Times They Are a Changing — The Coming Convergence
A concise snapshot of IFRS, with milestones and timeline.
October 6, 2008
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Just about the time we think we have the latest FASB (Financial Accounting Standards Board) statements figured out the SEC (U.S. Securities and Exchange Commission) comes along and adopts a formal timetable for the convergence of U.S. GAAP (Generally Accepted Accounting Principles) and the International Financial Reporting Standards (IFRS) that may change many of the rules we have all spent so much time learning. The acceptance of IFRS as a basis for U.S. financial reporting represents a fundamental change for public companies and the accounting profession.
So just what is IFRS? It is a single set of accounting standards developed by the International Accounting Standards Board (IASB). These standards are used in more than 100 countries world wide for filings by public companies. IFRS is not as extensive a set of standards as U.S.GAAP and does not include extensive industry-specific guidance. IFRS does contain many similar concepts as U.S. GAAP but it does not include the same amount of detailed implementation guidance. As a result of this lack of guidance, IFRS will require the exercise of much more judgment on the part of the accountant.
In December 2007, the SEC issued final rules permitting foreign private issuers to file financial statements in accordance with IFRS as issued by the IASB. These new rules do not require reconciliation of the financial statements to U.S. GAAP. At its August 27, 2008 meeting the SEC approved a proposed “timetable” that identified “milestones” to be achieved before the Commission considers requiring adoption of IFRS by all U.S. public companies. If public companies are required to follow IFRS can the rest of us be far behind?
The milestones. The SEC identified four milestones that would be part of the Commission’s consideration of whether to require adoption of IFRS by all U.S. public companies. Those milestones are:
The SEC has proposed that a limited number of U.S. companies that meet certain criteria, be allowed to use IFRS in preparing their 2009 calendar year financial statements to determine the impact of IFRS. The SEC staff estimated that at least 110 U.S. public companies would meet the requirements.
The timetable. The SEC has proposed a timetable for potential adoption of IFRS for all U.S. public companies. That timetable is as follows:
It is interesting to note that the IASB currently has an Exposure Draft under consideration that would create separate standards for small and medium sized entities (SMEs), in effect creating two levels of GAAP, one for small companies (defined as companies with 50 employees of less) and another for large companies. It will be interesting to see if the IASB can accomplish what U.S. accounting professionals have been talking about for years. The IASB expects to issue a final standard in December 2008.
IFRS is coming and it only seems logical that if all public companies are required to adopt the standards, it is only a matter of time until all companies will be required to follow suit. Having two different sets of accounting standards just doesn’t make sense.
— Published in the September 2008 issue of the CPE & Training Solutions monthly newsletter available from the Tax & Accounting business of Thomson Reuters. Copyright September 2008. To see more about AuditWatch, visit trainingcpe.thomson.com/AuditWatch.