IFRS FAQs

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Why does it make sense for the United States to adopt IFRS?
IFRS is becoming the dominant language of financial reporting worldwide. A single set of high-quality, globally accepted accounting standards would benefit capital markets and investors by simplifying comparisons among global investment opportunities without regard to where a company is located, and would benefit companies by eliminating duplicative and costly reporting requirements.

Adopting IFRS in the United States will help promote similar moves by other jurisdictions to embrace the international standards as they are written, instead of modifying them for local use. To achieve the objective of a single set of high-quality global accounting standards, it is essential that all of us abide by the same IFRS principles.

Who’s Using IFRS?
More than 100 countries either require/permit IFRS to be used or base their own local standards on IFRS. The numbers are increasing. Israel is converting in 2008; Canada in 2011, with early adoption permitted in 2009; and Brazil, Chile, India and Korea are among the countries that have set a date to move toward IFRS.

What will be the effect on small companies and those that don’t conduct business outside U.S.?
Initially, they will have a heavier burden due to more limited resources. However, if the SEC’s proposed Roadmap is implemented in the form it was discussed at the August SEC meeting, large accelerated filers would go first in 2014, accelerated filers would go second in 2015 and the non-accelerated filers would go third in 2016. Smaller companies will be able to benefit from the experience of those larger companies.

What are the challenges ahead?
IFRS provides fewer bright lines, as well as less interpretative and less industry-specific guidance than U.S. GAAP. To smoothly implement the change, the
U.S. regulatory and legal environments need to better support professional judgments made by companies and auditors. The SEC will need to embrace the IFRS standard-setting process to strengthen IFRS’ position as the accounting standard.

The IRS will also need to consider potential changes to support the new accounting standards, such as tax codes requiring conformity in last in, first out inventory accounting, which is prohibited under IFRS.

And FASB and the IASB will need to work toward continued convergence between the two standards for it to be easier for companies to convert to IFRS.

Will training be needed?
The amount of training will vary for each organization. Some global companies may have already implemented IFRS in certain parts of their organization due to statutory requirements of some of their subsidiaries.

However, companies need to be strategic in deciding who to train, when to train and what to teach. The standards are changing (and some fairly significant changes are expected between now and 2011). So, to train broadly and deeply across an organization today would mean training people in standards that they may never use.

Also, training too early (before IFRS will be applied) runs the risk of people forgetting what they were trained in and needing to be re-trained. The sooner companies focus on preparing their staff, the easier it will be to convert.

What is the cost to companies?
A conversion to IFRS will be different for each organization depending on many factors, such as:

•    Its current use of IFRS;
•    The size and complexity of the business; and
•    The nature of the company’s business, domestic vs. global.

Who will benefit the most from the change?
All stakeholders in a company’s business will benefit from the conversion.

Global investors will benefit by having access to more transparent and understandable accounting information necessary to making more effective and efficient investment decisions.

And companies and management will benefit by reducing the number of financial reporting frameworks they may have to comply with, thereby strengthening the standardization of accounting policies across the organization.