Iia detroit chapter meeting may 13 2008 an introductory roadmap to ifrs convergence
Sponsored Links
This presentation is the property of its rightful owner.
1 / 46

IIA Detroit Chapter Meeting May 13, 2008 An Introductory Roadmap to IFRS Convergence PowerPoint PPT Presentation

  • Uploaded on
  • Presentation posted in: General

IIA Detroit Chapter Meeting May 13, 2008 An Introductory Roadmap to IFRS Convergence. Agenda. How We Got Here Seeking a Global Standard Convergence or Adoption of IFRS Differences between IFRS & US GAAP Considerations, Benefits & Opportunities Be Proactive and Reap the Benefits

Download Presentation

IIA Detroit Chapter Meeting May 13, 2008 An Introductory Roadmap to IFRS Convergence

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

IIA Detroit Chapter MeetingMay 13, 2008An IntroductoryRoadmap to IFRS Convergence


  • How We Got Here

  • Seeking a Global Standard

    • Convergence or Adoption of IFRS

  • Differences between IFRS & US GAAP

  • Considerations, Benefits & Opportunities

  • Be Proactive and Reap the Benefits

  • Web Based Resources

  • Q&A

New Terminology

  • IASB – International Accounting Standards Board

  • IFRS – International Financial Reporting Standards (formerly IAS – International Accounting Standards)

  • SAC – Standards Advisory Council (external)

  • IFRIC – International Financial Reporting Interpretations Committee (formerly SIC – Standards Interpretation Committee)

  • Convergence – Effort by the FASB and IASB to make US GAAP & IFRS more compatible

  • Roadmap – SEC’s plan and timetable for acceptance of IFRS in the US…will be issued later this year

IASB Structure

How We Got Here

2002 “Norwalk Agreement”Reaffirmed in 2005

  • The FASB and IASB affirmed their commitment to:

    • Converge accounting standards through the development of high quality, common standards

    • Eliminate significant differences between the standards by developing new common standards that improve financial information reported to investors

    • Promote convergence by replacing weaker standards with stronger standards

SEC – 2007 IFRS Activity

  • IFRS Reconciliation to US GAAP

    • March: SEC Roundtable on US GAAP reconciliation for IFRS filers

    • July: SEC Proposal eliminating IFRS reconciliation to US GAAP for foreign private issuers

    • November: IFRS to US GAAP reconciliation eliminated

  • Use of IFRS by US Companies

    • August: SEC Concept Release on allowing use of IFRS for US companies

Public Comments on SEC’sIFRS Concept Release

  • Establish a mandatory IFRS conversion date for US issuers

  • The coexistence of US GAAP & IFRS should be temporary

  • IFRS standards are currently of sufficient quality to be accepted as a basis of financial reporting by US issuers

  • For practical reasons, IFRS should be the single set of high-quality, globally-accepted accounting standards

  • Allow US issuers the same option foreign issuers have, to file statements with the SEC using IFRS

  • No advantage to convert for smaller issuers with only US operations

SEC – 2008 IFRS Agenda

  • Propose a new “Roadmap” that lays out a schedule for the adoption of IFRS

  • The new “Roadmap” will be conditioned on appropriate convergence milestones

  • Pursue mutual recognition of securities market regulation

  • Lower the barriers to the efficient operation of the world’s capital markets

    • by rationalizing the different regulatory approaches

Other Events Supporting IFRS

  • IFRS is now accepted or required in over 100 countries, including nine of top 10 capital markets

  • There is strong demand from investors and multinational companies for a uniform set of international accounting standards

  • EU recently completed conversion to IFRS three years after a European Commission mandate

  • Big 4 accounting firms favored conversion from US GAAP to IFRS in their comments to SEC

2011 to 2013?







2009 to 2011?

Not “If” but “When”?

EU Adopted IFRS in 3 Years

Can US Adopt IFRS in 3 Years?

Seeking a Global Standard


Adoption of IFRS

Demand and Alternatives

  • Recognizing the demand, the IASB & FASB have been working toward convergence of US and international accounting standards

  • However an alternate path has emerged

Global Standards


Rules based

Based on a GAAP hierarchy (level A – D)

Primary accounting standard setting body is the FASB

Accounting guidance and interpretation is provided by several bodies e.g., FASB, SEC, AICPA etc.


Principles based

No hierarchy, consists of IASs, IFRSs & interpretations

Standards and interpretations approved by the IASB

Interpretations of IFRIC and its predecessor the SIC

Convergence ≠ Sameness

Convergence ≠ Sameness

  • Convergence = compatibility by eliminating material differences

  • Open items

    • FASB and IASB continue to have differences in in major accounting areas

    • The FASB and IASB disagree over the project agenda, scope of rulemaking projects, changes to be made and how they should be made

Adoption of IFRS

  • Adoption of IFRS = One set of high quality globally accepted set of standards

  • Open items

    • No prescribed MD&A equivalent

    • Governance surrounding IASB activities

    • IASB funding

    • Jurisdictional versions of IFRS are being used

DifferencesBetween IFRS & US GAAP

IFRS & US GAAP Differences

  • Foreign Currency Issues

  • Income Taxes

  • Provisions and Contingencies

  • Revenue Recognition

  • Share Based Payments

  • Employee Benefits

  • Segment Reporting

  • Earnings Per Share

  • Interim Financial Reporting

  • Subsequent Events

  • Related Parties

  • Financial Statement Presentation

  • Consolidations, Equity Methodand Joint Ventures

  • Business Combinations

  • Inventory

  • Intangible Assets

  • Long-Lived Assets

  • Impairment of Assets

  • Leases

  • Financial Instruments

Financial Statement Presentation

  • IFRS

    • Deferred Taxes shown non-current only

    • Expenses may be shown by function or nature. If function shown must disclose nature in footnotes

    • Financial instruments with debt & equity components – focus on settlement method

    • Extraordinary item presentation prohibited


    • Deferred taxes shown current & non-current

    • Expenses must be shown by function

    • Financial instruments with debt & equity components must be classified as liabilities

    • Extraordinary items shown as unusual & infrequent

Consolidations & Equity Method

  • IFRS

    • Presentation of non-controlling interest shown as a separate component of equity

    • Equity method investments: requires equity method (IAS 28). If separate target entity financial statements are presented, can use fair value.


    • Presentation of non-controlling interest shown between liabilities and equity (prior to effective date of SFAS 160)

    • Equity method investments: may account for at fair value (SFAS 159). Equity method required if don’t choose fair value.

Business Combinations

  • IFRS

    • Fair value = amount for which an asset could be exchanged, or a liability settled.

    • No recognition of assets or liabilities for operating leases with favorable or unfavorable terms

    • Acquire <100% – Identifiable assets recognized at full fair value. Non-controlling interest measured at fair value OR proportionate share of fair value, exclusive of goodwill (IAS 27)


    • Fair value = price that would be received to sell an assets or paid to transfer a liability- market participant focus

    • Recognition of an asset or liability if the terms of an operating lease are favorable or unfavorable compared to market

    • Acquire <100% – Identifiable assets & non-controlling interests recognized at fair value (FAS 141R)


  • IFRS

    • LIFO Prohibited

    • Write-downs must be recovered if there is an increase in net realizable value


    • Last In, First Out

    • Recovery of previous write-down is prohibited

Financial Instruments

  • IFRS

    • Fair Value Measurement –Fair value is generally the amount that the asset could be exchanged or liability transferred (entry price)

    • Financial instruments can be measured at fair value provided certain criteria are met

    • Day one gains are recognized only when all inputs to the measurement model are observable


    • Fair Value Measurement – based on exit price to sell asset or transfer liability

    • Financial instruments can be measured at fair value except for specific ineligible financial assets & liabilities

    • May recognize day one gains on financial instruments reported at fair value (even when all inputs to the measurement model are not observable)

Revenue Recognition

  • IFRS

    • Products:

      Risk/reward transferred, buyer controls goods, fee measurable, benefits flow to seller

    • Services:

      LT contract accounting, including consideration of % complete

    • Construction Contracts:

      Percentage of completion or cost recovery method only


    • Products:

      Delivery, sale occurred, fee fixed, fee collectable, no contingencies

    • Services:

      delivery, sale occurred, fee fixed, fee collectable, no contingencies

    • Construction Contracts:

      Percentage of completion or Completed Contract

Considerations, Benefits and Opportunities


  • Internal Controls

    • Initial conversion may be viewed as a significant change in the internal control environment and may require disclosure under SOX §302

    • Conversion could result in changes to significant accounts which could have an impact on:

      • Current SOX §404 scoping methodology and processes

      • Current composition of key controls

    • Existing ICFR process documentation will have to be re-documented to reflect IFRS induced accounting and financial reporting changes


  • Internal Controls (cont)

    • New internal controls will need to be designed and implemented to ensure that IFRS conversion is complete and accurate

    • Additional internal controls may need to be designed to satisfy temporary dual reporting requirements


  • IT internal controls

    • The IT control environment may change if the current IT infrastructure does not easily provide mapping to IFRS information

    • New IT controls will need to be designed to manage IFRS data conversions

    • IT application control activities may change as a result of accounting system changes e.g. COA and consolidation entries

    • Data privacy controls may need to be reviewed from a global perspective


  • Corporate Governance

    • Tone at the top - support of Senior Management

    • Impacted business units and corporate functions are accountable for implementing changes in their area

    • Reviewers will need the knowledge and authority to police sufficiency of disclosures

    • Adequacy of current process and policies

    • Sufficiency of compensation schemes and performance evaluation


  • Training and Communication

    • Shareholders, investors, analysts and rating agencies

    • Audit Committee, senior executives, business units and other corporate functions regarding the flexible nature of IFRS

    • Periodic transfer of knowledge from external consultants and sub-contractors throughout transition

    • Continuous professional education for employees


  • Expertise

    • Lack of auditor scrutiny skills

    • Internal resources

    • Need for assistance from external consultants

  • Regulatory Challenges

    • SEC and foreign regulation scrutiny

    • Determining the “correct” interpretation of standards and resolving differences with auditors


  • FAS 109 vs. IAS12 Income Taxes

    • Currently 15-20 differences between

  • Anticipated high-impact areas

    • LIFO

    • Accounting for Revenue

    • Asset Impairments

    • Hedging activities

    • Stock-based compensation


  • Other

    • Contractual obligations

    • Debt covenants & hedging contracts

    • Lenders may require conversion

Benefits of Conversion

  • Reduces cost of raising capital

  • Improves transparency of business transaction reporting

  • Reduces compliance costs for multinational companies by creating synergies

  • Reduces complexity resulting in fewer potential accounting errors

  • Increases US and worldwide competitiveness

  • Improved Comparability(?)


  • Centralize finance and control functions

  • Streamline accounting & financial reporting

  • Expand merger & acquisition activities

  • Refine existing policies & procedures

  • Train employees in accounting policies & procedures

  • Expand Stock and Debt Offerings

  • Streamlines tax strategy and planning development

Be Proactive and Reap the Benefits

Estimated Cost of Implementation

  • Estimated cost ofpreparing the first IFRS consolidated financial statements of publicly traded companies is:

  • Estimated costs of preparingIFRS consolidated financial statements in following financial years is:


    Source: EU implementation of IFRS and the Fair Value Directive, October 2007

Lessons Learned


Source: EU implementation of IFRS and the Fair Value Directive, October 2007

Lessons Learned

  • Set a firm adoption date for the company to encourage employee/participant buy-in.

  • Implement some conversion steps along the way to reduce procrastination (e.g. proformas, policy review)

  • Consider IFRS only in determining accounting policies (to avoid adopting a US flavor of IFRS)

  • Audit fees were the 2nd and 3rd highest costs. Support provided by auditors with the introduction of IFRS included:

    • giving advice on selection of accounting policies;

    • providing model IFRS financial statements;

    • issuing publications/guidance notes;

    • giving training seminars; and

    • giving advice on developing accounting policies

IFRS Project Team Composition

  • 32% - External Consultants played advisory role

  • 30% - Impacted Business Units/Corporate Function were represented in relevant project team

  • 27% - Impacted Business Units/Corporate Function were represented in central project team

  • 11% - External Consultants played a major role or led in the project team

  • 0% - Sub-contractors were used to implement changes

Extent of System Changes Required

  • 40% - Implement new information systems

  • 32% - Modified existing information systems

  • 8% - Plan to implement new information systems

  • 4% - Plan to modify existing information systems

  • 16% - Do not plan to modify existing information systems

Get Ahead of the Game

  • Get educated and be proactive to stay educated

  • Look for opportunities to build your team expertise

  • Educate your internal and external stakeholders

  • Establish a Project Management Plan, including milestones







IT systems

Human Resources

Get Ahead of the Game

  • Identify project resources (company wide representation)


Get Ahead of the Game

  • Conduct a preliminary business impact assessment

    • Financial Results- SOX 404 Compliance

    • Processes- Risk Management

    • Policies

  • Actively manage project issues

  • Utilize change management discipline

Web Based Resources:

Website Resources





  • Website Resources

    • www.aicpa.org

    • www.complianceweek.com

    • www.accountingweb.com

    • www.executiveboard.com

  • Jefferson Wells and Regional IFRS SME

    • [email protected]

Comments and Discussion

  • Login