Introduction to IFRS

Transcription

1 Introduction to

2 Accounting in the international spotlight The movement toward International Financial Reporting Standards () 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 Page 2

3 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? How are the US and international standard setters working together? Is different or better than US GAAP? On your tour, click the globe icon on the bottom right hand corner of relevant slides to return to this home screen. What is the outlook for adoption? What is? Start Why is it important to learn about today? Introduction to Page 3

4 What is? 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 known as for SMEs. 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. Introduction to Page 4

5 Is different than US GAAP? = /? There are differences between and US GAAP but they are more alike than different for most commonly encountered transactions. 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. Introduction to Page 5

6 Is better than US GAAP? It cannot be stated that is better (or of higher quality) than US GAAP nor that US GAAP is better (or of higher quality) than. 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: 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, which continues to consider more current thinking and practice. Being able to focus more intently on a principles orientation. Introduction to Page 6

7 Is better than US GAAP? As mentioned previously, both US GAAP and are largely grounded in the same principles. As a general rule, however, standards are broader with less rules and limited interpretive guidance. 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. Introduction to Page 7

8 Is better than US GAAP? The following example is a simple illustration of a principles-oriented approach compared to a rules-oriented approach. Principles 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. Rules oriented: 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. Introduction to Page 8

9 Who are the international standard setters? International Accounting Standards Board (IASB): The IASB develops. The IASB is an independent group of 15 full-time members. The board intends to expand to 16 members by These members are appointed by the trustees. Introduction to Page 9

10 Who are the international standard setters? 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. Introduction to Page 10

11 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. Introduction to Page 11

12 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 Introduction to Page 12

13 What is the structure of the international standard setters? Monitoring Board Foundation Advisory Council International Accounting Standards Board (IASB) Interpretations Committee and for SMEs Introduction to Information provided by Page 13

14 What is the structure of the international standard setters? Monitoring Board Foundation The Foundation is a not-forprofit organization that oversees the development of the IASB s international reporting standards for general financial statements. Advisory Council International Accounting Standards Board (IASB) Interpretations Committee and for SMEs Introduction to Information provided by Page 14

15 What is the structure of the international standard setters? This group assists in nominating and appointing individuals to Foundation trustee positions. Monitoring Board Advisory Council Foundation International Accounting Standards Board (IASB) Interpretations Committee and for SMEs Introduction to Information provided by Page 15

16 What is the structure of the international standard setters? Monitoring Board Foundation Advisory Council International Accounting Standards Board (IASB) Interpretations Committee The Advisory Council is the IASB s forum for consultation with representatives from user groups, preparers, financial analysts, academics, auditors, regulators and professional accounting bodies. and for SMEs Introduction to Information provided by Page 16

17 What is the structure of the international standard setters? Monitoring Board Foundation Advisory Council International Accounting Standards Board (IASB) and for SMEs Interpretations Committee The Interpretations Committee releases interpretations (IFRICs) on newly identified financial reporting issues not dealt with in an and unsatisfactory or conflicting interpretations in areas without appropriate authoritative guidance. Introduction to Information provided by Page 17

18 What is the history of? Proposal to create an accountants international study group The IASC expands. In 2000, the initial 14 members are appointed to the IASB. In 2002, the IASB begins promulgating standards as from IAS. The SIC becomes the IFRIC. The European Union endorses 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 1980s 1990s 2000s The IASC is formed in The IASC begins promulgating International Accounting Standards (IAS). In 1994, the IASC Advisory Council is formed to provide oversight of IASC. In 1997, the Standards Interpretations Committee (SIC) is formed In 1999, the IASC is restructured to form a new board: the IASB. FASB agrees to work on a joint earnings-pershare project. In 2007, the SEC eliminated the US GAAP reconciliation for FPIs. In 2008, the SEC published a proposed Roadmap anticipating the mandatory adoption of in the US. In 2009, the FASB and IASB reaffirmed their commitment to the MOU. In 2010, the SEC established a Work Plan for its 2011 adoption decision. For more details regarding the history of, see the appendix of the Ernst & Young publication, US GAAP vs. : the basics. Introduction to Page 18

19 How are international standards set? Research Agenda Input is received from: Advisory Council Discussion paper (DP) Working Group International groups such as analysts, preparers, audit technical partners Special interest groups Local standard setters Regulators Political groups Exposure draft (ED) Feedback statement Public consultation Public consultation Post-implementation meetings Introduction to Information provided by Page 19

20 Setting the agenda The IASB evaluates the merits of adding a potential item to its agenda mainly by reference to the needs of investors. The IASB considers: Relevance to users of the information and the reliability of information that could be provided. Existing guidance available. Possibility of increasing convergence. Quality of the standard to be developed, taking into account the availability of alternative solutions, cost/benefit considerations and feasibility. Resource constraints in terms of availability of expertise and additional research required. Return to How are international standards set? Introduction to Information provided by Page 20

21 Plan the project, and develop and publish the DP IASB decides whether to conduct the project alone, or jointly with another standard setter. A DP is not mandatory, but is quite typical. The purpose is to explain the issue, and solicit early comments from constituents. A DP includes: Comprehensive overview Possible approaches Preliminary views Return to How are international standards set? Introduction to Information provided by Page 21

22 Develop and publish the ED Mandatory step, it is the main vehicle for consulting the public. Unlike a DP, an ED sets out a specific proposal in the form of a proposed standard. The development of an ED begins with the IASB considering: Issues on the basis of staff research and recommendations. Comments received on any DP. Suggestions made by the Advisory Council, working groups and accounting standard setters, and those arising from public education sessions. Return to How are international standards set? Introduction to Information provided by Page 22

23 Develop and publish the standard 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. In considering the need for re-exposure, the IASB: Identifies substantial issues that emerged during the comment period on the ED that it had not previously considered. Assesses the evidence that it has considered. Evaluates whether it has sufficiently understood the issues and actively sought the views of constituents. Considers whether the various viewpoints were aired in the ED and adequately discussed and reviewed in the basis for conclusions. Return to How are international standards set? Introduction to Information provided by Page 23

24 IASB members hold regular meetings The purpose is to help understand unanticipated issues related to the practical implementation and potential impact of proposals. After a suitable time, the IASB may consider initiating studies in light of: Its review of the application. Changes in the financial reporting environment and regulatory requirements. Comments by the Advisory Council, the Interpretations Committee, standard setters and constituents about the quality of the. Return to How are international standards set? Introduction to Information provided by Page 24

25 A comparison of standard-setting processes The IASB standard-setting process is almost identical to that of the FASB. The following are steps the FASB takes to create a standard: The FASB receives requests/recommendations for possible projects and reconsideration of existing standards from various sources. 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. The FASB deliberates the various issues identified at one or more public meetings. 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. The FASB staff analyzes comment letters, public roundtable discussion and any other information. 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. Introduction to Information provided by Page 25

26 How are the US and international standard setters working together? The FASB and IASB have been working together on convergence since The following is a list of the major convergence efforts being focused on at this time with a projected completion date of December 2011: 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. Introduction to Page 26

27 What is the outlook for adoption? Global snapshot required or permitted Local GAAP based on legacy IAS No action taken/date set for adoption In process of adopting or converting to Currently, there are about 120 countries that either adopted or signed to adopt. Over the last year, several countries required or permitted 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 around the world provides even greater motivation for adoption in the US. Introduction to Page 27

28 What is the outlook for adoption? In 2008, the SEC released a proposed Roadmap that laid out a timeline and milestones for continuing US progress toward acceptance of for public companies. In February 2010, the SEC reaffirmed its commitment to and continued convergence activities. It also set forth a transparent work plan (the Work Plan) to allow the SEC to make its decision on adoption in 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. 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 into their financial reporting systems. The SEC staff stated that it will provide public progress reports on the Work Plan beginning in October Introduction to Page 28

29 What is the outlook for adoption? The following are the specific areas of focus within the Work Plan: Sufficient development and consistent application of : The SEC staff will evaluate the comprehensiveness and enforceability of as well the auditability and comparability of financial statements prepared using, both in concept and in practice. These efforts will include consideration of the IASB s efforts to improve through its conversion efforts with the FASB. Independence of the standard-setting process: 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: The SEC staff will consider investor understanding and education regarding, including the current familiarity with, the actions needed to facilitate further understanding and the time frame to do so. Introduction to Page 29

30 What is the outlook for adoption? The following are the specific areas of focus within the Work Plan (continued): Examination of the US regulatory environment: The SEC staff will examine how the US regulatory environment would be affected by the further incorporation of 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 likely would affect regulatory regimes and parties subject to those regimes. The effect of on US issuers, both large and small: 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 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 would be more burdensome for smaller issuers. Introduction to Page 30

31 What is the outlook for adoption? The following are the specific areas of focus within the Work Plan (continued): Human capital readiness: The SEC staff will assess the readiness of all parties involved in the financial reporting process, including regulators, for the further incorporation of in the US financial reporting system. The SEC staff also will consider the constraints on the availability of individuals experienced in the application of and the required education, training and time frame necessary to address these constraints. Introduction to Page 31

32 What is the outlook for adoption? Timing 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. This would mean the use of in 2015 at the earliest. Other timing factors being contemplated by the SEC: 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. Introduction to Page 32

33 What is the outlook for adoption? Potential method of mandated use of by the SEC The SEC decision to mandate the use of is generally described as a decision to adopt. However, there are several manners in which the US could move forward to 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 with no mechanism for making changes to the standards. Rather most jurisdictions follow either a convergence or endorsement approach. Adoption: A jurisdiction practices under as issued with no modifications. Convergence: A jurisdiction practices under national standards with efforts to converge differences with standards over time. Endorsement: A jurisdiction reviews each standard as issued and determines whether the standard should be endorsed for practice with or without modification. Introduction to Page 33

34 What is the outlook for adoption? Potential method of mandated use of by the SEC In December 2010, Paul Beswick, SEC Deputy Chief Accountant, shared his thoughts on the method in which the US might move to at the 2010 AICPA National Conference on Current SEC and PCAOB developments. He proposed a condorsement approach as follows: 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: No new major projects but rather set priorities of converging US GAAP (remaining topics not on the current agenda) to. This would be to make sure that these existing 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 standard setting. This approach would allow the US to maintain control of US standards. Introduction to Page 34

35 Why is it important to learn about today? Knowledge of provides an ability to practice accounting in the global marketplace. Through convergence efforts, US GAAP continues to become more aligned with. US practice of currently exists in the following ways: Foreign multinationals that report using have US operations. While some of these entities file financials with regulators of foreign exchanges, some file with the SEC as foreign private investors (FPIs) under as well. US multinational companies have foreign operations that are required to report using. Many US companies are making assessments of the potential impact of adopting and convergence efforts on their current operations. Introduction to Page 35

36 Why is it important to learn about today? Under 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 adoption and convergence efforts impact much more than just the accounting function. Additional functions that are impacted include the following: Information systems Tax Treasury Investor relations Sales Human resources Mergers and acquisitions Introduction to Page 36

37 Why is it important to learn about today? Given the level of knowledge expected by US practitioners today, the AICPA is including in the content specifications for the Certified Public Accountant exam beginning January 1, Introduction to Page 37

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