IFRA US GAAP Convergence

IFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRS--------US GAAPUS GAAPUS GAAPUS GAAPUS GAAPUS GAAPUS GAAPUS GAAPConvergence or Keep Them Convergence or Keep Them

Separated?Separated?

Neal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupCambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA [email protected]@[email protected]@gilbane.com

FICPA Jacksonville, FL May 14, 2009FICPA Jacksonville, FL May 14, 2009

Session WIKISession WIKISession WIKISession WIKISession WIKISession WIKISession WIKISession WIKI

InternationalInternationalInternationalInternationalInternationalInternationalInternationalInternationalFinancialFinancialFinancialFinancialFinancialFinancialFinancialFinancialReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingReportingStandards Standards Standards Standards Standards Standards Standards Standards

International AccountingInternational AccountingInternational AccountingInternational AccountingInternational AccountingInternational AccountingInternational AccountingInternational AccountingStandards: Brief HistoryStandards: Brief HistoryStandards: Brief HistoryStandards: Brief HistoryStandards: Brief HistoryStandards: Brief HistoryStandards: Brief HistoryStandards: Brief History

•• IASC started 1973:IASC started 1973:–– Volunteer, partVolunteer, part--time, met 3X/yeartime, met 3X/year–– Issued IASs 1Issued IASs 1--41 + interpretations41 + interpretations

•• Restructured 2001:Restructured 2001:–– FullFull--time IASB based in Londontime IASB based in London–– 14 members14 members–– Issues IFRSsIssues IFRSs

•• Old IASs (most revised by IASB) remain in forceOld IASs (most revised by IASB) remain in force

Potential for IFRS as the Global Accounting Standard

• 113 countries require or permit IFRS

• Market capitalization of exchange listed companies in the European Union, Australia, and Israel comprises 26% of global market capitalization

• Market capitalization of exchange listed companies in those countries plus Brazil and Canada totals 31% of those countries plus Brazil and Canada totals 31% of global market capitalization

• SEC believes that the benefits of moving towards IFRS are attainable only if IFRS represents a single set of high-quality accounting standards, which can be accomplished with IFRS as issued by the IASB

113 countries, including the members of the EuropeanUnion and much of Asia, have already adopted and implementedIFRS. Israel, Chile and South Korea are set for 2009, Brazil for 2010, and Canada for 2011.

IFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSIFRSOr is it?Or is it?Or is it?Or is it?Or is it?Or is it?Or is it?Or is it?

•• AICPA, BigAICPA, BigAICPA, BigAICPA, BigAICPA, BigAICPA, BigAICPA, BigAICPA, Big--------4, and major US 4, and major US 4, and major US 4, and major US 4, and major US 4, and major US 4, and major US 4, and major US multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but multinationals favor use of IFRSs but support is wavering. support is wavering. support is wavering. support is wavering. support is wavering. support is wavering. support is wavering. support is wavering.

•• Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules Designation of IASB under AICPA Rules 202202202202202202202202--------203 (May 2008)203 (May 2008)203 (May 2008)203 (May 2008)203 (May 2008)203 (May 2008)203 (May 2008)203 (May 2008)–– Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private –– Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Potential for use of IFRS for Private Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009Entities when it is finished early 2009

•• FASB favors FASB favors FASB favors FASB favors FASB favors FASB favors FASB favors FASB favors convergence;convergence;convergence;convergence;convergence;convergence;convergence;convergence; SEC is in SEC is in SEC is in SEC is in SEC is in SEC is in SEC is in SEC is in comment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmapcomment period on IFRS roadmap

•• IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global IFAC stands behind high quality global standardsstandardsstandardsstandardsstandardsstandardsstandardsstandards

Why globalWhy globalaccounting standards?accounting standards?

•• Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability Enhanced worldwide comparability for investorsfor investorsfor investorsfor investorsfor investorsfor investorsfor investorsfor investors

•• Enhanced quality of reportingEnhanced quality of reportingEnhanced quality of reportingEnhanced quality of reportingEnhanced quality of reportingEnhanced quality of reportingEnhanced quality of reportingEnhanced quality of reporting–– Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or Some national GAAPs are weak or outdatedoutdatedoutdatedoutdatedoutdatedoutdatedoutdatedoutdated

•• Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for Possibly a lower cost of capital for companies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSscompanies adopting IFRSs

•• More companyMore companyMore companyMore companyMore companyMore companyMore companyMore company--------friendly US securities friendly US securities friendly US securities friendly US securities friendly US securities friendly US securities friendly US securities friendly US securities market for foreign listingsmarket for foreign listingsmarket for foreign listingsmarket for foreign listingsmarket for foreign listingsmarket for foreign listingsmarket for foreign listingsmarket for foreign listings

•• Reduced reporting costsReduced reporting costsReduced reporting costsReduced reporting costsReduced reporting costsReduced reporting costsReduced reporting costsReduced reporting costs–– For instance, multinational with For instance, multinational with For instance, multinational with For instance, multinational with For instance, multinational with For instance, multinational with For instance, multinational with For instance, multinational with subs applying many GAAPssubs applying many GAAPssubs applying many GAAPssubs applying many GAAPssubs applying many GAAPssubs applying many GAAPssubs applying many GAAPssubs applying many GAAPs

•• No need to develop and maintain No need to develop and maintain No need to develop and maintain No need to develop and maintain No need to develop and maintain No need to develop and maintain No need to develop and maintain No need to develop and maintain national standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standardsnational standards

•• For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier For audit firms and companies: Easier movement of auditors and movement of auditors and movement of auditors and movement of auditors and movement of auditors and movement of auditors and movement of auditors and movement of auditors and accountants across bordersaccountants across bordersaccountants across bordersaccountants across bordersaccountants across bordersaccountants across bordersaccountants across bordersaccountants across borders

Past SEC Policy Considerations Regarding IFRS

• SEC has long expressed its support for a single set of high-quality global accounting standards (e.g., SEC Release 33-6807 – November 14, 1988)

• Convergence of U.S. GAAP and IFRS as issued by IASB (predominant approach)§ 2002 Norwalk Agreement

12

§ 2002 Norwalk Agreement § 2006 Memorandum of Understanding

• SEC allows foreign private issuers to file IFRS financial statements without reconciliation to the U.S. GAAP (SEC Release 33-8879)

• 2007 Concept Release – whether U.S. issuers should be permitted, but not required, to use IFRS in their filing with the SEC

US vs. the World?

The stated objective of the 2002 “Norwalk Agreement”between FASB and the IASB is the development of high quality, compatible accounting standards that could be used for both domestic and cross-border could be used for both domestic and cross-border financial reporting.

Clearly, this approach says let’s make both sets ofstandards better, not choose one set over the other.

ROADMAP FOR THE POTENTIAL USE OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL INTERNATIONAL FINANCIAL REPORTING STANDARDS BY U.S. ISSUERS

2011 Roadmap Milestones• Improvements in Accounting Standards

• Accountability and Funding of the IASC Foundation

• Improvement in the Ability to Use Interactive Data for IFRS Reporting

• Education and Training

• Limited Early Use of IFRS Where This Would Enhance Comparability for U.S. Investors

• Anticipated Timing of Future Rulemaking by the Commission

• Implementation of the Mandatory Use of IFRS

Ernst & YoungErnst & YoungErnst & YoungErnst & YoungErnst & YoungErnst & YoungErnst & YoungErnst & YoungComment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft Comment on 2009 IFRS Draft

TaxonomyTaxonomyTaxonomyTaxonomyTaxonomyTaxonomyTaxonomyTaxonomy

Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is Currently the IFRS taxonomy is not complete as it does not not complete as it does not not complete as it does not not complete as it does not not complete as it does not not complete as it does not not complete as it does not not complete as it does not contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or contain IFRS common practice or industry concepts. The industry concepts. The industry concepts. The industry concepts. The industry concepts. The industry concepts. The industry concepts. The industry concepts. The taxonomy does not contain taxonomy does not contain taxonomy does not contain taxonomy does not contain taxonomy does not contain taxonomy does not contain taxonomy does not contain taxonomy does not contain descriptions or definitions of descriptions or definitions of descriptions or definitions of descriptions or definitions of descriptions or definitions of descriptions or definitions of descriptions or definitions of descriptions or definitions of concepts.concepts.concepts.concepts.concepts.concepts.concepts.concepts.

Limited Early Use of IFRS• Roadmap: SEC to decide in 2011 mandated use of IFRS for U.S. issuers

• The proposed rules allow limited early use of IFRS by certain U.S. issuers

• The “early use” proposal has been somewhat controversial; respondents have somewhat controversial; respondents have proposed other alternatives§ Option to use IFRS should be extended to all U.S. issuers

§ SEC should require IFRS for all U.S. issuers (no option for anyone – even early adopters)

§ Continue convergence project without mandatory use of IFRS

Anticipated Timing of FutureRulemaking by SEC

• Review milestones in 2011, determine if mandatory IFRS starts in 2014

• Use U.S. GAAP during 2012, 2013, and the first three quarters of 2014

• 2014 financial report would show financial statements using IFRS for 2012, 2013, and

• 2014 financial report would show financial statements using IFRS for 2012, 2013, and 2014

• SEC directed the Office of Chief Accountant to undertake a study and report to the SEC on the implications for investors and other market participants of the use of IFRS

Implementation of Mandatory Use of IFRS

• All U.S. issuers adopt IFRS at same time

• Staged transition

§ Large accelerated filers must adopt for § Large accelerated filers must adopt for financial statements for 2014

§ Accelerated filers must adopt for financial statements for 2015

§ Non-accelerated filers must adopt for financial statements for 2016

The FASB’s participation in the evolution of the international

accounting system has been guided by the belief that, ideally, the

ultimate goal is the worldwide use of a single set of high-quality accounting single set of high-quality accounting standards for both domestic and cross-border financial reporting. We continue to support that goal.

Robert Hertz, Chairman, Financial Standards BoardLetter to the SEC, March 11, 2009

Decisions about the role that a single set of high-qualityglobal accounting standards plays in investor protection and the efficiency and effectiveness of capital formation and allocation involve complex, multidimensional and

perhaps controversial issues that require careful, measured, and comprehensive study and analysis.

FASB’s CommentFASB’s CommentFASB’s CommentFASB’s CommentFASB’s CommentFASB’s CommentFASB’s CommentFASB’s CommentTo the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS To the SEC on IFRS

….134 pages….134 pages….134 pages….134 pages….134 pages….134 pages….134 pages….134 pages

IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP IFRS and US GAAP ccccoooonnnnssssiiiiddddeeeerrrreeeedddd hhhhiiiigggghhhh qqqquuuuaaaalllliiiiccccoooonnnnssssiiiiddddeeeerrrreeeedddd hhhhiiiigggghhhh qqqquuuuaaaalllliiiiccccoooonnnnssssiiiiddddeeeerrrreeeedddd hhhhiiiigggghhhh qqqquuuuaaaalllliiiiccccoooonnnnssssiiiiddddeeeerrrreeeedddd hhhhiiiigggghhhh qqqquuuuaaaalllliiii

No significant No significant No significant No significant No significant No significant No significant No significant macroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effectmacroeconomic effect

Additional discretionAdditional discretionAdditional discretionAdditional discretionAdditional discretionAdditional discretionAdditional discretionAdditional discretion

not likely to not likely to not likely to not likely to not likely to not likely to not likely to not likely to result result result result result result result result result result result result result result result result in major in major in major in major in major in major in major in major differencesdifferencesdifferencesdifferencesdifferencesdifferencesdifferencesdifferences

Jurisdictional Jurisdictional Jurisdictional Jurisdictional Jurisdictional Jurisdictional Jurisdictional Jurisdictional effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on effect on accountingaccountingaccountingaccountingaccountingaccountingaccountingaccountingstandardsstandardsstandardsstandardsstandardsstandardsstandardsstandards

Standards Standards Standards Standards Standards Standards Standards Standards just just just just just just just just one factorone factorone factorone factorone factorone factorone factorone factor in in in in in in in in comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability comparability of financial of financial of financial of financial of financial of financial of financial of financial reportsreportsreportsreportsreportsreportsreportsreports

Large Large Large Large Large Large Large Large multinationals multinationals multinationals multinationals multinationals multinationals multinationals multinationals may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve may achieve limited cost limited cost limited cost limited cost limited cost limited cost limited cost limited cost savingssavingssavingssavingssavingssavingssavingssavings

Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US Adopting IFRS in US involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial costs costs costs costs costs costs costs costs involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial involves substantial costs costs costs costs costs costs costs costs disproportionate disproportionate disproportionate disproportionate disproportionate disproportionate disproportionate disproportionate with smaller firmswith smaller firmswith smaller firmswith smaller firmswith smaller firmswith smaller firmswith smaller firmswith smaller firms

Maintaining Maintaining Maintaining Maintaining Maintaining Maintaining Maintaining Maintaining status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo status quo might result in might result in might result in might result in might result in might result in might result in might result in additional costsadditional costsadditional costsadditional costsadditional costsadditional costsadditional costsadditional costsfor firms, for firms, for firms, for firms, for firms, for firms, for firms, for firms, investorsinvestorsinvestorsinvestorsinvestorsinvestorsinvestorsinvestors

Political challenges for Political challenges for Political challenges for Political challenges for Political challenges for Political challenges for Political challenges for Political challenges for US Congress toUS Congress toUS Congress toUS Congress toUS Congress toUS Congress toUS Congress toUS Congress to designatedesignatedesignatedesignatedesignatedesignatedesignatedesignateinternational international international international international international international international international international international international international international international international standard setting standard setting standard setting standard setting standard setting standard setting standard setting standard setting bodybodybodybodybodybodybodybody

• IFRS and US GAAP considered high quality• No significant macroeconomic effect• Additional discretion not likely to result in major differences when IFRS appliedmajor differences when IFRS applied

• Jurisdictional effect on accounting standards• Standards just one factor in comparability of financial reports

• Large multinationals may achieve limited cost savings

• Adopting IFRS in US involves substantial costs disproportionate with smaller firmscosts disproportionate with smaller firms

• Maintaining status quo might result in costs for firms, investors

• Political challenges for US Congress to designate international standard setting body

Convergence Still On• Sep 11, 2008 FASB, IASB To Complete Major Convergence

Projects by 2011, Says MoU FASB expects to release proposals in 2008 on Subsequent Events and Income Taxes.

• Similar to the ‘improve and adopt” approach described by FASB Chairman Robert Herz in interviews and Senate testimony

• Other matters noted in 2008 MoU Update: Conceptual Framework: Work is ongoing on the boards’ joint conceptual Framework: Work is ongoing on the boards’ joint conceptual framework projects.

• FASB and the IASB recognize the need for due process

• Work Programs Include Other Matters: – The boards “remain committed to completing the MoU projects because

they represent a significant step toward the goal of a common set of high quality standards.”

Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Joint Technical Plan and Project UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject UpdatesProject Updates

Some observers argue that adoption of IFRS, rather than

convergence, may be the better route.

“Adoption would eliminate "the arbitrage" between the

two standards that has caused politicians to exert undue

influence over what should be an independent

DJ Gannon, a Deloitte & Touche partner specializing in international accounting and reporting.

CFO.com, April 17, 2009

influence over what should be an independent

standard-setting process”

In a perfect world, with full In a perfect world, with full In a perfect world, with full In a perfect world, with full In a perfect world, with full In a perfect world, with full In a perfect world, with full In a perfect world, with full resources and free from resources and free from resources and free from resources and free from resources and free from resources and free from resources and free from resources and free from

outside influence, "when could outside influence, "when could outside influence, "when could outside influence, "when could outside influence, "when could outside influence, "when could outside influence, "when could outside influence, "when could we get convergence?," we get convergence?," we get convergence?," we get convergence?," we get convergence?," we get convergence?," we get convergence?," we get convergence?," Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.Goldschmid asked Herz.

"Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years,""Ten to fifteen years," the the the the the the the the FASB chairman replied.FASB chairman replied.FASB chairman replied.FASB chairman replied.FASB chairman replied.FASB chairman replied.FASB chairman replied.FASB chairman replied.

“We have been accelerating [the “We have been accelerating [the “We have been accelerating [the “We have been accelerating [the “We have been accelerating [the “We have been accelerating [the “We have been accelerating [the “We have been accelerating [the convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman convergence effort,” says IASB chairman Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that Sir David Tweedie, who reports that only nine major areas are left where only nine major areas are left where only nine major areas are left where only nine major areas are left where only nine major areas are left where only nine major areas are left where only nine major areas are left where only nine major areas are left where differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.differences have to be reconciled.

“We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our “We’re both working to scrap our existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new existing standards and write joint new standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish standards,” he adds. “We hope to finish by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll by 2011, so by then, the answers you’ll get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very get on U.S. GAAP and IFRS will be very similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is similar. And that, as the U.S. has said, is going to make it easier for them to going to make it easier for them to going to make it easier for them to going to make it easier for them to going to make it easier for them to going to make it easier for them to going to make it easier for them to going to make it easier for them to change.”change.”change.”change.”change.”change.”change.”change.”

CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: CFOs on IFRS: Forget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about ItForget about It

“Converting to IFRS is “Converting to IFRS is “Converting to IFRS is “Converting to IFRS is “Converting to IFRS is “Converting to IFRS is “Converting to IFRS is “Converting to IFRS is a solution without a solution without a solution without a solution without a solution without a solution without a solution without a solution without an underlying an underlying an underlying an underlying an underlying an underlying an underlying an underlying problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem” problem”

Melissa Sungela, vice president, corporate controller, and chief accounting officer for Great Atlantic & Pacific Tea Co.

“We believe some companies that are “We believe some companies that are “We believe some companies that are “We believe some companies that are “We believe some companies that are “We believe some companies that are “We believe some companies that are “We believe some companies that are eligible for earlyeligible for earlyeligible for earlyeligible for earlyeligible for earlyeligible for earlyeligible for earlyeligible for early--------adoption adoption adoption adoption adoption adoption adoption adoption would not even considerwould not even considerwould not even considerwould not even considerwould not even considerwould not even considerwould not even considerwould not even consider such such such such such such such such an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO an option if they use the LIFO inventory method and would inventory method and would inventory method and would inventory method and would inventory method and would inventory method and would inventory method and would inventory method and would incur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant income--------tax tax tax tax tax tax tax tax incur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant incomeincur a significant income--------tax tax tax tax tax tax tax tax penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”penalty …. for IFRS reporting,”

Chevron vice president/comptroller Mark HumphreyChevron vice president/comptroller Mark Humphrey

"Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to "Conversion to IFRS could lead to confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confusion and reduced marketplace confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a confidence in financial statements at a time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. time when confidence in the U.S. financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low" financial markets is already low"

Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for Patrick Mulva, controller for ExxonMobil. ExxonMobil. ExxonMobil. ExxonMobil. ExxonMobil. ExxonMobil. ExxonMobil. ExxonMobil.

“We have significant concerns with the “We have significant concerns with the “We have significant concerns with the “We have significant concerns with the “We have significant concerns with the “We have significant concerns with the “We have significant concerns with the “We have significant concerns with the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the roadmap and therefore encourage the commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a commission to focus on convergence as a means to developing the highest quality means to developing the highest quality means to developing the highest quality means to developing the highest quality means to developing the highest quality means to developing the highest quality means to developing the highest quality means to developing the highest quality globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at globally accepted accounting standards at a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the a lower cost and with less risk than the proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,” proposed mandatory conversion to IFRS,”

Boeing vice president and corporate controller, Robert Pasterick

IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new IFRS is a relatively new body of literature and body of literature and body of literature and body of literature and body of literature and body of literature and body of literature and body of literature and has not been tested to has not been tested to has not been tested to has not been tested to has not been tested to has not been tested to has not been tested to has not been tested to the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. the same extent as U.S. GAAP GAAP GAAP GAAP GAAP GAAP GAAP GAAP

Boeing's vice president and corporate controller, Robert Pasterick

speedspeedspeedspeedspeedspeedspeedspeed--------versusversusversusversusversusversusversusversus--------qualityqualityqualityqualityqualityqualityqualityquality

“there will be “there will be “there will be “there will be “there will be “there will be “there will be “there will be pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the “there will be “there will be “there will be “there will be “there will be “there will be “there will be “there will be

pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the pressure to cut the US loose …US loose …US loose …US loose …US loose …US loose …US loose …US loose …

“there will be “there will be “there will be “there will be pressure to cut the pressure to cut the pressure to cut the pressure to cut the US loose”US loose”US loose”US loose” from the from the from the from the from the from the from the from the process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must process. The US must

get on or get get on or get get on or get get on or get get on or get get on or get get on or get get on or get off the trainoff the trainoff the trainoff the trainoff the trainoff the trainoff the trainoff the train

-------- Goldschmid Goldschmid Goldschmid Goldschmid Goldschmid Goldschmid Goldschmid Goldschmid

Principles Vs. RulesPrinciple: Drive safelyRule: 55 MPH Limit

Voices of Note

The question about whether the world is going to global standards is no longer ‘if,’ but ‘when’. Switching to IFRS significantly reduces the cost of accounting and financial reporting for multi-national companies, which would multi-national companies, which would otherwise have to translate and reconcile records prepared under various country-specific standards.

KPMG Chairman and CEO Timothy P. Flynn

Voices of Note“An international language of disclosure and transparency

is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions,” said SEC Chairman Christopher Cox.

“The increasing worldwide acceptance of financial reporting using IFRS, and U.S. investors’ increasing ownership of using IFRS, and U.S. investors’ increasing ownership of securities issued by foreign companies that report financial information using IFRS, have led the Commission to propose this cautious and careful plan.

Clearly setting out the SEC’s direction well in advance, as well as the conditions that must be met, will help fulfill our mission of protecting investors and facilitating capital formation.”

Voices of Note

• Meanwhile the IASB at the dawn of the 21st Century began to add meat to but left out many of the bright line rules. Hence it generated a reputation for principles-based standards instead of rules-based its milk toast "politically correct" starter-set of international standards. "politically correct" starter-set of international standards.

In many instances it copied FASB standards.

– Bob Jensen, Professor emeritus Trinity University. www.trinity.edu/rjensen

Voices of Note

• "We should start off [a financial reporting standard] with the core principle, which is really the 'true and fair' core of the standard." Sir David Tweedie, Chairman IASB.

• “The idea of true and fair in accounting is little more than faith-based accounting, and most certainly not the appropriate starting point for any process of developing high-quality accounting standards.” Tom Selling (www.accountingonion.com)

Voices of Note

• On accounting, SEC Chairman Cox has unveiled a roadmap where US companies would switch from US GAAP to IFRS by 2014. Unthinkable only two years ago! A dramatic signal indeed. Following the EU's lead, the US is indicating it also wants to choose global standards. One set, in sight, at last. And of course we standards. One set, in sight, at last. And of course we need to strengthen the governance of the IASB. That is why we are working hard with some of our major counterparts to install new, strengthened oversight mechanisms.

Charles McCreevy, European Commissioner for Internal Market 14 September 2008.

Voices of Note

• A precipitous move away from U.S. Generally Accepted Accounting Principles will undermine the U.S. regulatory system, and thereby "put in jeopardy the thing that gives the U.S. a competitive advantage. All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?”

Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board

During her confirmation hearings, Schapiro expressed concern about the pace of accounting conversion proposed by her predecessor, noting,

"I will not be bound by the existing "I will not be bound by the existing roadmap that's out for public roadmap that's out for public comment,"comment,"and expressing reservations about quality of and expressing reservations about quality of IFRS and the independence of the International Accounting Standards Board, which writes those rules.

Mary Schapiro, SEC chairwoman as reported by CFO.com

Voices of Note

By the logic of others, which I can’t explain, fuzzy lines in accounting standards have come to be exalted as “principles-based” and bright lines are disparaged as “rules-and bright lines are disparaged as “rules-based.”

Tom Selling, author of The Accounting Onion blog

It is important to note that conversion to IFRS will require the retroactive restatementretroactive restatementretroactive restatementretroactive restatementof certain historical periods presented within a company’s first set of IFRS based financial statements. Those restated periods could show a host of changes to a changes to a changes to a changes to a company’s key metrics, bottomcompany’s key metrics, bottomcompany’s key metrics, bottomcompany’s key metrics, bottom----line line line line could show a host of changes to a changes to a changes to a changes to a company’s key metrics, bottomcompany’s key metrics, bottomcompany’s key metrics, bottomcompany’s key metrics, bottom----line line line line performance and financial position.performance and financial position.performance and financial position.performance and financial position.

Source: PriceWaterhouseCoopers, September 2008Source: PriceWaterhouseCoopers, September 2008Source: PriceWaterhouseCoopers, September 2008Source: PriceWaterhouseCoopers, September 2008

What Are the Major Differences?

Major DifferencesUS GAAP - IFRS

• Revenue recognition• Expense recognition: share-based payments

• Financial liabilities and equity• Financial liabilities and equity• Consolidation• Assets—nonfinancial assets• Assets—financial assets

Major DifferencesUS GAAP - IFRS

• Liabilities—taxes• Liabilities—other• Financial liabilities and equity• Derivatives and hedging• Derivatives and hedging• Consolidations• Business combinations• Other accounting and reporting topics

What If IFRS starts 12-31-11?• Preparing IFRS financial statements for the three years ending

December 31, 2011, would have a transition date of January 1, 2009. That would also be the date of the opening IFRS balance sheet.

– IFRS 1 requires that the opening IFRS balance sheet:– Include all of the assets and liabilities that IFRS requires;– Include all of the assets and liabilities that IFRS requires;– Exclude any assets and liabilities that IFRS does not permit;– Classify all assets, liabilities and equity in accordance with IFRS; and– Measure all items in accordance with IFRS.

• These general principles are followed except where one of the optional exemptions or mandatory exceptions does not require or permit recognition, classification and measurement in accordance with IFRS.

IFRS ResourcesIFRS Resources

•• Comprehensive list:Comprehensive list:www.iasplus.com/resource/0808aaaifrsresourwww.iasplus.com/resource/0808aaaifrsresources.pdfces.pdf

•• Growing Resource:Growing Resource:ficpaficpa--ifrs.wikispaces.com ifrs.wikispaces.com

IFRS ResourcesIFRS Resources•• DeloitteDeloitte

–– iGAAP 2009 iGAAP 2009 –– A Guide to IFRS Reporting (2A Guide to IFRS Reporting (2ndnd ed., ed., 2,100 pages)2,100 pages)

–– iGAAP 2008 Financial Instruments: IAS 32, IAS 39 iGAAP 2008 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (4and IFRS 7 Explained (4thth ed., 851 pages). ed., 851 pages).

–– www.iasplus.comwww.iasplus.com–– www.iasplus.comwww.iasplus.com–– IFRS eIFRS e--LearningLearning–– IFRSs in your Pocket 2008IFRSs in your Pocket 2008


•• Ernst & YoungErnst & Young–– Ernst & Young International GAAP 2009 (2 Ernst & Young International GAAP 2009 (2 volumes)volumes)

–– www.ey.com/ifrswww.ey.com/ifrs–– New academic resource center launched New academic resource center launched –– New academic resource center launched New academic resource center launched Fall 2008Fall 2008

•• Grant ThorntonGrant Thornton–– http://faculty.gtexperience.comhttp://faculty.gtexperience.com

IFRS ResourcesIFRS Resources•• KPMGKPMG

–– KPMG IFRS InstituteKPMG IFRS Institute•• www.kpmgifrsinstitute.com/www.kpmgifrsinstitute.com/

–– KPMG faculty portalKPMG faculty portal•• www.kpmgfacultyportal.comwww.kpmgfacultyportal.com

–– KPMG IFRG websiteKPMG IFRG website•• www.kpmgifrg.comwww.kpmgifrg.com

–– IFRS publications libraryIFRS publications library•• www.kpmgifrg.com/pubs/index.cfmwww.kpmgifrg.com/pubs/index.cfm


•• PricewaterhouseCoopersPricewaterhouseCoopers–– IFRS reporting websiteIFRS reporting website

•• www.pwcglobal.com/ifrswww.pwcglobal.com/ifrs

–– IFRS Pocket Guide 2008IFRS Pocket Guide 2008–– ’IFRS Ready’ toolkit for educators’IFRS Ready’ toolkit for educators–– ’IFRS Ready’ toolkit for educators’IFRS Ready’ toolkit for educators

•• www.pwc.com/facultywww.pwc.com/faculty

–– PWC IFRS BlogPWC IFRS Blog•• http://pwc.blogs.com/ifrs/http://pwc.blogs.com/ifrs/

IFRS ResourcesIFRS Resources•• US SEC Global Accounting PageUS SEC Global Accounting Page

–– www.sec.gov/spotlight/ifrsroadmap.htmwww.sec.gov/spotlight/ifrsroadmap.htm•• IASBIASB

–– www.iasb.orgwww.iasb.org–– Subscriptions and eSubscriptions and e--IFRSIFRS–– Subscriptions and eSubscriptions and e--IFRSIFRS–– Webcasts of meetingsWebcasts of meetings

•• World Accounting ReportWorld Accounting Report–– www.iwww.i--financial.com/financial.com/

IFRS Academic ResourcesIFRS Academic Resources•• IAAERIAAER

–– www.iaaer.orgwww.iaaer.org–– Offers very lowOffers very low--cost academic subscription to cost academic subscription to eIFRS (from IASB)eIFRS (from IASB)•• Includes all IFRSs and other educational materials of the Includes all IFRSs and other educational materials of the IASB $25 (academician) and $20 (student) IASB $25 (academician) and $20 (student) IASB $25 (academician) and $20 (student) IASB $25 (academician) and $20 (student)

•• Normal price from IASB $400Normal price from IASB $400

•• Base 2009 standards are now freeBase 2009 standards are now free

IFRS ResourcesIFRS Resources•• AICPAAICPA

–– IFRSs on CPA Exam:IFRSs on CPA Exam:•• www.cpawww.cpa--exam.orgexam.org

–– New IFRS websiteNew IFRS website•• www.ifrs.comwww.ifrs.com•• www.ifrs.comwww.ifrs.com

•• Canadian Institute of CAsCanadian Institute of CAs–– IFRS Transition Page:IFRS Transition Page:

•• www.cica.ca/index.cfm?ci_id=39166&la_id=1www.cica.ca/index.cfm?ci_id=39166&la_id=1

IFRS ResourcesIFRS Resources•• European CommissionEuropean Commission

–– Accounting:Accounting:•• http://ec.europa.eu/internal_market/accounting/index_en.htmhttp://ec.europa.eu/internal_market/accounting/index_en.htm

–– This includes links to:This includes links to:•• EU accounting newsEU accounting news•• IFRS news and informationIFRS news and information•• IFRS news and informationIFRS news and information•• EU IFRSEU IFRS--related committeesrelated committees•• EU IFRS directives and regulationsEU IFRS directives and regulations

IFRS Resources for EducatorsIFRS Resources for Educators•• Textbooks Textbooks –– some recent ones:some recent ones:

–– Nobes and ParkerNobes and Parker–– Roberts, Weetman and GordonRoberts, Weetman and Gordon–– Choi and MeekChoi and Meek–– Holt, Mirza and OrrellHolt, Mirza and Orrell–– Holt, Mirza and OrrellHolt, Mirza and Orrell–– Alfredson, Leo, Picker, Pacter et alAlfredson, Leo, Picker, Pacter et al

•• Histories of the IASC:Histories of the IASC:–– Camfferman and ZeffCamfferman and Zeff–– KirschKirsch

Credit for IASB history and IASB Credit for IASB history and IASB Resources:Resources:

Stephen Zeff, Rice UniversityStephen Zeff, Rice Universityand Paul Pacter, IASBand Paul Pacter, IASB

Credit for SEC roadmap slides to Professor Herschel MannTexas Tech University

Thank you.Thank you.Questions and comments?Questions and comments?

Details at: ficpaDetails at: ficpa--ifrs.wikispaces.comifrs.wikispaces.com

Neal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonNeal J. HannonSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesSenior Consultant, XBRL StrategiesThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupThe Gilbane GroupCambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA 401Cambridge, MA 401--------225225225225225225225225--------60826082608260826082608260826082neal@[email protected]@[email protected]@[email protected]@[email protected]