IFRS

Abandon Ship or Smooth Sailing

Ahead?

Neal J. Hannon
AAA Interactive Data Associates
Stamford, CT 203-274-6806
nhannon@gmail.com

Use of IFRSs Is Widespread!

Used by more than 15,000 listed companies
overseas
Another 12,000 planned by 2011
Used by foreign subsidiaries of US-based
multinationals
Used by SEC foreign registrants without
reconciliation to US GAAP
Will probably be used by US companies in a
few years
Both SEC registrants and private companies

More than 100 countries, including the members of the European

Union and much of Asia, have already adopted and implemented
IFRS. Israel is adopting IFRS this year, with Chile and South Korea
set for 2009, Brazil for 2010, and Canada for 2011.

Use of IFRSs Is Widespread!

FASB, SEC, AICPA, Big-4, and major US
multinationals all strongly favor use of IFRSs
Designation of IASB under AICPA Rules 202-203
(May 2008)
Potential for use of IFRS for Private Entities when it is
finished early 2009

What will become of the FASB (and other

national standard setters)?

Why global
accounting standards

Why Global Standards?

Enhanced worldwide comparability for
investors
Enhanced quality of reporting
Some national GAAPs are weak or outdated
Possibly a lower cost of capital for companies
adopting IFRSs
More company-friendly US securities market
for foreign listings

Why Global Standards?

Reduced reporting costs
For instance, multinational with subs applying many
GAAPs

No need to develop and maintain national

standards
For audit firms and companies: Easier
movement of auditors and accountants across
borders

Brief History
IASC started 1973:
Volunteer, part-time, met 3X/year
Issued IASs 1-41 + interpretations

Restructured 2001:
Full-time IASB based in London
14 members
Issues IFRSs
Old IASs (most revised by IASB) remain in force

IASB Structure

Use of IFRSs Around the

World

For domestic listed companies:

IFRSs required for all
IFRSs required for some
IFRSs permitted

Number of
Jurisdictions

85
4
24

Today, IFRSs are used by listed

companies in over 100 jurisdictions

Use of IFRSs Around the

World

For domestic unlisted

companies:

Number of
Jurisdictions

IFRSs required for all

IFRSs required for some

28
20

IFRSs permitted

36

Today, IFRSs are used by unlisted

companies in over 80 jurisdictions

Use of IFRSs Means All

IFRSs!
33 existing IASs (1 to 41, some deleted)
issued by IASC 1973-2000:
Most amended or replaced by IASB during
2003-2008

IFRSs 1-8 issued by IASB

Also Interpretations

Use of IFRSs by Listed

Entities
Europe (EU+EEA+ Switzerland):
All listed (about 8,000 companies)
In consolidated financial statements
EU: One modification (of IAS 39)
Consequently, audit report refers to IFRSs as
adopted by the EU

Endorsement mechanism results in time lags

Use of IFRSs by Listed

Entities
Asia-Pacific:
Nearly word-for-word convergence: Australia,
New Zealand, Hong Kong
Modifications, time lags, some not adopted:
Singapore, Thailand, Malaysia, Philippines,
China
Own standards: Japan (convergence program),
Taiwan
2011 planned: India, Korea

Use of IFRSs by Listed Entities

North America:

Canada: planned 2011

USA:
Permitted for foreign SEC registrants since March
2008
SEC studying domestic registrants roadmap
suggests 2014

Use of IFRSs by Listed Entities

Latin America/Caribbean:
IFRSs required: Brazil (2010 all listed and
banks), Chile (2009-2011 phased in), and over
a dozen smaller jurisdictions

Middle East and Africa:

IFRSs required: Many countries

US vs. the World?

The stated objective of the 2002 Norwalk Agreement
between FASB and the IASB is the development of
high quality, compatible accounting standards that
could be used for both domestic and cross-border
financial reporting.
Clearly, this approach says lets make both sets of
standards better, not choose one set over the
other.

Convergence Still On

Sep 11, 2008 FASB, IASB To Complete Major Convergence

Projects by 2011, Says MoU FASB expects to release proposals
in 2008 on Subsequent Events and Income Taxes.

Similar to the improve and adopt approach described by FASB

Chairman Robert Herz in interviews and Senate testimony

Other matters noted in 2008 MoU Update: Conceptual

Framework: Work is ongoing on the boards joint conceptual
framework projects.

FASB and the IASB recognize the need for due process

Work Programs Include Other Matters:

The boards remain committed to completing the MoU projects because
they represent a significant step toward the goal of a common set of
high quality standards.

Principle:
Drive
safely
Rule:
55 Vs.
MPH
Limit
Principles
Rules

Voices of Note
The question about whether the world is going to
global standards is no longer if, but when.
Switching to IFRS significantly reduces the
cost of accounting and financial reporting for
multi-national companies, which would otherwise
have to translate and reconcile records prepared
under various country-specific standards.
KPMG Chairman and CEO Timothy P. Flynn

Voices of Note
An international language of disclosure and transparency
is a goal worth pursuing on behalf of investors who
seek comparable financial information to make wellinformed investment decisions, said SEC Chairman
Christopher Cox.
The increasing worldwide acceptance of financial reporting
using IFRS, and U.S. investors increasing ownership of
securities issued by foreign companies that report
financial information using IFRS, have led the
Commission to propose this cautious and careful plan.
Clearly setting out the SECs direction well in advance,
as well as the conditions that must be met, will help fulfill
our mission of protecting investors and facilitating capital
formation.

Voices of Note
Meanwhile the IASB at the dawn of the 21st Century
began to add meat to but left out many of the bright line
rules. Hence it generated a reputation for principlesbased standards instead of rules-based its milk toast
"politically correct" starter-set of international standards.
In many instances it copied FASB standards.
Bob Jensen, Professor emeritus Trinity University.
www.trinity.edu/rjensen

Voices of Note
"We should start off [a financial reporting
standard] with the core principle, which is really
the 'true and fair' core of the standard."
Sir David Tweedie, Chairman IASB.

The idea of true and fair in accounting is little

more than faith-based accounting, and most
certainly not the appropriate starting point for
any process of developing high-quality
accounting standards.
Tom Selling (www.accountingonion.com)

Voices of Note
On accounting, SEC Chairman Cox has unveiled a
roadmap where US companies would switch from US
GAAP to IFRS by 2014. Unthinkable only two years
ago! A dramatic signal indeed. Following the EU's lead,
the US is indicating it also wants to choose global
standards. One set, in sight, at last. And of course we
need to strengthen the governance of the IASB. That
is why we are working hard with some of our major
counterparts to install new, strengthened oversight
mechanisms.
Charles McCreevy, European Commissioner for Internal Market 14
September 2008.

Voices of Note
A precipitous move away from U.S. Generally Accepted
Accounting Principles will undermine the U.S. regulatory
system, and thereby "put in jeopardy the thing that
gives the U.S. a competitive advantage. All research
shows that the U.S. is unique in its regulation. No
[country] is as effective . . . . We have the lowest cost of
capital in the world. Do we really want to give that up?
Charles Niemeier, a member and former acting chair of the
Public Company Accounting Oversight Board

Voices of Note
By the logic of others, which I cant explain,
fuzzy lines in accounting standards have
come to be exalted as principles-based
and bright lines are disparaged as rulesbased.
Tom Selling, author of The Accounting Onion blog

It is important to note that conversion to IFRS

will require the retroactive
restatement of certain historical periods
presented within a companys first set of IFRS
based financial statements. Those restated
periods could show a host of changes to a

companys key metrics, bottom-line

performance and financial position.

Source: PriceWaterhouseCoopers, September

2008

What Are the Major

Differences?

Major Differences
US GAAP - IFRS
Revenue recognition
Expense recognition: share-based
payments
Financial liabilities and equity
Consolidation
Assetsnonfinancial assets
Assetsfinancial assets

Major Differences
US GAAP - IFRS

Liabilitiestaxes
Liabilitiesother
Financial liabilities and equity
Derivatives and hedging
Consolidations
Business combinations
Other accounting and reporting topics

What If IFRS starts 12-31-11?

Preparing IFRS financial statements for the three years ending

December 31, 2011, would have a transition date of January 1,
2009. That would also be the date of the opening IFRS balance
sheet.

IFRS 1 requires that the opening IFRS balance sheet:

Include all of the assets and liabilities that IFRS requires;
Exclude any assets and liabilities that IFRS does not permit;
Classify all assets, liabilities and equity in accordance with IFRS; and
Measure all items in accordance with IFRS.

These general principles are followed except where one of the

optional exemptions or mandatory exceptions does not require or
permit recognition, classification and measurement in accordance
with IFRS.

IFRS Resources
Download a comprehensive list:
www.iasplus.com/resource/0808aaaifrsresources.pdf
Or http://fairfieldais.wikispaces.com/IFRS+Resource+Page

Most of the cited hyperlinks lead to additional

resources
Most available for free

IFRS Resources
Deloitte
iGAAP 2009 A Guide to IFRS Reporting (2nd ed.,
2,100 pages)
iGAAP 2008 Financial Instruments: IAS 32, IAS 39
and IFRS 7 Explained (4th ed., 851 pages).

www.iasplus.com
IFRS e-Learning
IFRSs in your Pocket 2008

IFRS Resources
Ernst & Young
Ernst & Young International GAAP 2008 (2
volumes)
www.ey.com/ifrs
New academic resource center to be
launched Sept. 2008
Grant Thornton
http://faculty.gtexperience.com

IFRS Resources
KPMG
KPMG IFRS Institute
www.kpmgifrsinstitute.com/

KPMG faculty portal

www.kpmgfacultyportal.com

KPMG IFRG website

www.kpmgifrg.com

IFRS publications library

www.kpmgifrg.com/pubs/index.cfm

IFRS Resources
PricewaterhouseCoopers
IFRS reporting website
www.pwcglobal.com/ifrs

IFRS Pocket Guide 2008

IFRS Ready toolkit for educators
www.pwc.com/faculty

PWC IFRS Blog

http://pwc.blogs.com/ifrs/

IFRS Resources
US SEC Global Accounting Page
www.sec.gov/spotlight/ifrsroadmap.htm
IASB
www.iasb.org
Subscriptions and e-IFRS
Webcasts of meetings
World Accounting Report
www.i-financial.com/

IFRS Academic Resources

IAAER
www.iaaer.org
Offers very low-cost academic subscription to
eIFRS (from IASB)
Includes all IFRSs and other educational materials of the
IASB $25 (academician) and $20 (student)
Normal price from IASB $400

IFRS Resources
AICPA
IFRSs on CPA Exam:
www.cpa-exam.org

New IFRS website

www.ifrs.com

Canadian Institute of CAs

IFRS Transition Page:
www.cica.ca/index.cfm?ci_id=39166&la_id=1

IFRS Resources
European Commission
Accounting:
http://ec.europa.eu/internal_market/accounting/index_en.htm

This includes links to:

EU accounting news
IFRS news and information
EU IFRS-related committees
EU IFRS directives and regulations

IFRS - How to Assess Your Financial Readiness Date: Tuesday, November 4, 2008
Time: 1:00 p.m. EDT
Place: Online
The move to International Financial Reporting Standards (IFRS) is of extreme
importance to finance professionals as it has already been adopted in Europe and will
be required in Canada in 2011. In the US growing evidence suggests that the SEC is
accelerating measures to retire US GAAP and require all public companies to adopt
IFRS.
The impact of IFRS will not only affect the finance function, but stretch to encompass
key business decisions across the entire organization. Having the right plan and
systems in place is critical to ensure a smooth transition. But where do you start
Register Now for this LIVE Webcast
Join Deloitte and Longview Solutions as they offer helpful advice on key IFRS
topics including:
The status of IFRS adoption in North America
How to assess your companys IFRS readiness

People
Processes
Support Systems

Business Performance Management (BPM) as an enabler of IFRS

Featured Speakers:
Don Newell, Deloitte Partner, National IFRS Leader
Tony Wright, Director of Product Management, Longview Solutions
Sign up now and join us on November 4 for this educational webcast!

IFRS Resources for Educators

Textbooks some recent ones:

Nobes and Parker

Roberts, Weetman and Gordon
Choi and Meek
Holt, Mirza and Orrell
Alfredson, Leo, Picker, Pacter et al

Histories of the IASC:

Camfferman and Zeff
Kirsch

Credits for IASB history and IASB Resources:

Stephen Zeff, Rice University
and Paul Pacter, IASB
From a presentation to:
American Accounting Association
Anaheim, CA August 4, 2008

Thank you.
Questions and comments?
For more: ficpaifrs.wikispaces.com
Neal J. Hannon, AAA Interactive Data Associates
Stamford, CT 203-274-6806
nhannon@gmail.com
Bridging the GAAP between XBRL and the SEC