IFRS in the US

Although a mandatory (or voluntary) change to IFRS for U.S. public companies is no longer in the foreseeable future, IFRS is increasingly relevant to many U.S. companies, big and small, public and non-public, because of: (i) cross-border, M&A activity; (ii) the reporting needs of non-U.S. stakeholders; (iii) the IFRS reporting requirements of non-U.S. subsidiaries; and (iv) the U.S. GAAP changes resulting from the boards’ coordinated efforts. Being accounting “bilingual” in the U.S. is increasingly important.

Key developments

  • Many of the world’s capital markets now require IFRS, or some form thereof, for financial statements of public-interest entities. The remaining major capital markets without an IFRS mandate are (i) the U.S., with no current plans to change; (ii) Japan, where voluntary adoption is allowed, but no mandatory transition date has been established; (iii) India, where regulatory authorities have made public statements about the intention to adopt, but no formal plans are in place; and (iv) China, which intends to fully converge at some undefined future date.

  • In July 2012, the SEC’s Office of the Chief Accountant issued its final report on its IFRS work plan intended to aid the SEC in evaluating the implications of incorporating IFRS into the U.S. reporting system. The report did not include a recommendation from the staff on whether, when, or how IFRS may be incorporated into the U.S. financial reporting system. The report also did not include any next steps toward a SEC decision on IFRS.

  • The lack of clear direction regarding IFRS is attributable to many factors, including the current status of the FASB and IASB’s convergence projects, and a focus by the SEC on other required rulemaking (e.g., Dodd-Frank). While the staff found little support for adopting IFRS as authoritative guidance in the U.S., it did find substantial support for exploring other methods of incorporating IFRS that demonstrate a U.S. commitment to the objective of a single set of high-quality, global accounting standards.

  • A sign of the willingness to keep the U.S. involved in global standard setting was the inclusion of the SEC on the Monitoring Board, which is a global group of regulators that oversees the IFRS Foundation.

  • Another sign is the FASB’s participation in the IASB’s Accounting Standards Advisory Forum (ASAF), a group created by the IFRS Foundation that provides technical advice to the IASB. The ASAF has twelve members of the global accounting standard-setting community.

  • In the meantime, the FASB and the IASB continue to work together on aspects of four remaining convergence projects: revenue recognition, financial instruments, leasing, and insurance. Once these projects are complete, we believe that the "era" of convergence will be at an end.

What's next

  • Although there is much uncertainly around the eventual use of IFRS in the U.S. for public companies, there are certain actions companies should consider doing now:

    – Stay engaged in the standard-setting process by participating in FASB and IASB roundtables and comment-letter processes;

    – Develop an understanding of the potential impact of foreseeable U.S. GAAP changes, and identify what can be done now;

    – Maintain some degree of corporate oversight of non-U.S. subsidiaries' IFRS accounting, as complex transactions arise, policies require changing, and new IFRS standards are adopted; and

    – Develop or obtain detailed IFRS skills, depending on the level of M&A activity, global tax strategies, or the reporting needs of non-U.S. stakeholders.

  • U.S. financial reporting will significantly change in the next several years, due to the completion of new accounting standards resulting from the convergence projects.

  • The impact of the accounting change caused by convergence will also reach beyond financial reporting. Some of the areas that will be affected include M&A processes and due diligence, contract terms, tax planning, financial planning, systems requirements, communication with stakeholders, credit agreements, and compensation structures.

 

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10/22/13 | US GAAP and IFRS Convergence

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