Jim Pergande Swenson Advisors, LLP (San Diego) Accounting Day

Transcription

1 IFRS It s Headed Our Way Jim Pergande Swenson Advisors, LLP (San Diego) Audit Manager Accounting Day May 12, 2008

2 Overview of IFRS

3 IFRS: Overview What are IFRS? A single set of globally-accepted, high quality accounting standards Developed by the International Accounting Standards Board (IASB) Used in approximately 105 countries and growing Standards are principles based and less extensive Lack guidance (including industry specific c guidance) Frequently, the application of IFRS requires judgment 41 IAS compared to 161 SFAS

4 Why is this important to you?

5 IFRS: Why? 105 countries require or permit the use of IFRS Securities and Exchange Commission (SEC) issued two Concept Releases in 2007 First Concept Release lead to the SEC dropping the reconciliation requirement for foreign private issuers Second Concept release may lead to an option or requirement for domestic issuers to report under IFRS Overwhelming support for adoption

6 IFRS: Why? Financial Accounting Standards Board (FASB) comments on the Second Concept Release (domestic issuers) Support for US requiring domestic issuers to report under single set of high quality financial reporting standards (IFRS) One global standard setter (IASB) Need blueprint for adoption No two tier financial reporting system in the US Require IFRS, not an option

7 Private Companies This will impact private companies! Private Company Financial Reporting Committee (PCFRC) The Private Company Financial Reporting Committee ( PCFRC ) is part of a broad initiative by the Financial Accounting Standards Board ( FASB or the Board ) and the American Institute of Certified Public Accountants ( AICPA ) AICPA) to further improve the FASB's current standardsetting process to better meet the financial reporting needs of private companies and the users of their financial statements. The PCFRC considers user needs and conducts cost-benefit analysis to make formal recommendations to FASB about existing and prospective GAAP. Under protocols set up with the FASB, the Board must consider all recommendations, and decisions made concerning those recommendations become a part of the Board minutes.

8 Private Companies PCFRC comments on IFRS in September 2007: In recognition of the importance and magnitude of this SEC Concept Release, the PCFRC communicated to the FASB: 1) its support of current efforts to converge US and international accounting standards as that process is currently working, and 2) the need for a comprehensive parallel initiative for private company financial reporting, involving the key constituents of that reporting.

9 Private Companies PCFRC (April 2008 meeting) roadmap for Private Company Accounting Standards assumptions: US public companies will be required to prepare financial statement in accordance with IFRS by 2013 Country-specific IFRS differences are likely to exist Pressure will exist to move private companies to IFRS or IFRS Small and Medium sized Entity ( SME ) standards d

10 Private Companies Impact Two-tier reporting system? Freeze U.S. GAAP U.S. GAAP with ongoing development and changes IFRS SME standard U.S. version of SME standard IFRS with differential reporting exceptions (for example limited it disclosures) Framework similar to Canadian Framework for Owner-Managed Enterprises ( FOME )

11 Private Companies Impact Global audits and reporting responsibilities Multinational private companies Foreign investments / foreign investors M&A activities Joint ventures Cross border transactions

12 IFRS for SMEs Intended for entities that do not have public accountability and do publish general purpose financial statements for external users Principles based Based on full IFRS Self-contained, 200 pages (85% of full IFRS) Historical cost is main accounting convention. o Accrual basis

13 IFRS for SMEs Assumption that user needs are focused on short-term cash flows, liquidity, and solvency; less interest in long-term earnings forecast Simplification based on user needs and costbenefit

14 IFRS for SMEs IASB issued an Exposure Draft (ED) on IFRS for SMEs, comment period ended November 30, SMEs from 20 countries participated in field testing the ED Staff is has begun analyzing the comments and field test results and preparing recommendation to the Board The Board plans to issue a final IFRS for SMEs in the forth quarter of 2008

15 Key differences between IFRS Sand dusg GAAP?

16 Key differences IFRS IFRS vs. US GAAP Principles based standards Limited it interpretations t ti (SIC, IFRIC) Lack of industry guidance US GAAP Principles based standards, with a significant number of rules Multiple levels of interpretations A significant amount of industry guidance

17 IFRS vs. US GAAP Generally, US standards are developed on principles Interpretive guidance adds many bright lines (to name a few) Emerging Issues Task Force (EITF s) AICPA (SOP s s, Industry Guides) FASB (Staff Positions and Interpretations), SEC (Staff Accounting Bulletins) IFRS s are strictly principles based Very limited interpretations by IFRIC

18 IFRS vs. US GAAP Converged standards Beware!!! Just because standards are converged, doesn t mean there aren t differences Example IAS 23R and SFAS 34 Convergence by 2011, differences will remain LIFO for inventory Subsequent events Watch out for implementation guidance on new standards (IFRS vs. US GAAP)

19 IFRS vs. US GAAP Many different concepts Revenue recognition Methodologies for impairment of PP&E, intangibles Revaluation accounting Recovery of impairments under IFRS Recognition and measurement of provisions i (including restructurings) Consolidations More detailed disclosures under IFRS (vs. US GAAP private company)

20 IFRS vs. US GAAP Many detailed differences Accounting for asset retirement obligations Accounting for income taxes Goodwill impairment testing Business combinations (post Phase II) Minority interest Acquired in-place leases Accounting for R&D Contract accounting Equity method excess of losses over basis

21 IFRS vs. US GAAP Other thoughts Big 4 publish (for free) IFRS/US GAAP similarities and differences guides Don t fall into this trap These are at a very high level and are not exhaustive To determine the differences is to know the literature

22 Convergence Issues Adoption of IFRS will be a MAJOR project When it comes to magnitude, this WILL be another Sarbanes Oxley Sarbanes did not have private company implications IFRS acceptance in the US will have private company implications (the questions s is when)

23 Convergence Issues Much, much more than an accounting exercise Accounting and reporting Systems and processes Business enterprise Human capital

24 Convergence Issues Impact and considerations on account and reporting Education and understanding of IFRS Auditors, Preparers, Investors Identify key differences between US GAAP and IFRS Recognition and measurement and disclosures In-depth understanding of IFRS 1, IAS 8 Develop new accounting policies Create new chart of accounts or restructure current Design new internal/external reporting packages

25 Convergence Issues Impact and considerations on business enterprises Develop communication plan to investors, lenders, etc. Evaluate internal reporting requirements Evaluate impact on compensation arrangements Impacts on budgeting (financial, processes, measurement attributes) Evaluate impact on contracts, debt covenants, etc.

26 Convergence Issues Impact and considerations on human capital Create a project team (all levels of organization as this impacts most, including project management) Hire external consultants to assist with project Develop training program for all levels Revise performance targets for individuals and company Develop a project plan with timelines to meet established deadlines

27 Convergence Issues Impact and considerations on processes and systems Develop new internal accounting and reporting guidelines (manuals) Evaluate new IT system needs/controls Evaluate and implement controls over conversion and changes in current control processes and structure Develop transition plan Embed IFRS reporting in systems to avoid manual processes, when possible

28 Convergence Issues Transition to IFRS is governed by one standard, IFRS No. 1 First Time Adoption of IFRS It is important to note that IFRS requires comparative financials (so timing of decision to adopt is key!) Adopt accounting policies at first year presented Restate as of effective date of adoption Example adopt calendar year 2008, effective date is 1/1/07 Remeasure as if IFRS were always used Important to monitor IASB activities (a lot of changes on the horizon) Note that IFRS provides for exclusions/exemptions to ease burdens of transition

29 Questions?

30 Contact me at Various slides accredited to: Integra International Symposium May 2008 Sean Lager, CPA Frazier & Deeter, LLC