IFRS Digest: What U.S. Practitioners and Entities Need to Know Now

From the Preface

U.S. practitioners and entities need to understand where and how reporting changes under IFRS are likely to occur. Companies should advise investors, analysts, and other stakeholders of these changes well in advance of conversion. Early communication of the impact of IFRS conversion on key performance metrics, such as earnings per share, will enable U.S. entities to appropriately frame reported IFRS results in a manner where they will not be misinterpreted. Engaging the analyst community can help ensure that companies' interests are not overlooked. For example, choices made between different options allowed under IFRS should be meaningful and helpful to analysts. Choice of policies should enhance transparency and comparability. Companies also need to consider how IFRS policies selected compare with their competitors.

The primary objective of this collection is to increase the prospects of experiencing a smooth, economical, and effective move to IFRS. Some readings address the impact IFRS will have on a company's infrastructure, including underlying processes, systems, controls, tax and human resource strategies, and customer contracts and interactions. We cannot overemphasize the importance of awareness and preparedness. Practitioners and entities that identify these key issues early will be in a better position to recommend or take appropriate action in a timely manner. Prepared companies will understand their options, determine which options are most appealing, and know the best way forward to pursue their selections.

The collection also contains a section that highlights the importance of CPAs staying informed and being actively engaged in the debate as the United States moves toward IFRS. We conclude the book with a section summarizing recent actions of the IASB, many in collaboration with FASB, to respond to the credit crisis and play a key role in restoring confidence in financial markets.

The editor's comments to Chapter 4: International Financial Reporting Standards and the Credit Crisis

Throughout 2008, the U.S. Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) faced tremendous external pressures and challenges to independent standard settings as critics worldwide claimed that fair value accounting contributed to the credit crisis. In the United States, the Securities and Exchange Commission (SEC) undertook a congressionally mandated review of the impact of fair value accounting on the credit crisis. On the other side of the Atlantic, the European Commission (EC) insisted that modifications be made to International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, to create a "level playing field with the US." In October, the IASB, with the support of the International Accounting Standards Committee Foundation (IASCF) trustees, responded by issuing amendments to IAS 39 that were not subject to due process. The EC then asked for additional changes to the international standard that would be effective for the period ended December 31, 2008, suggesting that the failure of the IASB to respond satisfactorily could lead to another "carve out" of IAS 39.

By year end, some of the dust had settled and pressures on accounting standard setters eased. In the United States, the SEC delivered its report to Congress and recommended against suspension of fair value accounting standards.

From a global perspective, the G20 finance ministers enumerated what they perceived to be the main causes of the credit crisis. Fair value accounting was absent from the list. The G20 ministers also called upon the key global accounting standard setting bodies to work intensively toward the objective of creating a single high-quality global standard.

Although the ongoing credit crisis illustrates the need for high quality global accounting standards and "a level playing field" between IFRS and U.S. GAAP, the crisis also clearly demonstrates the threat to independent standard setting associated with political, media, and other external pressures coming to bear on the independent standards setting process. This chapter provides an overview of the efforts of the IASB throughout 2008 to navigate the crisis and highlights the unavoidable reality that efforts of the IASB and FASB to achieve sufficient convergence of IFRS and U.S. GAAP prior to the SEC's 2011 review of the boards' progress will take place in the context of perhaps the most turbulent global economy in recent history.

The chapter's tracking of the IASB's rapid response to the crisis throughout 2008, as well as monitoring the board's future efforts¹, is of vital importance to U.S. practitioners and entities as the SEC decision unfolds regarding whether the IASB is ready to assume the role of setting the accounting standards used by U.S. companies. How IASB weathers the storm associated with the credit crisis will likely play a significant role in the SEC's decision-making process regarding the implementation and logistics of an IFRS adoption and any role the IASB might ultimately play in setting accounting standards applicable to U.S. entities.

¹Readers wishing to follow the board's activities post-2008 may visit the IASB Web site "Credit Crisis" section (www.iasb.org/About+Us/About+the+IASB/Response+to+the+credit+crisis.htm) and Deloitte's IAS PLUS Web site "Credit Crunch" section (www.iasb.org/About+Us/About+the+IASB/Response+to+the+credit+crisis.htm). The latter covers both the IASB and the Financial Accounting Standards Board's response to the crisis.

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