Technology Advisor

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What is IFRS? International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB), that is becoming the global standard for the preparation of public company financial statements. The IASB (www.iasb.com) is an independent accounting standards body, based in London. It consists of 14 members from nine countries, including the United States.

 

Under the previous United States administration, the Securities and Exchange Commission (www.sec.gov) unanimously agreed to a roadmap that would let 110 companies, depending on size and industry, use IFRS for their SEC filings at the end of the fiscal years ending after December 15, 2009. Later, large accelerated filers would begin using IFRS in 2014, followed by accelerated filers in 2015, and smaller companies in 2016 (www.sec.gov/spotlight/ifrsroadmap.htm).

 

Under the new administration, SEC Chairman, Mary Schapiro has many concerns about the current roadmap, namely its pace. At her Senate confirmation hearing, Schapiro said, “I will not be bound by the existing roadmap that’s out for public comment.”

 

Most finance executives are concerned over whether the U.S. legal culture and auditors could handle a more principles-based accounting language, getting their staff up to speed on IFRS, the integrity of the IASB, and whether the international rules are truly better than U.S. GAAP.

 

Most of all, these executives are worried about the cost of conversion. Audit firms have estimated that a GAAP-to-IFRS switch will cost between 0.5 percent and 1 percent of a company’s annual revenue in addition to two to three years of hard work.

So if the United States mandates IFRS for publicly traded companies, will private companies and not-for-profit organizations be required to adopt IFRS? The simple answer is no. All the discussion thus far about the possibility of the SEC designating a future date for voluntary, or even mandatory, adoption of IFRS has been for U.S. public companies only.  

That said, many privately held companies adopted provisions contained within the Sarbanes-Oxley Act, such as the formation of independent audit committees. Many might take similar action regarding IFRS, even if they are not mandated to do so.  

What should you do now? Be aware that the way financial statements are prepared differs based on whether a company is using IFRS, U.S. GAAP, or another country’s GAAP. Keep abreast of SEC developments regarding IFRS and its potential adoption by U.S. companies and of the various efforts to allow nonpublic companies to use IFRS as well.  

If you are looking for more information on IFRS, visit the AICPA IFRS Resources site at www.ifrs.com.   

Are you affected by IFRS? Have you started any preparation or planning for IFRS? Post your comments.