IFRS still a reality

March 2, 2010

By Pete Margaritis, CPA

The news from the SEC last week wasn’t earth shattering, it was still a commitment by the Shapiro administration to the converging of U.S. GAAP and IFRS that was originally the SEC plan in November 2008, with a slight modification. In the original SEC roadmap, there was a timeline of 2011 to make the IFRS transitioning determination. This date, although not concrete, has not changed. The milestones set out in the original plan are for the most part not changed. What did change is that the mandatory implementation date for large accelerated filers has been pushed back one year from 2014 to 2015. This should not be a surprise because of a couple of reasons. The change in administration, the economic crisis, and the overwhelming comment letters stating that companies will need more time all support the SEC’s decision.

I have always believed that this process is more about converging standards than adopting IFRS. The original goal set out between the FASB and the IASB in the Norwalk Agreement was toward convergence of IFRS and U.S. GAAP, not the adoption of IFRS. The convergence of standards has been put on a fast track because of calls from the G20 and this can be seen on the IASB project page. Many of the joint projects are set for converged standards by 2011.

The SEC established a work plan team that will issue its first report by October 2010. This will be the group to keep an eye on this coming year because they will be the pulse of when a “date certain” is set.

I do believe that we will ultimately have one set of high quality, country-neutral standards that will be used globally, including the U.S., in the next 3 – 5 years. It will just take a little longer than many wish.

However, that doesn’t mean that we should put off the process of IFRS education until the “date certain” has been set. During this time, we as CPAs need to become bilingual because we will be dealing with IFRS sooner than we think. For example, a German company gains “control” of a U.S. company and the U.S. company has to consolidate its financials into the German parent company. The U.S. company will have to adopt the same accounting policies (IFRS) as its parent. This adoption is usually done in a very short time frame and this situation is happening more and more today.

What if this happens to your client and you don’t have the knowledge to assist them in their transition to IFRS? That client will find a firm who has the knowledge and expertise. Or think about the other side of this situation. You could begin to develop a new line of business in IFRS consulting so you can be the firm that new client seeks.

In conclusion, being bilingual today might just be the right business move for you to make while the SEC goes through their due process.


What does the future hold for IFRS?

March 3, 2009

Reading the subtle – and not so subtle – communications from the SEC make it nearly impossible to anticipate the direction the “new” SEC is going to travel with IFRS.

Under former SEC Chair Christopher Cox, the SEC moved toward a new frontier. The commission implemented IDEA – the replacement to the EDGAR database, passed XBRL for financial statements and mutual funds and proposed a landmark roadmap to transition the U.S. to the International Financial Reporting Standards (more commonly referred to as IFRS).

While most decision-makers believed the move to IFRS was inevitable, a loud majority still voiced their opposition saying the roadmap timeline was too aggressive. As Cox finished his term as SEC chairman, the SEC rushed to get the roadmap out for comment.

Then the recession took center stage. The Stimulus Act was passed in October 2008 to help the unstable economy. Job losses were mounting. Fingers began pointing to fair value and financial institutions were demanding the SEC suspend fair value. Congress mandated that the SEC undertake a study of fair value accounting. Understandably, the roadmap was delayed.

Things then went from bad to worse. The alleged Bernie Madoff $50 billion Ponzi scheme broke. And fingers again pointed to the SEC. Investigators failed to investigate many repeated allegations against Madoff over 15+ years. 

Nonetheless, even though mired in the recession and the Madoff scandal, the SEC released its proposed roadmap for IFRS. While the roadmap was significantly delayed, there was only one major change made in the timeline.

Then newly elected President Barack Obama nominated Mary Schapiro as the new chair of the SEC. A former SEC commissioner, Schapiro said from the very beginning, “I will not be bound by the existing roadmap that’s out for public comment.” And she has not. Schapiro has come in and is reinvigorating the SEC as the securities watchdog for the nation – and promises not to take it easy on corporate fraudsters.

Already Schapiro has:

Her actions and her words have made many wonder about the roadmap and the outlook for IFRS. Will the nation actually transition to IFRS or is it just being delayed? How long will the delay be? Six months? Six years? Given the current economy and the many calls from lawmakers to reform the nation’s financial regulatory system, including the SEC, this may not be the ideal time to be completing a transition such as this – one that will dramatically change financial reporting, the accounting profession and possibly litigation.

Right when many were ready to put on the brakes completely, Schapiro met with Sir David Tweedie, chair of the International Accounting Standards Board, in mid-February. Tweedie made his case for keeping the transition on its current – or close to – the current timeline. It’s also been reported that Schapiro has advised staff to review the current proposal to identify elements that can be used.

Actions do speak louder than words and the only real action to date is extending the deadline to comment on the proposed roadmap to April 20.

Next steps from the SEC . . . your guess is as good as mine. What are your expectations? Do you think the U.S. will transition to IFRS in the near future or has been this delayed extensively?

Take a look at some of these IFRS resources and recent news stories:

OSCPA IFRS Issue Monitoring home page

  • Investment executives favor IFRS
  • Big four firms push IFRS education efforts PwC unveils $700K grant, Deloitte readies materials

In May, The Ohio Society is also starting an International Special Interest Section. Watch for more details to come soon.

IFRS and little GAAP

September 30, 2008

The Ohio Society’s Executive Board had the privilege of meeting with the AICPA’s Arleen Thomas, Senior Vice President Member Competency and Development, as part of its annual planning retreat in August. Arlene oversees many of the areas within the Institute that are fast moving current priorities, and board members enjoyed hearing about AICPA positions on the issues first-hand and sharing their opinions.

The hottest topic of discussion was the now-inevitable movement to international accounting standards in the United States. Arleen noted that the landscape has changed significantly in the past year regarding the certainty of adoption, and issues such as private company standards, requirements of lenders for GAAP and the tax code will all be part of the debate in the U.S. The priority for the profession will be managing an orderly transition so that we can be successful over the next 5 years, looking to the experiences of Canada and the European Union.

Hot questions included:

•  Will the U.S. see a LIFO carve-out? The SEC’s Cox has been discussing adopting IFRS-“pure, and users of LIFO face the potential of a very significant tax liability resulting from transition. Possible answers could include a change in the tax code to permit LIFO as a tax treatment only (the likelihood of which could hinge on the elections,) or a phase-in over a period such as 10 years.

•  What will be the role of the FASB? Both the international community and the SEC have commented that they see a future role for the FASB, whether it becomes a local arm of the IASB or a commenting body on U.S. implications of international standard-setting.

The largest debate centers on accounting standards for private companies. Will the FASB continue to issue private company standards (and if so, how will it be funded)? What will be the future role of the FASB/AICPA Private Company Financial Reporting Committee (which currently includes “IFRS for private companies” on its agenda)? Will private company standard-setting fall under the IASB guidance for small and medium-size entities? Complicating the answer is the decades-old question of whether standards for private entities are best addressed as exceptions within the rules (as we currently have) or differential standards (“Little GAAP”). Members have weighed in on both sides of that question.

(I’ll save for another post the OSCPA A&A Committee’s opinion that the AICPA should stake out territory providing authoritative guidance for OCBOA, particularly for the smallest of private companies. Arleene’s response to this comment is that the AICPA’s surveys show that “the market values GAAP.” Our committee would push back that there is another layer of the smallest of business where that is not the case.)

Transition presents significant opportunities for CPAs, even for those who don’t serve public companies currently, including assisting clients or employers in making the transition or in working more effectively in an international environment. Most importantly, advocates for the profession need to communicate that no one can expect to be unaffected; we don’t have the luxury of waiting to find out what will happen. Both AICPA and OSCPA will be offering continuing education and articles, first with the goal of building awareness, followed by more technical courses to assist members with implementation.

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