Will the standards also be applicable for privately held companies?
The short answer is no. However, IFRS has created reporting standards for small and medium-sized entities ‘SMEs.’ The term SME is somewhat misleading. It does not refer to size, but rather to entities that are not publicly held. This is something that accountants and U.S. private companies have always wanted the FASB to do. The standards are contained in a 230-page document.
The standards actually simplify accounting requirements by omitting some topics required by IFRS and by prohibiting some items that are optional under IFRS. They also provide simplified recognition and measurement principles for a number of items including financial instruments, intangibles, joint ventures, share-based compensation and income taxes. The IFRS for SMEs will also require substantially fewer disclosures.
In general, private U.S. companies are allowed to use IFRS for SMEs as a basis of accounting. It is not deemed an ‘other comprehensive basis of accounting.’ However, before adopting, a company considering IFRS should determine if the user of the financial statement is willing to accept them as an alternative to U.S. GAAP.
In light of recognizing that IFRS has addressed separate accounting standards for private companies, it is important to note that the AICPA has also recently addressed this issue. A new ‘blue-ribbon panel’ has been formed to study whether there is a need for separate standalone accounting standards for private companies. The panel will address standards for private companies adopted in other countries as well as the issuance of IFRS for SMEs.
What other considerations are there regarding implementation?
As it is with any change, costs and training are always a concern. CPAs in both public and private accounting will have to become knowledgeable in implementing the new rules. There are numerous sources that are already providing training materials and publications. IFRS is already being covered in accounting textbooks.
There will also be significant costs associated with converting to IFRS. They will vary of course depending on the size and nature of the company converting. Studies have shown that costs for the first year of implementation could be between 0.125 percent and 0.13 percent of revenue.
For more information on IFRS, you can visit www.IFRS.org or www.ifrs.com.
Larry M. Kane, CPA, is a director with Glenn M. Gelman & Associates, Certified Public Accountants and Business Consultants. Reach him at (714) 667-2600 or [email protected].
