Slide 1 - Welcome to Grant Thornton Client Experience for The ...

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The Current State of IFRS

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Objectives & Agenda

• What is IFRS?• Convergence• Resources

Objectives Agenda

• Recognize what IFRS is and when it will become important


What is IFRS?

IASB Structure

TrusteeAppointments

Advisory Group

IASCFoundation

IASB IFRICSAC

IFRShigh quality, enforceable and global

advises

advises

reports

creates

appointsoversees

fundsap

point

s appoints

repo

rts

interprets


What is IFRS?

IASB Standards and History

1973 International Accounting Standards (IAS)

↓

2001 SIC Interpretations (SIC)

2001 International Financial Reporting Standards (IFRS)

↓

Present IFRIC Interpretations (IFRIC)


IASB Standards

Jurisdictional adoption process

IASB two year post-implementation review

Published IFRS

FeedbackStatement

ExposureDraft (ED)

DiscussionPaper (DP)

(Optional)

Input from:• Advisory Council• Working Group• International Groups;

Analysts; Preparers;Audit technical partners

• Special interest groups• Local standard-setters• Regulators• Political groups

Agenda DecisionRESEARCH

PROPOSALS PROPOSALS

Public Consultation

Public Consultation


What is IFRS?

8 IFRSs in effect at 1 January 2008

IFRS 1 First-time Adoption of International Financial Reporting Standards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 6 Exploration for and Evaluation of Mineral Resources

IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments


What is IFRS?

29 IASs in effect at 1 January 2008

IAS 1 Presentation of Financial Statements

IAS 2 Inventories

IAS 7 Statement of Cash Flows

IAS 8 Accounting Policies, Changes in Accounting Estimates & Errors

IAS 10 Events After the Reporting Period

IAS 11 Construction Contracts

IAS 12 Income Taxes

IAS 16 Property, Plant and Equipment

IAS 17 Leases

IAS 18 Revenue


What is IFRS? 29 IASs in effect at 1 January 2008, continued

IAS 19 Employee Benefits

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 23 Borrowing Costs

IAS 24 Related Party Disclosures

IAS 26 Accounting and Reporting by Retirement Benefit Plans

IAS 27 Consolidated and Separate Financial Statements

IAS 28 Investments in Associates

IAS 29 Financial Reporting in Hyperinflationary Economies


What is IFRS? 29 IASs in effect at 1 January 2008, continued

IAS 31 Interests in Joint Ventures

IAS 32 Financial Instruments: Presentation

IAS 33 Earnings per Share

IAS 34 Interim Financial Reporting

IAS 36 Impairment of Assets

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IAS 38 Intangible Assets

IAS 39 Financial Instruments: Recognition and Measurement

IAS 40 Investment Property

IAS 41 Agriculture


What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008

SIC 7 Introduction of the Euro

SIC 10 Government Assistance – No Specific Relation to Operating Activities

SIC 12 Consolidation – Special-Purpose Entities

SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers

SIC 15 Operating Leases – Incentives

SIC 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets

SIC 25 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders

SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease


What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued

SIC 29 Service Concession Arrangements: Disclosures

SIC 31 Revenue – Barter Transactions Involving Advertising Services

SIC 32 Intangible Assets – Web Site Costs

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IFRIC 2 Members’ Shares in Cooperative Entities and Similar Instruments

IFRIC 4 Determining whether an Arrangement contains a Lease

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment


What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued

IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

IFRIC 8 Scope of IFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 IFRS 2 – Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction


What is IFRS?

Current State

Source: Deloitte – www.iasplus.com

Countries that require or permit IFRSs for domestic entities

Countries seeking convergence with, or pursuing adoption of, IFRSs


Activity 1

Principles vs. Rules

Discuss the advantages for a more or less principles-based standard for each category.

Category Fewer Rules

(more principles-based)

More Rules

(less principles-based)

Clients

Regulators

Litigation

Skill Set

Work Satisfaction

Take 5 minutes to complete


Group check

IFRS are pure principles-based standards

True

False


Group check

Debrief

IFRS are pure principles-based standards

True

False


Group check

U.S. GAAP are not based on sound, accepted accounting principles

True

False


Group check

Debrief

U.S. GAAP are not based on sound, accepted accounting principles

True

False


What is IFRS?


U.S.GAAPIFRS

Principles Only

Rules Only


Financial Statement Comprise:

IFRS GAAP

• Balance sheet• Income statement• A statement showing either:

– All changes in equity; or– Changes in equity other than

those arising from capital transactions with owners and distributions to owners (called a Statement of Recognised Income and Expense (SORIE))

• Cash flow statement (no exemptions)• Accounting policies and explanatory

notes (IAS 1.8)

• Balance sheet• Income statement• Statement of comprehensive income.

This statement may be combined with the income statement or the statement of changes in stockholders’ equity (SFAS130.22)

• Statement of changes in stockholders’ equity.

• Alternatively, disclosure of changes in the separate accounts comprising stockholders' equity (in addition to retained earnings) could be made in the notes to financial statements (APB 12.10)

• Statement of cash flows (limited exemptions; see Section 2.5)

• Notes to financial statements


Comparison of IFRS and US GAAP

IFRS GAAP

A finance lease is not determined by a bright lines test. Instead, IAS 17 lists factors normally indicating a finance lease, including any of the following (IAS 17.10):

• Transfer of ownership by end of lease term• Lessee has option to purchase asset on such

favourable terms such that option exercise is reasonably certain at inception

• Lease is for major part of asset's life, even if no purchase option exists

• Present value of minimum lease payments at inception amounts to at least substantially all of the fair value of the leased asset

• Leased assets are specialised such that only the lessee can use them without major modification

A capital lease is one that meets one or more of the following criteria (SFAS 13.7):

• Lease transfers ownership of the property to the lessee by the end of the lease term

• Lease contains a bargain purchase option• Lease term is equal to 75 percent or more of

the estimated economic life of the leased property.*

• Present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by the lessor and expected to be realized by the lessor.*

For the lessor to classify a lease as a capital lease, the following additional criteria must also be met (SFAS 13.8):


What is IFRS?


• Industry accounting not adequately addressed– Insurance contracts– Extractive activities

• No IFRS equivalent– In absence of a standard that specifically applies,

• Management should use judgment• Should not conflict with IFRS• May also consider other GAAP



Objectives & Agenda


Objectives Agenda


• Communicate key points about IFRS to your clients


Convergence

Definition

Where transactions or events are the same or similar, the accounting should be the same, or there should be enough transparency in the disclosures to allow the reader to understand the differences.

(Plus a continuing effort by standard setters to

reduce differences between systems over time.)


Convergence

Movement toward one set of standards - benefits

Investor confidence and understanding

Lower risk premium

Lower cost of capital


Convergence

Movement toward one set of standards - benefits

Greater transparency

Greater credibility

Greater comparability between companies wherever they are

Greater cross-border capital flows

Most efficient allocation of capital

Thriving economies


Convergence

Movement toward one set of standards - obstacles

• National pride• Endorsement process• Legal issues• Standard setters• Language


Group check

Which of the following is most correct?

1. U.S. GAAP and IFRS are already converged

2. U.S. GAAP and IFRS are not converged but will be eventually

3. U.S. GAAP and IFRS will never be converged

4. U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets


Group check

Debrief

Which of the following is most correct?

1. U.S. GAAP and IFRS are already converged

2. U.S. GAAP and IFRS are not converged but will be eventually

3. U.S. GAAP and IFRS will never be converged

4. U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets


Convergence

U.S. Convergence – FASB/IASB

• 2002 Norwalk Agreement

• 2006 Memorandum of Understanding (MOU)

• 2008 Memorandum of Understanding (MOU)


Convergence


• FASB adopts IASB standard– Fair value option (SFAS 159)– Research and development assets acquired in a

business combination (SFAS 141 – revised 2007)

• IASB adopts FASB standard– Borrowing costs (IAS 23 – revised 2007)– Segment disclosures (IFRS 8)


Convergence

U.S. Convergence - FASB/IASB

Short–term convergence

Short-term projects deferred• Government grants• Impairment

To be examined by the FASB To be examined by the IASB

Income taxes (joint project) Income taxes (joint project)

Investment properties Joint arrangements (joint ventures)

Research and development

Subsequent events


Convergence


Major joint projects• Consolidations• Derecognition• Fair value measurement• Financial instruments• Financial statement presentation• Leases• Liabilities and equity distinctions• Post-employment benefits (including pensions)• Revenue recognition


Convergence


Conceptual Framework – joint project• Mentioned in the 2008 MOU; however no specific timetable • Major joint projects will take account of ongoing Conceptual

Framework projects


Convergence

U.S. Convergence - SEC

Roadmap – 7 milestones

1. Improvements in accounting standards

2. Funding and accountability of IASCF

3. Improved ability to use XBRL for IFRS

4. Education and training on IFRS in the U.S.

5. Limited early use by select few

6. Anticipated future rulemaking

7. Potential implementation sequence – FYE on or after 15 December− Large Accelerated Filers 2014− Accelerated Filers 2015− Non-Accelerated Filers 2016


What’s your opinion?

Within the next few years the FASB will be irrelevant and should disband

True

False


Convergence

U.S. Convergence - SEC

• Policy issues• International Organization of Securities Commissions (IOSCO)

2000Concept Release

April2005

Roadmap

March 2007Roundtables

December2007

Final Rule

December2007

Roundtables

July 2007ProposingRelease

August2007

ProposingRelease


Convergence

Rest of the world

Country Status

Europe Required (as adopted by EU)

Argentina Required starting 2011 (awaiting approval)

Australia andNew Zealand

National standards described as IFRS equivalentInclude unreserved statement of compliance

Brazil Required starting 2010; optional before

Canada Required starting 2011

Chile Required starting 2009

China Must use Accounting Standards for Business Enterprises, which are close but not exactly IFRS. Companies listed in Hong Kong have choice of IFRS or HK FRS

India Required starting 2011


Convergence

Rest of the world, continued

Country Status

Japan Japanese GAAP to converge to IFRS by 2011

South Korea Required starting 2011; permitted 2009

Mexico Permitted

Peru Required

Russia Required for banks

Singapore Singapore IFRS – changed several IFRSs and did not adopt others

South Africa Required

Switzerland Permitted

Turkey Permitted

Uruguay Must use IFRS in existence at 19 May 2004

USA Not permitted; concept release out for comment


Convergence

Application

• Jurisdictional variations• Different interpretations• Small and Medium-sized Entities (SMEs)


What’s your opinion?

Choose either View A or View B

View A View B

The SEC should allow market forces to determine when to allow IFRS in the U.S.

The SEC should decide what is best for the U.S. markets and mandate IFRS when it is ready


Activity 2

Are companies ready for IFRS?

Discuss the characteristics of a company that is unprepared to adopt IFRS and one that is prepared.

Take 2 minutes to complete

Unprepared Company Prepared Company


Activity 2

Debrief

Unprepared Client Prepared Client

• Waits until the switch to IFRS is mandatory

• Has the accounting staff prepare excel spreadsheets to support top-level adjustments to its U.S. GAAP statements

• Misses some items that are caught at the last minute by the GT audit team

• Disclosures are so poorly written it gets several comment letters from the SEC on its late filing

• Budgets for a project to evaluate what will change if it switches to IFRS

• Project team includes accounting, reporting, operations and IT

• Produces pro forma statements two years prior to changeover – Highlights how reported results

will change – Allows better evaluation of

transition options – Highlights needed changes in

information requirements & IT


Next Steps

What you need to know

• Whether and when to switch to IFRS• Required• Competition• Cost / benefit• Future developments


How will movement to IFRS impact Financial Reporting?

Concerns:

• Data collection• Potential impact on tax liability• Potential increased volatility in reporting• Potential change in patter of earnings• Potential increased financial disclosures


How will movement to IFRS impact Financial Reporting?

Benefits:

• Potential cost savings• Opportunity to review and improve process• Potential impact on tax liability• Increased access to funds and markets


Top Twenty Issues to Consider

1 IAS 1 Presentation issues: judgments and estimates2 IAS 1 Presentation issues: primary statement formats3 IAS 36 Impairment disclosures4 IFRS 3 Goodwill justification disclosure 5 IFRS 3 Other business combination issues and disclosures 6 IFRS 7 Financial instruments: disclosures7 IAS 12 Deferred tax accounting and disclosure8 Accounting policies general messages 9 Accounting policies specific problems: revenue 10 Accounting policies specific problems: financial instruments 11 IFRS 1 Explanation of transition to IFRS 12 IFRS 5 Non-current assets held for sale and discontinued operations 13 IAS 14 Segment information 14 IAS 37 Provisions disclosure 15 IAS 39 Financial instruments: recognition and measurement16 Standards in issue not yet effective 17 Operating items and exceptional items 18 Comparative information 19 IAS 19 Employee Benefit Disclosures 20 Detail counts don't forget




Objectives Agenda


• Communicate key points about IFRS to your clients


• IFRS Resource Center

http://www.grantthornton.com/portal/site/gtcom/menuitem.91c078ed5c0ef4ca80cd8710033841ca/index561b974be30c92e309882716712c24c3.html?vgnextoid=bb444cfadd5d3110VgnVCM1000003a8314acRCRD

Grant Thornton Resources


For additional information, visit these Web sites:

AICPA• International Financial Reporting Standards (IFRS) – An AICPA Backgrounder at

www.ifrs.com• For the latest information on the status of IFRS and educational opportunities

visit www.ifrs.comIASB• Memorandum of Understanding with the FASB:

http://www.iasb.org/Current+Projects/Memorandum+of+Understanding+with+the+FASB.htm

• IFRS summaries:http://www.iasb.org/IFRS+Summaries/IFRS+and+IAS+Summaries+English+2008/IFRS+and+IAS+Summaries+English.htm

FASB• Overview of International Activities: http://www.fasb.org/intl/SEC• International Financial Reporting Standards Road Map:

http://www.sec.gov/spotlight/ifrsroadmap.htm

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