007, the FAF and FASB jointly issued a comment letter supporting convergence, stating:– Transitioning U.S. companies to IFRS is

best way to achieve global standards– Standard-setters should develop blue-

print for transition, including dates– SEC should collaborate with other

standard-setters to identify changes to sustain IASB.

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IFRS Background (Continued)

In 2007, SEC announced it would allow foreign public companies to issue financial statements in the U.S. under IFRS.

– Rule 33-8879 permits no reconciliation to GAAP During June of 2008, AICPA called for 3-5 year

timeline for reasonable transition to IFRS for U.S. companies.

Most recently, in February 2010, the SEC affirmed its intent to require use of IFRS in 2015 (early adoption, however, will not be an option)

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IFRS vs. U.S. GAAP

IFRS tend to be more principles driven, while U.S. GAAP is more rules driven.– More judgment needed with IFRS.– Less IFRS implementation guidance.– Fewer industry specific and

regulatory interpretations with IFRS.– Less comparability with IFRS.

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IFRS vs. U.S. GAAP – Highlights of General Differences

Consolidations – IFRS rules based on risks and rewards of ownership – more entities consolidated!

Revenue Recognition – IFRS principles are broad, with no industry guidance – potentially earlier recognition for multiple deliverable contracts, PCS and time-based licenses.

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.

R&D – Under IFRS, development costs are capitalized, tracked, and evaluated for impairment.

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IFRS vs. U.S. GAAP – Highlights of General Differences (Cont.)

Asset Impairment – Under IFRS, one-step impairment test vs. recoverable amount, with revaluation permitted – More impairments.

Income Taxes – With IFRS, all deferred taxes are long-term and there is NO FIN 48 equivalent.

Inventories – Under IFRS, carry at lower of cost or net realizable value - NO LIFO, which could have major tax implications.

Lease Classification – Under IFRS, no bright line rules (e.g., 90% test). Lessee/Lessor classification should be parallel.

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IFRS for Private Entities

In June 2004, IASB issued Discussion Paper, “Preliminary Views on Accounting Standards for Small and Medium-sized Entities”.

In February 2007, IASB published Exposure Draft of “IFRS for Small and Medium-sized Entities”

On July 9, 2009 the IASB published an IFRS designed for use by SMEs:

– Eliminates topics not generally relevant to SME’s– Provides fewer choices for accounting treatment– Simplifies recognition and measurement methods– Reduces required disclosures– Uses “plain English” language.

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Planning and Coordination Considerations re: IFRS

Ensure internal systems, processes and resources are able and ready! Start ASAP!

Consider risk management approach to transition plan – “What can go wrong?”

Communicate transition plans to external stakeholders well in advance of implementation (i.e., 2 years in advance).

Consider requirements for transition date and comparative periods.

Ponder maintaining 2 sets of books during transition period.

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Steps in Adopting IFRS

Develop project team and implementation timeline. Understand differences in IFRS vs. U.S. GAAP. Evaluate changes needed in accounting policies. Determine number and location of reporting entities

and current IFRS knowledge (e.g., foreign subs). Consider potential tax consequences of adoption. Consider system and IT opportunities (e.g., shared

service centers).

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The CPA Exam

Do I need to study IFRS for the exam?– The AICPA is developing IFRS content questions

currently– No plans, as of yet, to incorporate IFRS materials

into the exam

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IFRS – A jaded view

Many do not believe that IFRS is warranted or necessary in the U.S.

Is it a better set of standards? Will it improve financial reporting? Other thoughts?

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Available Resources

www.mfa-cpa.com www.IASB.org www.ifrs.com www.SEC.gov www.BDO.com/ifrs http://accountingonion.typepad.com/the

accountingonion/

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Questions, Answers and Closing

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MFA – Moody, Famiglietti & Andronico, LLP

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.

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