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International Financial Reporting Standards-Con

International Financial Reporting Standards-Con. A Race to the Bottom Presented by: Misty Petty, Emily Sisk, Ashley Smith, and Jessica Spiceland. What is IFRS?. Set of standards developed by the International Accounting Standards Board (IASB)

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International Financial Reporting Standards-Con

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  1. International Financial Reporting Standards-Con A Race to the Bottom Presented by: Misty Petty, Emily Sisk, Ashley Smith, and Jessica Spiceland

  2. What is IFRS? • Set of standards developed by the International Accounting Standards Board (IASB) • Becoming the global standard for the preparation of public company financial statements • Used in over 100 countries throughout the world • Principles based guidance

  3. Background • 1973 – 2001 - International Accounting Standards (IAS) issued by International Accounting Standards Committee (IASC) • April 2001 – IASB adopted IAS and began developing new standards called International Financial Reporting Standards (IFRS)

  4. Key Differences Between US GAAP & IFRS

  5. IFRS Convergence Status • Adoption status varies by country • Over 100 countries have adopted some form of IFRS • Other large countries including Japan, China, and Canada have plans in place for convergence by 2011 • US has no current plans for convergence • SEC Roadmap to IFRS convergence…

  6. Challenges for Changing from GAAP to IFRS • Quality of IFRS rules • Comparability • Principles vs. rules based guidance • Regulatory environment • IASB’s ability to enforce IFRS • Market forces • Cost to convert • System readiness

  7. Challenges for Changing from GAAP to IFRS • Challenges for universities, CPA Exam, CPE courses • Challenges for companies to train employees

  8. Comparability • Moving from US GAAP to IFRS will not increase financial statement comparability • More judgment is involved in applying IFRS which leads to less uniform financial statements • Countries may continue to use their own versions of local GAAP • Cultural differences may influence the application of standards • Creating one standard set of rules is not the answer to achieving financial statement comparability

  9. Principles vs. Rules Based • IFRS & GAAP are fundamentally different • Regulatory Environment • Example-Tom Selling: Fuzzy lines and Leases • GAAP- specific rules • IFRS- who knows? • SOX • 1969 Case US vs. Simon • Imagine the lawsuits

  10. Principals vs. Rules Based • GAAP is and should be rules based for two reasons: 1. Stronger legal argument 2. More importantly, the flexibility of broad principals can be dangerous. It can “tempt management to present a rosier picture than justified, on the ground that the standards don’t expressly prohibit the presentation management prefers”(pcbaobus.org). • Who here has ever exercised bad judgment? • More judgment leads to less comparability • IFRS is a step backward

  11. Oversight of the IASB • There is no governing body to enforce the IASB’s rules • The IASB is: • Subject to political pressure • Not independently funded • Has no direct oversight • Quality of IFRS standards and the ability to enforce the standards could be compromised

  12. Market Forces & Impact on Investors • Market • Investors-Risky

  13. Cost of Convergence • Cost to implement IFRS will be high for companies • Both core and non-core costs need to be included in total calculation • Current economic environment should be considered in cost benefit analysis • IFRS implementation will require significant financial resources without a clear benefit to the investor community

  14. Preparation Required to Convert • System readiness • Training of employees • Vista example • Reengineering of university accounting courses • CPA exam/CPE classes • No governing body as previously discussed

  15. Conclusion • IFRS… • does not increase comparability for financial statements. • is inferior to GAAP because it is principles based NOT rules based. • has no governing body. • would not benefit United States investors. • implementation would cost companies millions. • would require extensive preparation and training.

  16. Works Cited Battle&BattleLLP. “IFRS/ US GAAP Convergence – What You Need to Know.” 1 April 2009. http://www.cpavision.com/Content/Files/Member/Files/Outlines/2008-2009/Dayton_CPE_Day_(Nov._7,_2008)/IFRS_USGAAP_Convergence.pdf Johnson, Sarah and Leone, Marie. “SEC: Early IFRS Adoption will Cost Firms $32M.” 17 November 2008. http://www.cfo.com/article.cfm/12625195 Leone, Marie. “Regulator Rips Into Global Accounting Plan.” 10 September 2008. http://www.cfo.com/article.cfm/12202211 McCann, David. “New York CPAs Slam IFRS Roadmap.” 6 March 2009. http://www.cfo.com/article.cfm/13254066 Niemeier, Charles. “Keynote Address on Recent International Initiatives 2008 Sarbanes-Oxley, SEC and PCAOB Conference.” PCAOB. 2 April 2009. http://www.pcaobus.org/News_and_Events/Events/2008/Speech/09-10_Niemeier.aspx Norris, Floyd. “The Rush to International Accounting.” The New York Times. 11 September 2008. http://norris.blogs.nytimes.com/2008/09/11/the-rush-to-international-accounting/ Selling, Tom. “Tom Selling- IFRS Critic.” The Summa. 2 April 2009. http://profalbrecht.wordpress.com/2008/10/20/tom-selling-ifrs-critic/

  17. QUESTIONS?!?

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