Get Ready for IFRS

This article was quoted from the International Financial Reporting Standards (IFRS), an AICPA Backgrounder, released by AICPA through its IFRS resources Web site : www.IFRS.com

The growing acceptance of IFRS as a basis for U.S. financial reporting represents a fundamental change for the U.S. accounting profession. Today, approximately 113 countries require or allow the use of IFRS for the preparation of financial statements by publicly held companies. In the United States, the Securities and Exchange Commission (SEC) has been taking steps to set a date to allow U.S. public companies to use IFRS, and perhaps make its adoption mandatory. In fact, on November 14, 2008, the SEC released for public comment a proposed roadmap with a timeline and key milestones for adopting IFRS beginning in 2014.

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.

The globalization of business and finance has led more than 12,000 companies in more than 100 countries to adopt IFRS. In 2005, the European Union (EU) began requiring 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. Australia, New Zealand and Israel have essentially adopted IFRS as their national standards. Canada, which previously planned convergence with US. GAAP, now plans to require IFRS for publicly accountable entities in 2011. The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) plan convergence by 2011. On November 11, 2008, Mexico announced it would adopt IFRS for all listed entities starting in 2012.

In another part, AICPA reported that even great strides have been made by the FASB and the IASB to converge the content of IFRS and U.S. GAAP, yet several significant differences between the U.S. GAAP and IFRS still remain. For example :

1. IFRS does not permit LIFO as an inventory costing method
2. IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.
3. IFRS has a different probability threshold and measurement objective for contingencies.
4. IFRS does not permit curing debit covenant violations after year-end
5. IFRS guidance regarding revenue recognition is less extensive than U.S. GAAP and contains relatively little industry-specific instruction.

Further, it said that perhaps the greatest difference between IFRS and U.S. GAAP is that IFRS provides much less overall detail.

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