IFRS in the US
While the near-term use of IFRS in the US by domestic public companies will not be required, IFRS remains very relevant to many US businesses. Companies are and will be affected by IFRS at varying times and degrees of magnitude, driven by factors such as size, industry, geography, M&A activity, and global expansion. Despite an unclear SEC adoption timeline, we believe the impact of accounting changes resulting from the FASB's and IASB's joint efforts will be significant and will have broad based implications.
Key developments for IFRS
- 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 from 2016-2017; and (iv) China, which intends to fully converge at some undefined future date.
- In July 2012, the staff of 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 staff found little support for adopting IFRS as authoritative guidance in the U.S., and outright adoption would not be consistent with the method of incorporation followed by other major capital markets. However, the staff 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.
- The discussion about the use of IFRS in the U.S. continues. In a speech in May 2014, SEC Chair Mary Jo White stated that considering whether to incorporate IFRS into the U.S. financial reporting system continues to be a priority and she “hopes to able to say more in the relatively near future.” On the other hand, former SEC Chairman Christopher Cox, who once was a proponent of IFRS, recently gave a speech stating that he no longer believes that it is possible for the U.S. to adopt IFRS.
- In the meantime, the FASB and the IASB continue to work together on some aspects of the remaining convergence project on leasing. We believe that the "era" of convergence is nearing an end as the boards shift attention to their individual agendas.
Why it's important
- Although a mandatory change to IFRS for U.S. public companies will not occur 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; and (iii) the IFRS reporting requirements of non-U.S. subsidiaries. It is relevant to many U.S. capital-market participants because of the amount of U.S. capital invested abroad in companies preparing financial statements based on the IFRS framework. Being financially “bilingual” in the U.S. is increasingly important.
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