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IFRS – Will the Global Accounting Experiment Succeed?. Sir David Tweedie Chairman - International Accounting Standards Board - 2001– 2011 President – The Institute of Chartered Accountants of Scotland. The Objective Taking Stock Adoption Update The Path Forward Summary. 2. The Objective.

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ifrs will the global accounting experiment succeed

IFRS – Will the Global Accounting Experiment Succeed?

Sir David Tweedie

Chairman - International Accounting Standards Board - 2001– 2011

President – The Institute of Chartered Accountants of Scotland


The Objective

  • Taking Stock
  • Adoption Update
  • The Path Forward
  • Summary


the objective
The Objective

The IFRS Foundation and the IASB are dedicated to developing and sustaining a single set of globally accepted accounting standards:

  • Aimed at providing high-quality, transparent and comparable information for investors and other users of financial information
  • Providing the world’s integrated capital markets with a common language for financial reporting
  • Promoting capital market stability through the transparency and integrity of financial reporting
  • Taking appropriate steps with regulators and standard-setters to help promote consistent application of standards


why global standards are needed
Why Global Standards are Needed
  • Accounting standards evolved nationally because companies borrowed and investors invested only in their home country
  • Globalisation is inconsistent with multiple, national or regional accounting languages that hinder comparability
    • Corporations must consolidate global network of operations
    • Investors seeking diversification and return increasingly invest outside domestic markets


why global standards benefits to capital markets
Why Global Standards: Benefits to Capital Markets

Transparent financial markets and free trade require a high-quality, single, global accounting language

  • Credibility of local market to foreign investors
  • Greater cross-border investment
  • Efficient capital allocation
  • Comparability across political boundaries
  • Facilitates global education and training


why global standards benefits to companies
Why Global Standards:Benefits to Companies

In the long run, global standard benefit companies – especially multi-nationals

  • Lower cost of capital
  • Integrated IT systems
  • Easier consolidation
  • One set of books
  • Assist in raising capital overseas
  • Understand financial statements of overseas suppliers, customers, subsidiaries


status of global standard use
Status of Global Standard Use
  • Since 2001: Companies in over 100 countries are now required or permitted to use IFRSs
  • Recent new joiners: Brazil, Canada, Korea, Mexico, Russia
  • Japan: IFRS permitted for international companies; 2012 decision on mandatory adoption may be delayed; progress toward IFRS adoption continues as more large companies move away from US GAAP
  • 2012: After ten years, convergence work with FASB winds down with significant new high quality standards for revenue recognition, leasing, impairment, classification & measurement


the world is getting smaller
The World is Getting Smaller

Over 100 countries require or permit the use of IFRSs for listed companies

Source: IASplus/Deloitte


us investors companies depend on cross border capital flows
US investors, companies depend on cross-border capital flows

Growing cross-border holdings of US companies and investors

Source: US treasury


why global standards non us markets have grown
Why Global Standards:Non-US Markets Have Grown

The Globalisation of Capital Markets: Domestic Market Capitalisation

Source: World Federation of Exchanges in $US trillions


Americas (excluding USA)

Europe, Africa and Middle East


Asia (excluding China)



us is key piece of global puzzle july 2010
US is Key Piece of Global Puzzle(July 2010)

(source: Fortune Global 500)



The Objective

  • Taking Stock
  • Adoption Update
  • The Path Forward
  • Summary


factors behind success
Factors Behind Success

Organisational governance and structure supporting high quality standards

  • High quality standards: Internationally, users recognise IFRS as high quality – supported by academic research
  • Independent board: A transparent and independent standard setting process assures quality is maintained
  • Internationally accepted: EU decision to adopt IFRSs served as catalyst for broad adoption across Asia, Oceania, Africa, Americas
  • Convergence with the US: Close cooperation with FASB has led to higher-quality standards and a significant reduction in differences between the two sets of standards


corporate governance three tier model
Corporate Governance – Three Tier Model

US Model

Global Model

Securities and Exchange Commission (SEC)

Public accountability to securities regulators

Monitoring Board

FAF Trustees

Overseen by Trustees

IFRS Foundation Trustees (5/22 US)

Financial Accounting Standards Board

Independent standard-setter

International Accounting Standards Board

Independent and publically accountable


key challenges ahead
Key Challenges Ahead

The ultimate goal of global standards is still not fully achieved and there are challenges ahead…

  • Pending decisions on IFRS adoption for major economies like Japan, China, India and the US
  • Consistency and high-quality implementation of IFRSs across jurisdictions
  • On-going need to always evaluate, enhance and then implement improvements to IFRS organisation and process



The Objective

  • Taking Stock
  • Adoption Update
  • The Path Forward
  • Summary


ifrs fasb convergence process
IFRS – FASB Convergence Process

Convergence is not the end point


what has been accomplished to date
What has been accomplished to date?
  • Nonmonetary exchanges
  • Inventory accounting
  • Accounting changes
  • Business combinations
  • Non controlling interests
  • Share-based payments
  • Segment reporting
  • Borrowing costs
  • Conceptual Framework – objective and qualitative characteristics
  • Joint ventures


conceptual framework issues
Conceptual Framework Issues
  • The objectives of financial reporting
  • Qualitative characteristics
  • Definitions of assets and liabilities
  • Recognition
  • Measurement
  • Presentation and disclosure



Debit = Asset





Debit = Asset






role of valuation
Role of Valuation
  • Value inherent in asset/trading Fair value
  • Value in productive ability Cost



Profit and Loss Account

  • Trading activities

Other Comprehensive Income

Long-term Non Trading Gains and Losses

  • Cross holdings
  • Revaluation of buildings
  • Changes in pension fund surpluses and deficits


the major projects
The Major Projects
  • Crisis (MoU)
  • Financial Instruments
  • Fair value measurement
  • Consolidation
  • Derecognition
  • Other (Non MoU)
  • Insurance contracts
  • Other (MoU)
  • Revenue Recognition
  • Leases
  • Post-retirement benefits
  • Financial statement presentation
  • Liability / Equity

IASB working to reach as much convergence as possible on three remaining MoU projects




Deficit 1000

Less 10% of liabilities 400


Spread over 10 year working life

Deficit per accounts - $60m


leases equipment leases
Leases – Equipment Leases

2008 2009 2010

  • Total Annual leasing volume $644bn $557bn $617bn
  • N. America 21% 34% 35%
  • Europe 49% 38% 34%
  • Asia 19% 20% 24%
  • Rest of world 11% 8% 7%


decision on us incorporation
Decision on US Incorporation

SEC Staff Paper released in May 2011 detailed a formal path to US adoption through an incorporation mechanism

  • US companies minimise implementation costs using phased approach
  • FASB stops writing new standards – preventing divergence
  • Existing, converged standards are incorporated into GAAP
  • IASB active projects will be completed, then incorporated
  • FASB incorporates remaining, non-converged standards over 5-7 years
  • FASB remains the US national standard setter with responsibility of endorsing new standards as they are issued

“Incorporation of IFRSs into national GAAP” is the path used by virtually all other countries


final sec staff report
Final SEC Staff Report
  • Published July 2012
  • Provides comprehensive assessment of preparedness of US, but little new information
  • Reflects an SEC overwhelmed with rulemaking
  • Important to note:
    • No decision, not a ‘no’ decision
    • Conclusions broadly consistent with recently completed strategy and governance reviews
    • With political will, the challenges of transition can be overcome


what happens next
What happens Next?
  • Both boards have concluded that convergence has served its purpose, now approaching diminishing returns
  • IASB dedicated to completing the three MoU projects, but in transition to a new agenda
  • Ambiguous posture by the US may slow global standard momentum:
    • Risk of IASB and FASB divergence
    • Continued uncertainty for business community
  • However:
    • Momentum behind IFRS as global standards is irreversible
    • The endpoint will be global accounting standards



The Objective

  • Taking Stock
  • Adoption Update
  • The Path Forward
  • Summary


changing standard setting
Changing Standard Setting
  • Deadlines can be effective - but quality paramount
  • More time taken does not mean better standards
  • World and standard setting has changed since financial crisis
    • Proactive engagement reaches outside the traditional financial reporting community
    • Globally consistent answers must be reached – “similar” is not good enough
    • New ways of working – technology and cooperation improve efficiency
  • Support for post-implementation reviews


future agenda issues
Future Agenda Issues
  • Old Standards
  • Agriculture
  • Share-based payments
  • Income taxes
  • Pensions
  • Associates
  • Post-implementation review
  • Segments
  • Business combinations
  • Government grants
  • Intangibles
  • Foreign currency translation
  • Performance reporting
  • Disclosure framework
  • Other
  • Extractive activities
  • Common control


principle based standards
Principle-Based Standards
  • No exceptions
  • Core principles (objectives)
  • No inconsistencies
  • Tied to conceptual framework
  • Judgement
  • Minimum guidance




preparing for the next 10 years
Preparing for the Next 10 Years

IFRS Foundation Trustee Strategy Review

Reflecting on progress of past ten years and acknowledging there are challenges ahead, the review prepares for IFRS as the global standard.

  • Independence must be maintained –Monitoring Board, Trustees, IASB structure is appropriate
  • Global adoption, and not convergence, is the goal
  • IFRSs should provide a faithful representation of an entity’s financial position and performance – underpinning the transparency / integrity of financial reporting and capital market stability


preparing for the next 10 years1
Preparing for the Next 10 Years
  • Vested interest in consistent application of IFRSs requires taking appropriate steps with regulators and standard-setters to identify differences
  • National carve-outs can be best eliminated and consistency of application improved through successful due process in the standard-setting process and post-implementation reviews
  • Funding of IFRS must maintain independence in standard-setting while providing organisational accountability
    • Significant progress has been made to migrate away from voluntary contributions on a global basis


monitoring board governance review key conclusions
Monitoring Board: Governance reviewKey conclusions
  • Reaffirmed support for three-tier structure:
    • Monitoring Board: Public accountability
    • Trustees: Governance and oversight
    • IASB: Independent standard-setter
  • Clearer delineation of responsibilities across three tiers


key conclusions continued
Key conclusions - continued
  • Monitoring Board membership
    • Permanent membership criteria to be assessed based on ‘use of IFRSs’
    • Membership to be expanded, to include major emerging markets plus rotating seats
  • Greater transparency in Monitoring Board activities and closer dialogue with Trustees and IASB
  • Trustees and Monitoring Board will coordinate future actions



The Objective

  • Taking Stock
  • Adoption Update
  • The Path Forward
  • Summary


goal of global accounting language is close
Goal of Global Accounting Language is Close
  • G20 adoption represents 90% GDP; 80% trade; 2/3 of population
  • IASB dedicated to developing and sustaining high quality, globally accepted standards –
    • Consultation and transparency are critical to setting new agenda
  • IASB/IFRSF accepts and is prepared for the responsibility of being the global standard setter
  • Japan and Asia to become more assertive – if adopt IFRS!