IFRS in the US: The importance of being financially bilingual

05/16/17

Even though there are no plans for a mandatory change to IFRS for US public companies, it is important for a US capital market participant to be financially bilingual.

Overview

It is important for a US capital market participant to be financially bilingual. Many of the world’s capital markets require some version of IFRS for financial statements of listed entities. For specific country data, see our publication IFRS adoption by country. For additional information, see the IASB’s jurisdictional profiles.

The remaining major capital markets without an IFRS mandate are:

  • The US, with no current plans to adopt IFRS

  • Japan, where voluntary adoption is allowed, but no mandatory transition date has been established

  • China, which intends to fully converge at some undefined future date

 

The status of IFRS in the US

In 2012, the staff of the SEC’s Office of the Chief Accountant issued its final report on its IFRS work plan. The staff found little support for adopting IFRS as authoritative guidance in the US. However, the staff did find substantial support for exploring other methods of incorporating IFRS that demonstrate a US commitment to the objective of a single set of high-quality, global accounting standards.

Even though there are no plans for a mandatory change to IFRS for US public companies, the discussion about the use of IFRS in the US continues. At the AICPA National Conference on Current SEC and PCAOB Developments in December 2016, the Chief Accountant of the SEC’s Office of the Chief Accountant indicated that although he does not foresee the use of IFRS for domestic registrants in the foreseeable future, the FASB and IASB should continue to work together to eliminate differences when in the best interest of the capital markets. Similarly, in a public statement issued in January 2017, the outgoing SEC Chair expressed support for the development of high-quality, globally-accepted accounting standards, and suggested that the SEC support further efforts by the FASB and IASB to converge their accounting standards to enhance the quality and comparability of financial reporting.

Separately, the SEC is still discussing the possibility of allowing domestic issuers to voluntarily submit IFRS financial information, without reconciliation, in addition to their US GAAP financial statements.

For further discussion on the use of IFRS in the US and similarities and differences between US GAAP and IFRS, please refer to IFRS and US GAAP: similarities and differences – 2016 edition.

 

 

Why US companies need to understand IFRS

IFRS is relevant to many US companies, big and small, public and non-public. Preparers are affected by IFRS in multiple ways, including:

  • Cross-border M&A and capital-raising activities frequently require the use of IFRS
  • Non-US stakeholders in US companies often demand the use of IFRS
  • Many non-US subsidiaries of US multinationals must comply with IFRS reporting requirements

The need to understand IFRS is also important to US investors as they continue to look for global investment opportunities. Recent estimates suggest that trillions of US capital is invested in foreign securities. The US markets also remain open to non-US companies that prepare their financial statements using IFRS. There are currently over 500 non-US SEC filers that use IFRS without reconciliation to US GAAP, representing an aggregate market capitalization of more than $7 trillion.

It is clear from both the preparer and investor perspectives that being financially bilingual in the US is important. To gain deeper insight about how differences in financial reporting can affect cross-border deal value, please refer to The importance of being financially bilingual: how financial reporting differences can affect cross-border deal value.

Our point of view

We continue to believe in the long-term vision of a single set of consistently applied, high-quality, globally-accepted accounting standards. The IFRS framework is best positioned to serve that role. However, acceptance of an outright move to international standards in the US is off the table, at least for now. In the meantime, the FASB and IASB should continue to focus on improving the quality of their standards while, if possible, reducing differences between IFRS and US GAAP.

What companies can and should do now

US companies that have non-US subsidiaries preparing financial statements using an IFRS framework should keep current on IFRS developments. It is important to maintain corporate oversight over the subsidiaries’ accounting as they navigate complex transactions, update their policies, and adopt new IFRS standards.

US companies should also consider building IFRS skills in the US or obtaining third-party IFRS assistance, depending on their level of cross-border M&A activity and global tax planning.
 

 

To have a deeper discussion on this topic, please contact:

David Schmid

International Accounting Leader, National Professional Services Group

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Paul Sheward

Partner, Deals - Accounting Advisory Leader

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Nicole Berman

Director, National Professional Services Group

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Beth Paul
US Strategic Thought Leader, National Professional Services Group
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Pat Durbin
US Standard Setting Leader, National Professional Services Group
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David Schmid
International Accounting Leader, National Professional Services Group
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