IFRS

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IFRS!
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What is IFRS

• International Financial Reporting Standards

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Who Establishes IFRS?

• International Accounting Standards Board (IASB)

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Why Do We Care?

• Use of IFRS is widespread
• More than 15,000 companies listed overseas use
  IFRS
• In 2011, India and Canada, among others, will
  convert their financial reporting systems to IFRS
• This will add at least 12,000 additional
  companies to the list of companies reporting
  under IFRS

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• In the past, companies who wished to list
  securities in the US had to reconcile their
  financial statements to show the nature and cause
  of differences in earnings based on their
  reporting standards and US GAAP on a Form 20-F
• As of 2007, the SEC removed this restriction for
  companies using IFRS and now allows foreign
  registrations to use IFRS without reconciliation

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• The SEC is in the process of publishing a
  proposed roadmap (more on this later) that is
  moving toward allowing or requiring U.S.
  companies to use IFRS.
• This could mean that U.S. GAAP is no longer
  usedand we are talking about a timeframe from
  2009 2016..

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• The FASB, SEC, AICPA, and the Big-4 Accounting
  firms (KPMG, PWC, Deloitte Touche, and EY) all
  favor the adoption of a set of high quality
  international reporting standards, and the
  consensus is growing that IFRS will be that
  standard.
• The AICPA supports one set of high-quality
  global accounting standards for public
  companies, said Barry Melancon, AICPA president
  and CEO.  We believe the capital markets
  ultimately will insist on IFRS for public
  companies. Todays action by the SEC continues a
  robust and thoughtful debate that is critical as
  the transition occurs.

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Why Global Accounting Standards?

• Enhanced worldwide comparability for investors
• Enhanced quality of reporting
• Some national GAAPs are week
• Possibly a lower cost of capital
• More company-friendly US securities market for
  foreign listings

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• Reduced reporting costs
• No need to develop and maintain national
  standards
• For audit firms and companies
• Easier movement of auditors and accountants
  across borders

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IASB

• The International Accounting Standards Committee
  was founded in 1973. At that time, it was
  composed of volunteers who met three times a
  year. They issued statements called
  International Accounting Standards (IASs) they
  issued 41 such standards.

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• As the demand grew for international reporting
  standards, IOSCO (The International Organization
  of Securities Commissions, of which the U.S. SEC
  is a member) issued a mandate that the IASC
  develop a core set of standards, and determined
  that if they were successful, the SECs of member
  countries would consider pursing international
  standards for their jurisdictions.

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• To meet this mandate, it was necessary to
  restructure the IASC
• In 2001, the first restructuring occurred
• Full time IASB based in London
• 14 members
• Issue IFRS (old IASs remain in force unless
  superseded or revised)

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USE OF IFRS WORLDWIDE

• For domestic LISTEC companies
• IFRS required for all 85
• IFRS required for some 4
• IFRS permitted 24
• IFRS are used by UNLISTED companies in over 80
  jurisdictions

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Europe

• EU, EAA, and Switzerland
• IFRS is used by all listed entitites (about
  8,000) in consolidated statements.
• In the EU, IFRS must be endorsed by the Union
• One modification with respect to reporting on
  derivatives (IAS 39) so the audit report reads
  IFRSs a adopted by the EU
• The modification affects just a few companies
  (less than 100)

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• The endorsement mechanism in the EU results in
  time lags.
• (NOTE The SEC only accepts IFRS as published in
  English by the IASB for U.S. filings without
  reconciliation)

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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 in
  place), Taiwain
• 2011 adoption of IFRS planned India, Korea

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North American

• Canada, planned conversion to IFRS in 2011
• USA
• Permitted for foreign SEC registrants since
  March 2009
• Proposed roadmap for US adoption

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Latin America/Caribbean

• IFRS required in Brazil by 2010 for all listed
  companies, banks
• IFRS phased in from 2009-2011 in Chili and over a
  dozen smaller jurisdictions

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Middle East and Africa

• Many countries require IFRS, although there are
  often country-specific idiosyncracies

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Financial Reporting Environments

• US strong enforcement by SEC
• Long traditionof strict, detailed accounting
  standards
• Publication of audited financial statements by
  publicly traded companies

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Many other countries

• Strong company laws with moderate to weak
  enforcement by regulators
• Less litigation
• Diverse auditing cultures
• Private as well as public companies must often
  publish financial statements, often audited

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CANADA, UK, US

• Public sector has long accepted private sector
  accounting standards

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EU

• Public sector is suspicious of private-sector
  accounting standards, questioning if they are in
  the public interest
• Its ever-lengthening endorsement process detracts
  from worldwide comparability

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• IFRS as adopted by the EU may foreshadow further
  deviations from IFRS

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• Most countries converge national GAAP with IFRS.
• Some adopt IFRS as published by the IASB
• IFRS is becoming more rules-based (1,200 pages in
  2000 2,700 pages in 2008)

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IFRS vs US GAAP

• IFRS Principles-based standards with limited
  application guidance
• US Rules-based standards with specific
  application guidance

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Some Differences

• Measuring Goodwill
• Disclosure of segment liabilities
• Basis for consolidation
• LIFO
• Deferred tax assets
• Revaluation of PPE and quoted intangibles
  through equity
• Development costs

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• Gains on sale and leaseback
• Investments in real estate
• Agricultural assets
• Actuarial gains and losses
• Vested past service cost
• Joint ventures
• Measuring impairment
• Reversals of write-downs

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SEC to Propose Roadmap for Potential Mandatory
IFRS Filings

• On August 27, 2008, the SEC decided to issue a
  proposed IFRS Roadmap.
• The SEC proposed specific rule changes that would
  permit the use of IRFS for certain U.S. issuers.
• The Roadmap proposal will be published in the
  Federal Register within 60 days.

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• The proposal acknowledges that IFRSs have the
  potential to become the global set of accounting
  standards
• A timetable for adoption in the U.S. is proposed.
• Assuming certain milestones are achieved, the SEC
  is considering a mandatory transition to IFRSs
  starting in 2014.

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• The proposed roadmap would commit the SEC staff
  to monitor the progress toward achieving
  milestones.
• IF, in 2011, the SEC deems there has been
  adequate progress toward achieving the
  milestones, they would consider adopting final
  rules requiring U.S. public companies to use
  IFRS.

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• The proposed roadmap includes a potential phased
  transition over three years beginning with large
  accelerated filers in 2014, followed by
  accelerated filers in 2015, and concluding with
  non-accelerated filers in 2016.

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Milestones

• IFRS continued improvement. IFRS would be
  improved largely through continued efforts b the
  IASB and the FASB to converge IFRS and U.S. GAAP.
  
• Funding and accountability of the International
  Accounting Standards Committee Foundation.
  Accountability would be strengthened by
  establishing a monitoring group and its funding
  process would be stabilized by basing int on
  shared obligations undertaken by jurisdictions
  using IFRS.

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• Improvement in the ability to use interactive
  date (e.g., XBRL) for IFRS reporting. That is,
  the technical capability to communicate financial
  information in the XBRL computer language based
  on the coding terms specified in a taxonomy
  would have to be available.
• Education and training in IFRS in the United
  States.

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• Limited early use by eligible entities. This
  milestone would give certain U.S. issuers the
  option of using IFRS for fiscal years ending on
  or after December 15, 2009.
• A majority of peer-group companies report using
  IFRS as issued by the IASB
• The U.S. company is one of the top 20 peer group
  companies
• (potentially more than 110 companies representing
  approximately 14 of total U.S. market
  capitalization.)

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• On the basis of the progress toward meeting
  milestones 1-4, and the experience gained from
  milestone 5, the SEC will determine in 2011
  whether to require mandatory adoptoin of IFRS for
  all U.S. issuers. If so, the SEC will determine
  the date and approach for a mandatory transition
  to IFRS.

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Resources

• http//www.iasplus.com/index.htm
• http//www.iasplus.com/resource/0808aaaifrsresourc
  es.pdf