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@example.com.