The International Financial Reporting
Standards (IFRS) is a set of accounting
standards that is becoming the global
standard for the preparation of public company financial statements.
CPAs working with public companies will
be affected by the conversion, and as IFRS
continues to grow in acceptance, they will
need to become knowledgeable about the
standards. While the proposed timeline for
the transition is not yet definite, it’s not too
early for accountants of public companies to
familiarize themselves with the standards,
says Don Carobine, CPA and vice president
of Gumbiner Savett Inc.
“For accountants that work with public
companies, regardless of the proposed SEC
timeline, there is no need to hesitate as continuing professional education courses are
beginning to surface and will likely become
widespread as things progress,” he says.
Smart Business spoke with Carobine
about IFRS, why it makes sense for the U.S.
to make the transition and when the changes
are expected to take place.
What is IFRS and why have we been hearing
so much about it the past several months?
These standards are set by the International
Accounting Standards Board (IASB) and are
used by more than 110 countries for financial
reporting. They are separate from the standards used in the United States, which are
referred to as U.S. Generally Accepted
Accounting Principles (GAAP). You have
been hearing a lot about the international
standards recently due to efforts in the U.S.
over the past several years to converge U.S.
GAAP and IFRS with the ultimate goal of the
U.S. transitioning to IFRS.
Why should the U.S. transition to IFRS?
It is most likely evident to everyone that we
are, and have been, evolving to a world economy. The objective is the development of
high-quality, common accounting standards
for use in the world’s capital markets to
enhance consistency, comparability and efficiency of financial statements, enabling global markets to move with less friction. The
U.S. will transition to IFRS or be the only
major country in the world that has not.
How has the convergence process progressed over the past several years?
The Financial Accounting Standards Board
(FASB), a U.S. GAAP standard setter, entered
into a memorandum of understanding (the
Norwalk Agreement) with the IASB in
October 2002. This marked a significant step
toward formalizing the commitment to convergence of U.S. and international accounting standards. For the past several years, the
FASB and IASB have been working to identify differences, address them, and arrive at
standards under U.S. GAAP and IFRS that
are as closely aligned as possible. All pronouncements issued since this commitment
by each of these standard setters were
arrived at through this collaborative effort.
This alignment of standards over time may
make for ease when the final transition from
U.S. GAAP to IFRS occurs.
What is the current timeline for transitioning
from U.S. GAAP to IFRS?
The SEC published its proposed road map
for transition by public companies in
November 2008. Under the proposed road
map, IFRS filings would begin for large accelerated filers for fiscal years ending on or after
Dec. 15, 2014. Smaller accelerated filers
would begin IFRS filings for years ending on
or after Dec. 15, 2015. Nonaccelerated filers,
including smaller reporting companies,
would begin IFRS filings for years ending on
or after Dec. 15, 2016.
The SEC will meet in 2011 to assess how
well public companies have been dealing
with the transition and how they are progressing toward a set of seven milestones.
The milestones include improvements in
accounting standards; the accountability and
funding of the International Accounting
Standards Committee Foundation, which
oversees the IASB; improvements in the ability to use interactive data-tagging technology,
or XBRL, for IFRS reporting; education and
training related to IFRS; limited early use of
IFRS where this would enhance comparability for U.S. investors; the anticipated future
timing of future rule-making by the SEC; and
the implementation of mandatory use of
IFRS by U.S. issuers. This proposed road
map and the milestones described are not
without challenges. It is uncertain at this time
when or if there will be a transition for non-public companies.
When should accountants in the U.S. learn
IFRS?
Although transition seems certain, the time-line for public companies is in question and
no timeline has been set for nonpublic companies. In January 2009, Mary Schapiro,
President Obama’s choice as chairman of the
SEC, indicated that she could delay the
planned transition to IFRS. Some companies
are worried about the high cost, estimated by
the SEC at up to $32 million for the biggest
companies. There is also concern over the
independence of the IASB and the looser
nature of IFRS’s principles-based standards.
Accountants for public companies should
keep an eye on this to determine when to
jump in and learn IFRS. Accountants for non-public companies should also keep an eye on
this, but will likely not need to jump in and
learn IFRS until a timeline for transitioning
from U.S. GAAP to IFRS is set for nonpublic
companies.
DON CAROBINE is a CPA and vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or [email protected].
