What is ifrs

what is ifrs

INTERNATIONAL FINANCIAL REPORTING STANDARDS

International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.
  • What is the IASB? The IASB is an independent accounting standard-setting body, based in London. It consists of 15 members from multiple countries, including the United States. The IASB began operations in 2001 when it succeeded the International Accounting Standards Committee. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, national funding regimes, and other international and professional organizations throughout the world. While the AICPA was a founding member of the International Accounting Standards Committee, the IASB's predecessor organization, it is not affiliated with the IASB. The IASB neither sponsors nor endorses the AICPA's IFRS resources website (www.IFRS.com ).
  • How widespread is the adoption of IFRS around the world? Approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies, although approximately 90 countries have fully conformed with IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports. 1
  • What is the possibility of the Securities and Exchange Commission substituting IFRS for GAAP?

    For many years, the SEC has been expressing its support for a core set of accounting standards that could serve as a framework for financial reporting in cross-border offerings. On February 24, 2010, the SEC issued release Nos. 33-9109 and 34-61578, Commission Statement in Support of Convergence and Global Accounting Standards. In the release, the SEC stated its continued belief that a single set of high-quality globally accepted accounting standards would benefit U.S. investors and its continued encouragement for the convergence of U.S. GAAP and IFRS. The release also called for the development of a work plan (the "Work Plan") to enhance both the understanding of the SEC's purpose and public transparency in this area. Execution of the Work Plan, combined with the completion of previously agreed upon convergence projects between the FASB and IASB, will permit the SEC to make a determination. On July 13, 2012 the SEC staff issued the Final Staff Report on the Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. The report did not recommend a specific course of action. The final decision regarding whether to incorporate IFRS into the financial reporting system for U.S. issuers now rests with the SEC Commissioners. There is currently no estimated date for when such a decision might be made.

    1. What are the advantages of converting to IFRS?
    By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.
  • What could be the disadvantages of converting to IFRS? Despite a belief by some of the inevitability of the global acceptance of IFRS, others believe that U.S. GAAP is the gold standard, and that a certain level of quality will be lost with full acceptance of IFRS. Further, certain U.S. issuers without significant customers or operations outside the United States may resist IFRS because they may not have a market incentive to prepare IFRS financial statements. They may believe that the significant costs associated with adopting IFRS outweigh the benefits.
  • What is the difference between convergence and adoption? Adoption would mean that the SEC sets a specific timetable when publicly listed companies would be required to use IFRS as issued by the IASB. Convergence means that the U.S. Financial Accounting Standards Board (FASB) and the IASB would continue working together to develop high quality, compatible accounting standards over time. More convergence will make adoption easier and less costly and may even make adoption of IFRS unnecessary. Supporters of adoption, however, believe that convergence alone will never eliminate all of the differences between the two sets of standards. In 2011, SEC staff introduced a possible method of incorporating IFRS into the U.S. financial reporting system that would represent an endorsement and convergence approach for aligning U.S. GAAP with IFRS over a period of time. Ultimately, the expectation is that the SEC will make a determination on whether it will incorporate IFRS into the financial reporting system for U.S. issuers and, if it decides to incorporate IFRS, the method of incorporation.
  • Who are the key players in the United States regarding the development and adoption of IFRS?

    The

    key players are the Securities and Exchange Commission, which is responsible for the supervision and regulation of the securities industry and has oversight responsibility for the FASB; the Financial Accounting Standards Board, an independent body that establishes and interprets U.S. GAAP; and the IASB, which is working with the FASB on the convergence of U.S. GAAP and IFRS. The AICPA has provided thought leadership to the IASB and the FASB on financial reporting topics.

    1. Have any major U.S. companies begun transitioning to IFRS?
    Until the Securities and Exchange Commission issues a rule allowing or requiring U.S. public companies to adopt IFRS, they must continue to prepare their financial statements under U.S. GAAP. Several large multinational corporations, however, have started using IFRS for their foreign subsidiaries where allowed by local law. Also, some U.S. subsidiaries of foreign-owned companies are also using IFRS.
  • When comparing IFRS and GAAP, what are some overall key differences I should be aware of? The biggest difference is that IFRS provides fewer detailed rules than U.S. GAAP. IFRS also contains limited industry-specific guidance.
  • What are examples of specific differences between IFRS and U.S. GAAP?

    Because of longstanding convergence projects between the IASB and the FASB, the extent of the specific differences between IFRS and GAAP has been shrinking. Yet significant differences do remain, most any one of which can result in significantly different reported results, depending on a company's industry and individual facts and circumstances. For example:

    • IFRS does not permit Last In, First Out (LIFO).

    • IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.

    • IFRS requires capitalization of development costs once certain qualifying criteria are met. U.S. GAAP generally requires development costs to be expensed as incurred, except for costs related to the development of computer software, for which capitalization is required once certain criteria are met.
  • Is the possible conversion to IFRS from U.S. GAAP solely a financial reporting issue?

    Conversion to IFRS is much more than an accounting exercise. It will affect many aspects of a U.S. company's operations, from information technology systems and tax reporting requirements, to internal reporting and key performance metrics and the tracking of stock-based compensation.

    1. What other areas of the profession will IFRS affect?
    As IFRS grows in acceptance, most CPAs, financial statement preparers and auditors will have to become knowledgeable about the international standards. Others, such as actuaries and valuation experts who are engaged by management to assist in measuring certain assets and liabilities, are not currently taught IFRS and will have to undertake comprehensive training. Professional associations and industry groups have begun to integrate IFRS into their training materials, publications, testing, and certification programs, and many colleges and universities are including IFRS in their curricula. Some textbooks are already covering IFRS, primarily in a comparative presentation to their instructions on U.S. GAAP.
  • What actions are being taken that could allow private companies to follow IFRS? The AICPA's governing Council in May 2008 approved amending Rules 202 and 203 of the Code of Professional Conduct to recognize the IASB as an international accounting standard setter. That removed a potential barrier and gives U.S. private companies and not-for-profit organizations the choice whether to follow IFRS.
  • What might make some private companies in the United States adopt IFRS? The eventual adoption of IFRS by small businesses and not-for-profit organizations is likely to be market driven. The IASB has developed a version of IFRS for small and medium-size entities that would minimize complexity and reduce the cost of financial statement preparation, yet allow users of those entities' financial statements to assess financial position, cash flows, and performance. IFRS for Small and Medium-sized Entities (IFRS for SMEs) was released on July 9, 2009.
  • Will IFRS be incorporated into the Uniform CPA Exam?

    Yes. The AICPA Board of Examiners in May 2009 announced that exam content updates had been developed and IFRS became eligible for testing on the Uniform CPA Exam from 2011.

  • 1 For example, the European Union (EU) has adopted virtually all IFRSs, though a time lag has occurred in the adoption of several recent IFRSs. In the EU, the audit report and basis of presentation note refer to compliance with "IFRSs as adopted by the EU".

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    Source: www.ifrs.com

    Category: Bank

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