What is IFRS?

 The Financial Reporting Standards currently adopted by over 100 countries

 While IFRS is the global financial reporting language – what is the global business
language?

Who is using IFRS?

2009 &
2010 2011 2012 No Adoption
Earlier
Chile Brazil Canada Argentina China
France India Mexico Libya
Germany Japan United States
Greece Korea Russia
Hong Kong
Ireland
UK
Spain
Australia

History

International Accounting Standards Committee (IASC) established over 30 years with

representatives from various accounting bodies in Europe, Australia and North America.

 1975 — First International Accounting Standards (IAS) were published

 During the 1980s and 1990s, membership expanded to over 100 countries
 End of 1999, 41 IAS were issued along with 32 SICs (interpretations) which are similar
to EITFs
 2001 — Newly formed International Accounting Standards Board (IASB) supersedes
IASC
 2002 — Norwalk Agreement - IASB and FASB agree to converge in the near future with
a single set of high quality standards
 2003 — IFRS — first new international accounting standards under IASB were issued.
SICs were replaced by IFRIC
 European Union required listed companies in Europe to adopt IFRS by 2005
 2006 — IASB and FASB agree to work on several major projects
 2007 — SEC adopts a rule amendment to eliminate GAAP/IFRS reconciliation. Also
SEC issued a Concept Release (still outstanding) which will allow U.S. public companies
the option of adopting IFRS
 November 2008 — SEC Roadmap for potential use of IFRS by U.S. Issuers
o Seven Milestones — if achieved would result in mandatory use:
1. Improvements in accounting standards
2. Accountability and funding of the IASC Foundation
3. Improvement in the ability to use interactive data for IFRS reporting
 4. Education and training relating to IFRS
5. Limited early use of IFRS to enhance capability for U.S. investors
6. Anticipated timing of future rulemaking by SEC
7. Implementation of the mandatory use of IFRS by U.S. issuers

Originally, in 2011, the SEC would decide. Now the SEC has publicly stated that the decision
will be in the near future.

Roadmap suggests a phased-in approach for IFRS reporting:

Large accelerated filers — 2014

Accelerated filers — 2015
Non-accelerated filers — 2016

SEC is currently allowing certain U.S. Issuers to file financial statements in accordance with
IFRS as adopted by IASB. Criteria include:

 One of the 20 largest companies in their

industry (market cap)
 In an industry where IFRS is more prevalent

Three year adoption period — SEC Requirement of three years of audited IFRS statements

International Accounting Standards

Objective:

1. Convergence to a single set of high quality standards

2. Improve international financial reporting
3. Facilitate capital information
4. Make financial reporting easier for large multinational
companies

Some of the Current FASB/IASB Joint Projects

 Conceptual Framework
 Revenue Recognition
 Financial Instruments with Characteristics of Equity (former liabilities and equity project)
 Financial Instruments
 Leases
 Financial Statement Presentation

International Standards
As of January 1, 2010, there are 9 IFRS, 29 IAS, 18 IFRIC and 11 SIC standards that are
effective. Some previously issued IAS, IFRIC and SIC standards have been eliminated from the
current authoritative guidance.
Significant Differences Between International Accounting Standards and U.S. GAAP (from
30,000 feet up)
Topic U.S. GAAP
  Rules Based
Property and Historical cost, less
Equipment accumulated depreciation and if
applicable, impairment of
assets
Inventory Carried at the lower of cost or
market value reduced by
allowance for obsolescence and
overstock. Inventory
allowances can never be
reversed until inventory is sold
  LIFO permitted
Impairment of Two Step Approach
Long-Lived
Intangible Assets 1. Compare carrying value
with undiscounted cash
flows
2. Compare carrying value
with fair value
Reversals of impairment
charges prohibited
Provisions, Liabilities relating to present
Contingencies obligations of past events
should be recognized if outflow
of resources is probable (“likely
to occur”)
Measurement – populations
with a continuous range with
International Standards
Principles Based
Either historical cost or revalued
amount (fair value) less
accumulated depreciation and
impairment
Same as U.S. GAAP ,except
inventory allowances can be
reversed prior to sale of
inventory
LIFO prohibited
One Step Approach
1. Compare carrying value
with higher of fair value
less cost to sell or in-use
value
Reversals of impairment charges
are required when circumstances
change (not goodwill
impairment)
Recognition is similar to U.S.
GAAP, but the liability is
recognized if probable (“more
likely than not”). (Threshold for
recognition is higher for IFRS
than U.S. GAAP)
These populations should be
 equal possibility – recognize at
low end of range
Large, homogenous populations
measured at expected value
Debt If debt covenant violation is
cured after balance sheet date
but before issuance of financial
statements, debt can still be
classified as long term if
applicable
Income Taxes ASC 740-10 (FIN 48)
Uncertainties
Deferred Taxes Deferred tax assets recognized
in full reduced by valuation
allowance for amounts that are
more likely than not to be
realized
Classification of deferred tax
assets and liabilities is split
between current and noncurrent
Revenue Over 180 different cites
(extensive guidance and
specific to industries).
Literature includes SOP, SAB,
FASB and EITFs
- Share-based ASC 718-10 (FAS 123 R)
payments ASC 805-10 (FAS 141 R)
- Business ASC 350-10 (FAS 142)
combinations
- Goodwill and
other intangible
assets
- Non-current ASC 360-10 (FAS 144)
assets held for sale
and discontinued
measured at the mid-point in the
range
Similar to U.S. GAAP
Debt covenant violation must be
cured before balance sheet date
No specific guidance related to
tax uncertainties
Deferred tax asset recognized
only to the extent that they are
more likely than not to be
realized (No valuation
allowance)
Classification of deferred tax
assets and liabilities is always
noncurrent
Principles Based.
Revenue is the gross inflow of
economic benefits during the
period arising in the course of
the ordinary activities of an
entity when those inflows result
in increases in equity
IFRS 2
IFAS 3
IAS 36 & 38
IFRS 5
 operations

- Financial ASC 820-10 (FAS 157) IFRS 9 & IAS 39

Instruments and ASC 825-10 (FAS 159)
(Recognition and
Measurement) Fair
Value option

There are still some minor differences in these topics despite efforts by the two major
accounting bodies.

Implementation — What does this mean for me?

 Anticipated implementation approach

o Phase I – High level summary of differences
o Phase II – Policy choices, hypothetical situations
o Phase III – All systems go, parallel runs
 Cost to implement
o Internal costs
o External costs
 Resources to implement
o Internal resources
o External resources
 Anticipated trouble areas
o Information Technology upgrades / conversions
o Training of employees / decision makers
o Adequate training of financial statement users
o Not allowing adequate time and budget for implementation