Day1IFRSslides.ppt

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Introduction to IFRS

Slides from Ernst & Young Foundatioand KPMG Foundation


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What is IFRS?

IFRS stands for International Financial Reporting Standards.

As indicated within the title, these standards are aimed at a globa Ultimately, the goal is to achieve a single set of high-quality, comm

accounting standards used around the world.

These standards are the result of a convergence of international v

These standards are for publicly accountable entities.

Small and medium-sized entities (SMEs) that do not have publaccountability may use a simplified version of IFRS known as I

SMEs.

IFRS for SMEs has recently been accepted for non-SEC regist

AICPA as an acceptable alternative reporting standard to US G

however, it is not yet common practice.


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Why is it important to learn about IFRS tod

Under IFRS 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 thecompany.

The IFRS 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


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Why is it important to learn about IFRS today?

Knowledge of IFRS provides an ability to practice accounting

in the global marketplace.

Through convergence efforts, US GAAP continues tobecome more aligned with IFRS.

US practice of IFRS currently exists in the following ways:

Foreign multinationals that report using IFRS have US

operations. While some of these entities file IFRS financials

with regulators of foreign exchanges, some file with the SEC as

foreign private investors (FPIs) under IFRS as well.

US multinational companies have foreign operations that are

required to report using IFRS.

Many US companies are making assessments of the potential

impact of adopting IFRS and IFRS convergence efforts on their

current operations.


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Why is it important to learn about IFRS today?

Given the level of IFRS

knowledge expected by USpractitioners today, theAICPA is including IFRS inthe content specifications forthe Certified Public

Accountant exam beginning

January 1, 2011.


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IFRS Implementation Around the World (2005)

IFRS or fixed date for implementation

Convergence plans

U.S. GAAP and/or convergence intended

No/unknown convergence plans


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IFRS Implementation Around the World (2009)

IFRS permitted or required

Convergence plans

U.S. GAAP and/or convergence intended

No/unknown convergence plans


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Wave II is coming

Korea 2011: IFRS mandatory for listedbusinesses 2009: IFRS permitted

Japan Large publicly-traded companies given option to early- adopt Iending March 31, 2010

China Convergence with IFRS with some differences

India Convergence with IFRS for public interest entities for 2011

Brazil Listed companies and banks required to use

IFRS starting from 2010, IFRS to be

incorporated into Brazilian GAAP

Canada 2011: Reporting under IFRS for publicly-

accountable entities, private companies permitted to use IFRS

Mexico 2012: Working to converge Mexican GAAP with IFRS

U.S. 2015 or 2016 ???


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Convergence Plan

Norwalk Agreement (September 2002)

FASB and IASB pledged to make their existin

reporting standards fully compatible and coor

work programs to ensure compatibility is mai Memorandum of Understanding between FASB

(February 2006)

Commitment to achieve convergence

Sets guidelines on how to approach the task

Outlined standard setting goals to be accompend of 2008

Updated Memorandum of Understanding

(September 2008, November 2009)

Presents standard setting goals to be accom

June 2011


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Use of IFRS by Foreign Private Issuers

December 2007

SEC issued final rule permitting foreign private issuersfinancial statements in accordance with IFRS as issue

(SEC Release No. 33-8879)

Financial statements required to contain explicit and

statement of compliance with IFRS as issued by IAS

Audit report required to opine on application of IFRS

by IASB

No reconciliation to U.S. GAAP needed


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SEC Proposed Roadmap for Potential Adoptionof IFRS by All U.S. Public Companies

Issued November 2008

Identified milestones to be achieved before IFRS decision

Potential SEC decision in 2011, with potential IFRS

adoption beginning with years ending on or after

December 15

2014 for large accelerated filers2015 for accelerated filers

2016 for other filers


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Commission Statement in Support of Convergence and Accounting Standards (2010 Statement)

The 2010 Statement was issued by the SEC on Februa2010

SEC directed the Staff of the Office of the Chief AccounSEC with appropriate consultation with other divisions ato develop and execute a Work Plan

The purpose of the Work Plan is to consider specific arefactors relevant to a SEC determination in 2011 ofwhethso, when, and howthe U.S. should be transitioned to a sincorporating IFRS


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Is IFRS different than US GAAP?

There are differences between IFRS and US GAAP but they are m

than different for most commonly encountered transactions.

IFRS is largely grounded in the same principles as US GAAP.

The US and international standard setters are currently working o

convergence projects to better align the standards and reduce the

differences.

=

?/


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Is IFRS better than US GAAP?

It cannot be stated that IFRS is better (or of higher quality) than U

that US GAAP is better (or of higher quality) than IFRS. Neither s

standards is perfect. This is evidenced by the convergence efforts where changes are

to both sets of standards and are not one-sided.

Some could say that the international standard setters have had t

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 consiste

which continues to consider more current thinking and practice.

Being able to focus more intently on a principles orientation.


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Principles Based vs. Rules Based

As mentioned previously, both US GAAP and IFRS are largely gr

same principles.

As a general rule, however, IFRS standards are broader with less

limited interpretive guidance.

The international standard setters prefer to leave implementation of the prin

embodied in the standards to preparers and auditors and its interpretive bo

US GAAP contains underlying principles as well but is more spec

oriented with far more bright lines, comprehensive implementatiand industry interpretations.


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The following example is a simple illustration of a principles-oriented

compared to a rules-oriented approach.

Rules oriented:

Your parents te

a 3.2 GPA or a

They provide y

contingencies tjustify acceptan

anything lower

GPA.

Principles oriented:

Your parents tell you to

do your best to get good

grades.

If you do not get goodgrades, they will consider

the substance of your

reasons.


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Who are the international standard setters?

International Accounting Standards Board (IASB):

The IASB develops IFRS.

The IASB is an independent group of 15 full-time members.

The board intends to expand to 16 members by 2012.

These members are appointed by the trustees.
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What is the structure of the international standard

International

Accounting

Standards

Board (IASB)

IFRS

and

IFRS for SMEs

IFRS

Advisory

Council

IFRS

Foundation

IFRS

Interpretat

Committ

Information provided by www.IFR

Monitoring

Board


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IFRS

Foundation

International

Accounting

Standards

Board (IASB)

IFRS

and

IFRS for SMEs

The IFRS Foun

profit organizat

the developme

international re

for general fina

Monitoring

Board

IFRS

Interpretat

Committ

IFRS

Advisory

Council



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International

Accounting

Standards

Board (IASB)

IFRS

and

IFRS for SMEs

Monitoring

Board

This group

assists in

nominating and

appointing

individuals to

IFRS

Foundation

trustee

positions.

IFRS

Foundation

IFRS

Interpretat

Committ

IFRS

Advisory

Council



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What is the structure of the international standard s

International

Accounting

Standards

Board (IASB)

IFRS

and

IFRS for SMEs

The IFRS Advisory Council is the

IASBs forum for consultation with

representatives from user groups,

preparers, financial analysts,

academics, auditors, regulators

and professional accounting

bodies.

Monitoring

Board

IFRS

Foundation

IFRS

Interpretat

Committ

IFRS

Advisory

Council


Wh t i th t t f th i t ti l t d d


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International

Accounting

Standards

Board (IASB)

IFRS

and

IFRS for SMEs

IFRS

Interpretat

Committ

The IFRS Interpretations

releases interpretations (

newly identified financial

issues not dealt with in an

unsatisfactory or conflicti

interpretations in areas w

appropriate authoritative

Monitoring

Board

IFRS

Foundation

IFRS

Advisory

Council


Wh t i th hi t f IFRS?


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For more details regarding the history of IFRS, see the appendix of the Ernst & Young publication, US GAAP vs. IFRS: the basics.

What is the history of IFRS?

1960s 1970s 1980s 1990s 2000s

Proposal to

create an

accountants

international

study group

The IASC is formed in

1973.

The IASC begins

promulgating

International Accounting

Standards (IAS).

The IASC

expands.

In 1994, the IASC Advisory Council is formed

to provide oversight of IASC.

In 1997, the Standards InterpretationsCommittee (SIC) is formed

In 1999, the IASC is restructured to form a

new board: the IASB.

FASB agrees to work on a joint earnings-per-

share project.

In 2000, the initial 14 members are appointed to the IASB.

In 2002, the IASB begins promulgating standards as IFRS from IAS. The SIC be

European Union endorses IFRS for 2005 adoption.

In 2002, the Norwalk Agreementis executed between the IASB and FASB.

In 2005, the SEC published a roadmap (Roadmap) for elimination of a US GAAP

In 2006, the FASB and IASB published a Memorandum of Understanding, to set f

joint work program.

In 2007, the SEC eliminated the U

reconciliation for FPIs.

In 2008, the SEC published a proanticipating the mandatory adopt

In 2009, the FASB and IASB reaf

commitment to the MOU.

In 2010, the SEC established a W

IFRS adoption decision.

H i t ti l t d d t?


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How are international standards set?

Agenda

Discussion

paper

(DP)

Post-implementation meetings

Exposure

draft

(ED)

IFRS Feedback

statement

Input is received from:

IFRS Advisory Council

Working Group

International groups such as

analysts, preparers, audit

technical partners

Special interest groups

Local standard setters Regulators

Political groups

Public c

Public

Research


Pl th j t d d l d bli h th DP


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Plan the project, and develop and publish the DP

IASB decides whether to conduct the project alone, or jo

another standard setter.

A DP is not mandatory, but is quite typical. The purpose

explain the issue, and solicit early comments from const

A DP includes:

Comprehensive overview Possible approaches

Preliminary views


D l d bli h th ED


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Develop and publish the ED

Mandatory step, it is the main vehicle for consulting the

Unlike a DP, an ED sets out a specific proposal in the foproposed standard.

The development of an ED begins with the IASB conside

Issues on the basis of staff research and recommenda

Comments received on any DP.

Suggestions made by the IFRS Advisory Council, wor

groups and accounting standard setters, and those ar

public education sessions.


Develop and publish the standard


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Develop and publish the standard

After resolving issues arising from the ED, the IASB considers wh

should expose its revised proposals for public comment. The rev

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

not previously considered.

Assesses the evidence that it has considered.

Evaluates whether it has sufficiently understood the issues and actively souconstituents.

Considers whether the various viewpoints were aired in the ED and adequa

and reviewed in the basis for conclusions.


A comparison of standard setting processes


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A comparison of standard-setting processes

The IASB standard-setting process is almost identical to that of the FASB. The

steps the FASB takes to create a standard:

The FASB receives requests/recommendations for possible projects and reconsiderstandards from various sources.

The FASB Chairman decides whether to add a project to the technical agenda, subj

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 a

is used to develop the ED.

The FASB staff analyzes comment letters, public roundtable discussion and any oth

The FASB redeliberates the proposed provisions at public meetings.

The FASB issues an Accounting Standards Update describing amendments to the A

Standards Codification.

.

Information provided by www.fas

How are the US and international standard setters


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How are the US and international standard setters

together?

The FASB and IASB have been working together on

convergence since 2006.

The following is a list of the major convergence efforts

being focused on at this time :

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.

What is the outlook for IFRS adoption?


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What is the outlook for IFRS adoption?Timing

SEC Chairman, Mary Shapiro, stated in December 2010 that the

allow a minimum of four years to adjust if it mandates the use of I

would mean the use of IFRS 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.

What is the outlook for IFRS adoption?


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What is the outlook for IFRS adoption?Potential method of mandated use of IFRS by the SEC

The SEC decision to mandate the use of IFRS is generally descri

decision to adopt IFRS. However, there are several manners in w

could move forward to IFRS that are not considered to be adoptio

sense.

In October 2010, the SEC provided a progress report identifying t

jurisdictions do not fully adopt IFRS with no mechanism for makin

the standards. Rather most jurisdictions follow either a convergen

endorsement approach.

Adoption: A jurisdiction practices under IFRS as issued with no modificatio Convergence: A jurisdiction practices under national standards with efforts t

differences with IFRS standards over time.

Endorsement: A jurisdiction reviews each IFRS standard as issued and det

whether the standard should be endorsed for practice with or without modifi

Conversion Issues


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Conversion Issues

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