Introduction to IFRS
Accounting in the international spotlight
The movement toward International Financial Reporting Standards (IFRS) represents
an exciting development unprecedented in the world of financial accounting.
It’s time to see what is going on in the international spotlight!
Introduction to IFRS
Academic Resource Center
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Let’s take a tour through the world of international accounting!
What is the
structure of the
international
standard setters?
What is the history
of international
standard setting?
How are the
international
standards set?
Who are the
international
standard setters?
Is IFRS different
or better than US
GAAP?
How are the US
and international
standard setters
working together?
On your tour, click the globe icon on the bottom right hand
corner of relevant slides to return to this home screen.
What is IFRS?
Start
Introduction to IFRS
Academic Resource Center
What is the
outlook for IFRS
adoption?
Why is it important
to learn about
IFRS today?
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What is IFRS?
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IFRS stands for International Financial Reporting Standards.
As indicated within the title, these standards are aimed at a global practice.
Ultimately, the goal is to achieve a single set of high-quality, common accounting standards
used around the world.
These standards are the result of a convergence of international viewpoints.
These standards are for publicly accountable entities.
►
Small and medium-sized entities (SMEs) that do not have public accountability may use a simplified version of
IFRS known as IFRS for SMEs.
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IFRS for SMEs has recently been accepted for non-SEC registrants by the AICPA as an acceptable alternative
reporting standard to US GAAP; however, it is not yet common practice.
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Is IFRS different than US GAAP?
=/
?
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There are differences between IFRS and US GAAP but they are more alike
than different for most commonly encountered transactions.
IFRS is largely grounded in the same principles as US GAAP.
The US and international standard setters are currently working on
convergence projects to better align the standards and reduce these
differences.
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Is IFRS better than US GAAP?
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It cannot be stated that IFRS is better (or of higher quality) than US GAAP nor
that US GAAP is better (or of higher quality) than IFRS. Neither set of
standards is perfect.
This is evidenced by the convergence efforts where changes are being made
to both sets of standards and are not one-sided.
Some could say that the international standard setters have had the following
advantages in their standard setting:
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Being able to obtain a greater amount of global perspective.
Being able to draw upon the latest standards.
Being able to remedy perceived problems identified in practice.
Having an annual improvement process to enhance the clarity and consistency of IFRS,
which continues to consider more current thinking and practice.
Being able to focus more intently on a principles orientation.
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Is IFRS better than US GAAP?
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As mentioned previously, both US GAAP and IFRS are largely grounded in the
same principles.
As a general rule, however, IFRS standards are broader with less rules and
limited interpretive guidance.
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The international standard setters prefer to leave implementation of the principles
embodied in the standards to preparers and auditors and its interpretive body.
US GAAP contains underlying principles as well but is more specific and rules
oriented with far more “bright lines,” comprehensive implementation guidance
and industry interpretations.
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Is IFRS better than US GAAP?
The following example is a simple illustration of a principles-oriented approach
compared to a rules-oriented approach.
Principles oriented:
►
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Rules oriented:
Your parents tell you to
do your best to get good
grades.
If you do not get good
grades, they will consider
the substance of your
reasons.
Introduction to IFRS
Academic Resource Center
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Your parents tell you to get
a 3.2 GPA or above.
►
They provide you with 15
contingencies that might
justify acceptance of
anything lower than a 3.2
GPA.
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Who are the international standard setters?
International Accounting Standards Board (IASB):
► The IASB develops IFRS.
► The IASB is an independent group of 15 full-time members.
► The board intends to expand to 16 members by 2012.
► These members are appointed by the trustees.
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Who are the international standard setters?
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Members of the IASB are selected and considered for reappointment through
an open and rigorous process, which includes advertising vacancies and
consulting relevant organizations.
Board members must comprise a group of people representing, within that
group, the best available combination of technical skills and background
experience of relevant international business and market conditions.
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Who are the international standard setters?
Sir David Tweedie is currently the IASB Chairman.
► He is the former chairman of the UK Accounting
Standards Board.
► His term as Chairman will end on June 30, 2011,
due to his retirement.
► This date happens to coincide with the timetable
proposed to complete many of the convergence
projects with US standards.
► His replacement is Hans Hoogervorst.
► On July 1, 2011, a vice-chairman position will
open to assume some of the chairmanship
responsibilities. This position will be assumed
by Ian Mackintosh.
► Click on the names above to learn more about
each of these individuals.
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Who are the international standard setters?
► Listed
here are the other members
of the IASB and the countries that
they each draw their experiences
from.
► Click
on their names to learn more
about them directly from the IASB
website.
► Do
you have any observations
about the US representation?
Amaro Luiz de Oliveira Gomes – Brazil
Darrel Scott – South Africa
Dr. Elke König – Germany
Jan Engström – Sweden and Latin America
John Smith – US
Patricia McConnell – US
Patrick Finnegan – US
Paul Pacter – US and Hong Kong
Phillipe Danjou – France
Prabhakar Kalavacheria – US and India
Stephen Cooper – UK
Tatsumi Yamada – Japan
Warren McGregor – Australia
Zhang Wei-Guo – China
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What is the structure of the international standard setters?
Monitoring
Board
IFRS
Foundation
IFRS
Advisory
Council
International
Accounting
Standards
Board (IASB)
IFRS
Interpretations
Committee
IFRS
and
IFRS for SMEs
Introduction to IFRS
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Information provided by www.IFRS.org
Page 13
What is the structure of the international standard setters?
Monitoring
Board
IFRS
Foundation
IFRS
Advisory
Council
International
Accounting
Standards
Board (IASB)
The IFRS Foundation is a not-forprofit organization that oversees
the development of the IASB’s
international reporting standards
for general financial statements.
IFRS
Interpretations
Committee
IFRS
and
IFRS for SMEs
Introduction to IFRS
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Information provided by www.IFRS.org
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What is the structure of the international standard setters?
This group
assists in
nominating and
appointing
individuals to
IFRS
Foundation
trustee
positions.
Monitoring
Board
IFRS
Foundation
IFRS
Advisory
Council
International
Accounting
Standards
Board (IASB)
IFRS
Interpretations
Committee
IFRS
and
IFRS for SMEs
Introduction to IFRS
Academic Resource Center
Information provided by www.IFRS.org
Page 15
What is the structure of the international standard setters?
Monitoring
Board
IFRS
Foundation
IFRS
Advisory
Council
International
Accounting
Standards
Board (IASB)
The IFRS Advisory Council is the
IASB’s forum for consultation with
representatives from user groups,
preparers, financial analysts,
academics, auditors, regulators
and professional accounting
bodies.
IFRS
and
IFRS for SMEs
Introduction to IFRS
Academic Resource Center
IFRS
Interpretations
Committee
Information provided by www.IFRS.org
Page 16
What is the structure of the international standard setters?
Monitoring
Board
IFRS
Foundation
IFRS
Advisory
Council
International
Accounting
Standards
Board (IASB)
IFRS
and
IFRS for SMEs
Introduction to IFRS
Academic Resource Center
IFRS
Interpretations
Committee
The IFRS Interpretations Committee
releases interpretations (IFRICs) on
newly identified financial reporting
issues not dealt with in an IFRS and
unsatisfactory or conflicting
interpretations in areas without
appropriate authoritative guidance.
Information provided by www.IFRS.org
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What is the history of IFRS?
Proposal to
create an
accountants’
international
study group
► In 2000, the initial 14 members are appointed to the IASB.
The IASC
expands.
► In 2002, the IASB begins promulgating standards as IFRS from IAS. The SIC becomes the IFRIC. The
European Union endorses IFRS for 2005 adoption.
► In 2002, the Norwalk Agreement is executed between the IASB and FASB.
► In 2005, the SEC published a roadmap (Roadmap) for elimination of a US GAAP reconciliation for FPIs.
► In 2006, the FASB and IASB published a Memorandum of Understanding, to set forth priorities in their
joint work program.
1960s
1970s
► The IASC is formed in
1973.
► The IASC begins
promulgating
International Accounting
Standards (IAS).
1980s
1990s
2000s
► In 1994, the IASC Advisory Council is formed
to provide oversight of IASC.
► In 2007, the SEC eliminated the US GAAP
reconciliation for FPIs.
► In 1997, the Standards Interpretations
Committee (SIC) is formed
► In 2008, the SEC published a proposed Roadmap
anticipating the mandatory adoption of IFRS in the US.
► In 1999, the IASC is restructured to form a
new board: the IASB.
► In 2009, the FASB and IASB reaffirmed their
commitment to the MOU.
► FASB agrees to work on a joint earnings-pershare project.
► In 2010, the SEC established a Work Plan for its 2011
IFRS adoption decision.
For more details regarding the history of IFRS, see the appendix of the Ernst & Young publication, US GAAP vs. IFRS: the basics.
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How are international standards set?
Agenda
Research
Discussion
paper
Input is received from:
(DP)
► IFRS Advisory Council
Public consultation
► Working Group
Exposure
draft
► International groups such as
analysts, preparers, audit
technical partners
(ED)
► Special interest groups
► Local standard setters
► Regulators
Public consultation
Feedback
statement
IFRS
► Political groups
Post-implementation meetings
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Information provided by www.IFRS.org
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Setting the agenda
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The IASB evaluates the merits of adding a potential item to its agenda mainly
by reference to the needs of investors.
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The IASB considers:
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Relevance to users of the information and the reliability of information that could be
provided.
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Existing guidance available.
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Possibility of increasing convergence.
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Quality of the standard to be developed, taking into account the availability of alternative
solutions, cost/benefit considerations and feasibility.
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Resource constraints in terms of availability of expertise and additional research required.
Return to “How are international standards set?”
Introduction to IFRS
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Information provided by www.IFRS.org
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Plan the project, and develop and publish the DP
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IASB decides whether to conduct the project alone, or jointly with another
standard setter.
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A DP is not mandatory, but is quite typical. The purpose is to explain the
issue, and solicit early comments from constituents.
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A DP includes:
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Comprehensive overview
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Possible approaches
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Preliminary views
Return to “How are international standards set?”
Introduction to IFRS
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Information provided by www.IFRS.org
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Develop and publish the ED
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Mandatory step, it is the main vehicle for consulting the public.
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Unlike a DP, an ED sets out a specific proposal in the form of a proposed
standard.
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The development of an ED begins with the IASB considering:
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Issues on the basis of staff research and recommendations.
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Comments received on any DP.
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Suggestions made by the IFRS Advisory Council, working groups and accounting standard
setters, and those arising from public education sessions.
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Information provided by www.IFRS.org
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Develop and publish the standard
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After resolving issues arising from the ED, the IASB considers whether it
should expose its revised proposals for public comment. The revised proposal
would be in the form of a second ED.
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In considering the need for re-exposure, the IASB:
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Identifies substantial issues that emerged during the comment period on the ED that it had
not previously considered.
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Assesses the evidence that it has considered.
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Evaluates whether it has sufficiently understood the issues and actively sought the views of
constituents.
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Considers whether the various viewpoints were aired in the ED and adequately discussed
and reviewed in the basis for conclusions.
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IASB members hold regular meetings
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The purpose is to help understand unanticipated issues related to the practical
implementation and potential impact of proposals.
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After a suitable time, the IASB may consider initiating studies in light of:
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Its review of the IFRS’ application.
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Changes in the financial reporting environment and regulatory requirements.
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Comments by the IFRS Advisory Council, the IFRS Interpretations Committee, standard
setters and constituents about the quality of the IFRS.
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Information provided by www.IFRS.org
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A comparison of standard-setting processes
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The IASB standard-setting process is almost identical to that of the FASB. The following are
steps the FASB takes to create a standard:
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The FASB receives requests/recommendations for possible projects and reconsideration of existing
standards from various sources.
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The FASB Chairman decides whether to add a project to the technical agenda, subject to oversight
by the Foundation and after consultation with FASB members.
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The FASB deliberates the various issues identified at one or more public meetings.
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The Board issues an ED. In some projects, a DP may be issued to obtain input at an early stage that
is used to develop the ED.
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The FASB staff analyzes comment letters, public roundtable discussion and any other information.
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The FASB redeliberates the proposed provisions at public meetings.
The FASB issues an Accounting Standards Update describing amendments to the Accounting
Standards Codification.
Click here to read the entire standard-setting process from the FASB’s website.
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Introduction to IFRS
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Information provided by www.fasb.org
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How are the US and international standard setters working
together?
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The FASB and IASB have been working together on
convergence since 2006.
The following is a list of the major convergence efforts
being focused on at this time with a projected completion
date of December 2011:
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Consolidation
Fair value measurement
Financial instruments
Financial statement presentation (presentation of OCI)
Leases
Revenue recognition
The aggressive timeline and the total coverage of the
projects under convergence will have a significant impact
on US accounting practice over the next several years.
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What is the outlook for IFRS adoption?
Global snapshot
Currently, there are about 120 countries
that either adopted or signed to adopt
IFRS.
Over the last year, several countries
required or permitted IFRS such Canada,
Japan and Brazil while several countries
are impending in the upcoming year as
listed:
► India – Beginning April 1, 2011
► Mexico – 2012
► Argentina – 2012 (early adoption
permitted in 2011)
The predominance of usage of IFRS
around the world provides even greater
motivation for IFRS adoption in the US.
IFRS required or permitted
Local GAAP based on legacy IAS
No action taken/date set for adoption
In process of adopting or converting to IFRS
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What is the outlook for IFRS adoption?
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In 2008, the SEC released a proposed Roadmap that laid out a timeline and milestones for
continuing US progress toward acceptance of IFRS for public companies.
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In February 2010, the SEC reaffirmed its commitment to IFRS and continued convergence
activities. It also set forth a transparent work plan (the Work Plan) to allow the SEC to make
its decision on IFRS adoption in 2011.
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The Work Plan will address the specific factors and areas of concern that were noted by the SEC and by the
comment letters on the Roadmap.
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In executing the Work Plan, the SEC staff will gather information by performing its own research as well as by
seeking comment from, holding discussions with, and analyzing information from constituents. The SEC staff
will also consider the experiences of jurisdictions that have successfully incorporated or plan to incorporate
IFRS into their financial reporting systems.
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The SEC staff stated that it will provide public progress reports on the Work Plan beginning in October 2010.
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What is the outlook for IFRS adoption?
The following are the specific areas of focus within the Work Plan:
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Sufficient development and consistent application of IFRS:
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Independence of the standard-setting process:
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The SEC staff will evaluate the comprehensiveness and enforceability of IFRS as well the auditability and
comparability of financial statements prepared using IFRS, both in concept and in practice. These efforts will
include consideration of the IASB’s efforts to improve IFRS through its conversion efforts with the FASB.
The SEC staff will consider the extent to which the IASB’s governance (including its Monitoring Board),
composition, funding and standard-setting process continue to promote the reporting of full, fair and reliable
financial information to support investors in their capital allocation decision making.
Investor understanding and education:
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The SEC staff will consider investor understanding and education regarding IFRS, including the current
familiarity with IFRS, the actions needed to facilitate further understanding and the time frame to do so.
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What is the outlook for IFRS adoption?
The following are the specific areas of focus within the Work Plan (continued):
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Examination of the US regulatory environment:
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The SEC staff will examine how the US regulatory environment would be affected by the further incorporation
of IFRS into the US financial reporting system. While the SEC does not directly prescribe the provision and
content of information provided to other regulators, such as industry and tax regulators, the SEC’s decision to
incorporate IFRS likely would affect regulatory regimes and parties subject to those regimes.
The effect of IFRS on US issuers, both large and small:
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The SEC staff will assess the scope and timing of potential approaches for US issuers to make the necessary
changes to their accounting systems, controls and procedures, and contractual arrangements. The SEC staff
also will consider the effect of IFRS in the US on an issuer’s ability to comply with corporate governance
requirements, including the requirements for audit committee financial experts, and requirements related to the
accounting for litigation contingencies. In addition, the SEC staff will consider whether the cost of a potential
transition to IFRS would be more burdensome for smaller issuers.
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What is the outlook for IFRS adoption?
The following are the specific areas of focus within the Work Plan (continued):
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Human capital readiness:
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The SEC staff will assess the readiness of all parties involved in the financial reporting process, including
regulators, for the further incorporation of IFRS in the US financial reporting system. The SEC staff also will
consider the constraints on the availability of individuals experienced in the application of IFRS and the
required education, training and time frame necessary to address these constraints.
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What is the outlook for IFRS adoption?
Timing
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SEC Chairman, Mary Shapiro, stated in December 2010 that the SEC would
allow a minimum of four years to adjust if it mandates the use of IFRS. This
would mean the use of IFRS in 2015 at the earliest.
Other timing factors being contemplated by the SEC:
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Use of all standards by all users at once which is
referred to as the big bang approach.
Staggered or conditional use of the standards and
variation by user group including the potential of
early adoption.
A separate convergence project is focused on
the implementation timing of standards that
result from the major convergence projects
currently underway.
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What is the outlook for IFRS adoption?
Potential method of mandated use of IFRS by the SEC
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The SEC decision to mandate the use of IFRS is generally described as a
decision to adopt IFRS. However, there are several manners in which the US
could move forward to IFRS that are not considered to be adoption in the pure
sense.
It its October 2010, the SEC provided a progress report identifying that most
jurisdictions do not fully adopt IFRS with no mechanism for making changes to
the standards. Rather most jurisdictions follow either a convergence or
endorsement approach.
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Adoption: A jurisdiction practices under IFRS as issued with no modifications.
Convergence: A jurisdiction practices under national standards with efforts to converge
differences with IFRS standards over time.
Endorsement: A jurisdiction reviews each IFRS standard as issued and determines
whether the standard should be endorsed for practice with or without modification.
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What is the outlook for IFRS adoption?
Potential method of mandated use of IFRS by the SEC
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In December 2010, Paul Beswick, SEC Deputy Chief Accountant, shared his
thoughts on the method in which the US might move to IFRS at the 2010
AICPA National Conference on Current SEC and PCAOB developments. He
proposed a “condorsement” approach as follows:
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US GAAP would continue to exist.
The IASB and FASB would finish the major convergence projects in the MOU.
The FASB would work on the following simultaneously:
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No new major projects but rather set priorities of converging US GAAP (remaining topics not on
the current agenda) to IFRS. This would be to make sure that these existing IFRS standards are
suitable for US capital markets.
Consider new standards issued by the IASB for endorsement (but not required) or incorporation
(required) into US GAAP. This would ideally be issuing the standards in the codification without
modification. This would also assume the US involvement in IFRS standard setting.
This approach would allow the US to maintain control of US standards.
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Why is it important to learn about IFRS today?
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Knowledge of IFRS provides an ability to practice accounting
in the global marketplace.
Through convergence efforts, US GAAP continues to
become more aligned with IFRS.
US practice of IFRS currently exists in the following ways:
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Foreign multinationals that report using IFRS have US
operations. While some of these entities file IFRS financials
with regulators of foreign exchanges, some file with the SEC as
foreign private investors (FPIs) under IFRS as well.
US multinational companies have foreign operations that are
required to report using IFRS.
Many US companies are making assessments of the potential
impact of adopting IFRS and IFRS convergence efforts on their
current operations.
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Why is it important to learn about IFRS today?
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Under IFRS 1, First-time Adoption of International Financial
Reporting Standards, there is a variety of exemptions and
options that the preparer may elect to utilize in the adoption
process that need to be assessed to best position the
company.
The IFRS adoption and convergence efforts impact much
more than just the accounting function. Additional functions
that are impacted include the following:
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Information systems
Tax
Treasury
Investor relations
Sales
Human resources
Mergers and acquisitions
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Why is it important to learn about IFRS today?
Given the level of IFRS
knowledge expected by US
practitioners today, the
AICPA is including IFRS in
the content specifications
for the Certified Public
Accountant exam beginning
January 1, 2011.
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