Archive for the ‘IFRS’ Category

IFRS for Small and Medium sized Entities (SMEs)

Monday, July 27th, 2009

On July 9, 2009, the International Accounting Standards Board (IASB) released the International Financial Reporting Standard (IFRS) for Small and Medium Entities (SME’s).  IFRS for SME’s were developed specifically for private companies and recognize that SME financial statement users are generally more focused on cash flows, liquidity, balance sheet strength, and solvency matters.  The IFRS SME standards represent a simplification of the full IFRS standards and eliminate many accounting topics that are not generally relevant to private companies (for example, earnings per share and segment reporting).

The IASB has defined SME’s as entities that publish general purpose financial statements for external users and do not have public accountability.  Most private companies in the United States will fit into this category although certain entities such as banks, insurance companies, and brokers and dealers are specifically excluded.  Over the next few years, we expect more private companies to begin the transition from US GAAP to IFRS for SME’s, particularly those who may be owned by foreign entities or a supplier to foreign companies (some private companies have already adopted full IFRS).  One significant factor as to the transition period will be how quickly financial statement users of private companies, such as lending institutions and investment bankers, accept IFRS for SME’s as an acceptable method of accounting.  The AICPA has already recognized the IASB and IFRS as generally accepted accounting principles, but it may be longer before financial statement users are ready for that change.

Although the exact timing is still uncertain, it appears likely that all companies will ultimately be required to adopt some form of IFRS, either the full IFRS or IFRS for SME’s.

Have you begun the process of understanding IFRS (or IFRS for SME’s) and how these new standards may impact your significant accounting processes, information systems, and financial reporting requirements?

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IFRS and GAAP Convergence

Wednesday, July 22nd, 2009

We mentioned the SEC’s IFRS Road Map and Milestones in a previous post.

The achievement of milestone 1 “Improvements in Accounting Standards” is key to IFRS and GAAP convergence.   The goal of milestone 1 is to have the IASB (IFRS) and FASB (US GAAP) converge their standards to a point where there aren’t many, if any differences.  At this point, these boards appear to be gradually converging their accounting standards.  This approach is significant because it will allow companies to take on changing accounting standards at a more manageable pace, rather than having to deal with a significant cutover of accounting standards all at once.  As a result, this approach may reduce the burden of conversion on companies.  With that being said, many companies will still have to deal with the challenges of staying up to date with changing accounting standards, slowly converting systems and processes to record transactions properly, training employees, and the anticipated requirement to produce IFRS financial statements over a 3 year period during the initial filing (as described in milestone 6 of the SEC road map, page 21).

So challenges are still present, but maybe it won’t as daunting an undertaking as originally thought.  Even with the end point remaining vague, two ways many companies are preparing for IFRS is by setting an IFRS company strategy and/or by performing a Readiness Assessment.  We’ll continue to monitor IFRS happenings and keep posting our thoughts.

Has your company defined its IFRS strategy?

Has your company had an IFRS Readiness Assessment performed to proactively identify areas to strengthen your strategy?

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IFRS Basics

Wednesday, June 10th, 2009

Many U.S. companies are wondering what IFRS will mean to them – the timing of implementation and the changes that will be required.

The SEC has released its road map, which includes 7 milestones for adoption.

  1. Improvements in Accounting Standards (evaluated 2008 – 2010)
  2. Accountability and Funding of the IASC Foundation (evaluated 2008 – 2010)
  3. Improvement in the Ability to Use Interactive Data for IFRS Reporting (evaluated 2008 – 2010)
  4. Education and Training (evaluated 2008 – 2010) 
5.
  5. Limited Early Use of IFRS Where This Would Enhance Comparability for U.S. Investors (certain U.S issuers may begin using IFRS for fiscal years ending on or after December 15, 2009)
  6. Anticipated Timing of Future Rulemaking by the Commission (decision in 2011 on basis of progress of milestones 1-4)
  7. Implementation of the Mandatory Use of IFRS (anticipated phased roll out starting in 2014)

In later posts, we will discuss each of these milestones in further detail. The key take-away on timing is that very few U.S. companies will begin implementing IFRS starting in 2009, most will begin implementing closer to 2014 – 2016, depending on the size of the company.

When should planning begin and what will be required to implement IFRS successfully? For most companies, planning for IFRS will take about 3 years. Companies will need to address the following 4 areas:

  1. Technical Accounting and Tax,
  2. Process and Statutory Reporting,
  3. IT Systems, and
  4. Organizational Readiness.

A common misconception has been that IFRS will only produce changes in accounting. However, in order to make sure financial statements are in line with IFRS, companies will find that each of the 4 areas above are critical to reaching that goal.

Look for more posts providing details on the 7 milestones, 3 year implementation plans, and the 4 areas of focus required to successfully implement IFRS.

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