Saint Louis University
Exploring IFRS*
April 13, 2010
*connectedthinking
PricewaterhouseCoopers LLP
PwC
Bo Butters
Assurance Partner
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Agenda
• Background and current landscape
• Similarities and differences between IFRS and US GAAP
• Impact of IFRS
• IFRS Ready
• Q&A
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Principles vs. Rules
Fundamentally, the frameworks underlying IFRS and US
GAAP are similar
Principles vs. Rules
 IFRS is more purely principles based
 US GAAP is also principles based but has evolved to become
more prescriptive and rules-based, addressing specific
industries and types of transactions
 IFRS—2,500 pages
 US GAAP—25,000 pages
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IFRS Background & Structure
 Standard setter—International Accounting Standards Board
(IASB) founded in 2001 and based in London
 International Accounting Standards Committee (IASC)
Foundation
- Appoint IASB members
- Exercise oversight
- Raise funds
- Similar to Financial Accounting Foundation (FAF)
 Predecessor organization was International Accounting
Standards Committee (IASC) founded in 1973
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IASB structure
Trustees
IASC
Foundation
22 trustees
1 Trustee
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Advise
IASB
16 members
Europe
6
North America
6
Asia / Oceania
6
Rest of the world
4
1 Member
Appoint
Govern
Fund
IFRS
Advisory
Council
Geographical break-down
IFRS
Interpretations
Committee
Interpret
14 members
Create
IFRS
High quality, enforceable and global
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The World is Adopting IFRS
•IFRS has increasingly become the global accounting language
•More than 100 countries now require or permit the use of IFRS. IFRS were
adopted in the EU in 2005
•More than 12,000 public and private companies around the world use IFRS
as their primary reporting framework
•Many countries have converged their local standards to IFRS
•All major non-US capital markets are impacted
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IFRS Overview – A Global Revolution
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Capital Market Implications
•Easier access to capital for global corporations
•Improved cross-border comparability
•Improved transparency for non-US companies
•Reduced cost of compliance
•Streamlined merger and acquisition activity
•More efficient allocation of global capital investment
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Why IFRS in the US ?
•Globalization rules
•Complexity of current standards is taking a toll on domestic companies
•Convergence of the two dominant accounting frameworks is a tough
proposition
•IFRS will create cost efficiencies for global companies
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Proposed SEC Roadmap
•
In November 2008, the SEC released a proposed Roadmap for potential
use of IFRS by US Issuers that could have led to:
(1) the use of IFRS by all US issuers beginning 2014, and
(2) optional use of IFRS by certain qualifying domestic issuers as early
as 2009.
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Proposed SEC Roadmap (cont’d)
In February 2010, the SEC released Commission Statement in Support of
Convergence and Global Accounting Standards
• Provided an update regarding the SEC’s consideration of global accounting
standards and its continued support for convergence of US GAAP and
IFRS
• Includes details of a Work Plan to be executed by the SEC staff to enhance
the Commission’s analysis of the implications of a change to IFRS
• The Work Plan identified six areas of consideration in determining both
whether and how to incorporate IFRS into the financial reporting system for
U.S. issuers
• SEC plans to be in a position to make a determination about the use of
IFRS in 2011 after execution of the Work Plan and completion of the
convergence projects of the FASB and IASB
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Proposed SEC Roadmap (cont’d)
The six key areas of the Work Plan include:
• Sufficient development and application of IFRS for the U.S. domestic
reporting system
• The independence of standard setting for the benefit of investors
• Investor understanding and education regarding IFRS
• Examination of the U.S. regulatory environment that would be affected by a
change in accounting standards
• The impact on issuers, both large and small, including changes to
accounting systems, changes to contractual arrangements, corporate
governance considerations and accounting for litigation contingencies
• Human capital readiness
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Proposed SEC Roadmap (cont’d)
Reassessment in 2011
•
Consistent with the timeline in the original proposed Roadmap, the SEC
expects to make a determination about whether to further incorporate IFRS
into the financial reporting system for U.S. issuers in 2011.
•
Potential mandatory adoption beginning in 2015 or 2016.
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Proposed SEC Roadmap (cont’d)
#-Staggered adoption possible based on earliest adoption in
2015 or 2016.
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Challenges the SEC faces in adopting IFRS in the US
Clear signals from the SEC:
• Committed to lead US capital markets through encouragement and clear direction
on the use of IFRS by US companies
•
Public statements - Mindful not to carry over US GAAP concepts and practices
Challenges exist:
• SEC Commissioner Mary Schapiro
•
Tax conformity and the LIFO issue
•
Due process to enact IFRS standards – SEC influence
•
Concessions on years presented in year of change
•
Global regulatory oversight in the IFRS world
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How big are the differences?
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Inventory
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The Concept of Inventory
IFRS and US GAAP contain similar definitions of inventory:
Assets which (1) are held for sale in the ordinary course of business (2)
are in the process of production for such sale or (3) in the form of
materials or supplies to be consumed in the production process or in the
rendering of services.
Inventories owned by manufacturing companies include:
•Raw materials (RM)
•Work in progress (WIP)
•Finished goods (FG)
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How Well Do You Know?
Under IFRS, which inventory costing methodology is not
allowed?
A. Last-in, First-out (LIFO)
B. Weighted-average cost
C. First-in, First-out (FIFO)
D. All are allowable methods
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Inventory Cost Formulas
Under IFRS, entities are permitted to use one of the following cost
methodologies:
• First-in, First-out (FIFO)
• Weighted-average cost
Under US GAAP, entities are permitted to use the following cost
methodologies:
• First-in, First-out (FIFO)
• Weighted-average cost
• Last-in, First-out (LIFO)
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Impact of IFRS
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Moving to IFRS – Universities
Considerations and challenges faced by universities
•
National Association of State Boards of Accountancy (February 19 2009)
- Maintain FASB as sole standard setter for US financial reporting
- Focus on convergence with IFRS rather than adoption
•
Sufficient, trained resources – faculty and materials
•
Forced choice between IFRS and US GAAP for students
•
Change management
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Moving to IFRS – Students
Considerations and challenges faced by students
•
National Association of State Boards of Accountancy (February 19 2009)
- Maintain FASB as sole standard setter for US financial reporting
- Focus on convergence with IFRS rather than adoption
•
Forced choice between IFRS and US GAAP
•
Expectations of US GAAP and IFRS knowledge: Additional experience and
requirements for interviewing – dependent on type of organization or firm
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Moving to IFRS – Accounting Firms
Considerations and challenges faced by accounting firms
•
Documentation and support of judgment within a “principles”-based
framework
•
Sufficient, trained resources
- Large international firms
- Medium and small-size firms
•
Change management
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Moving to IFRS – Companies
Considerations and challenges faced by companies converting to IFRS:
•
•
•
•
•
•
•
•
•
Application of judgment within a “principles”-based framework
Policy-setting and control challenges due to fewer “rules” in IFRS
Adopters finding many more differences than expected
Data gaps resulting from increased disclosures
Systems capabilities
U.S. GAAP deficiencies (i.e., conversion to IFRS uncovering challenges
with historical U.S. GAAP accounting)
Sufficient, trained resources
Change management
Communication of needs to operations/business development
organizations
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Preparing now means reaping the benefits later
You
PwC
•Understand what IFRS means and when
•Enhance expertise in IFRS
it might impact you
•Provide thought leadership for key
•Take advantage of every opportunity to
stakeholders
learn about IFRS
•Educate partners and staff on IFRS
•Be open to change
applications
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What do you think?
What are you going to do in
regards to understanding
IFRS and its impact?
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IFRS Ready
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IFRS Ready
•
Expectations of new hires
•
Learning opportunities – www.pwc.tv
- See What’s On, Channel 3 – Learning Annex – IFRS Ready
- Videos and illustrative IFRS financial statements
- Webcasts on technical topics
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One Year Vision
Sophomores
• Seeking summer programs or internships
• With at least 1 term of accounting
 Pre-awareness
Juniors +
• Seeking internships or full-time positions
 Awareness
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Learning Goals
Pre-Awareness
• Define what IFRS stands for
• Articulate the general uses of IFRS
and U.S. GAAP
• Recognize that IFRS will be
important in the future
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Awareness
• Articulate the sources of U.S.
GAAP and IFRS
• Describe IFRS Financial
Statements
• Identify a difference between IFRS
and U.S. GAAP
• Explain status and timetable for
adoption
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Interactive Financial Statements
Learning Goals:
• Describe an example of IFRS Financial
Statements
• Identify an example of a difference
between U.S. GAAP and IFRS
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Interactive IFRS Financial Statements
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