Sinopsis
The stated goal of the IFRS Foundation and the
International Accounting Standards Board (IASB) is to develop, in the public
interest, a single set of high-quality, understandable, enforceable and globally
accepted financial reporting standards based upon clearly articulated
principles.
There were once scores of unique sets of financial reporting
standards among the more developed nations (“national GAAPâ€). The year 2005
marked the beginning of a new era in global conduct of business, and the
fulfillment of a thirty-year effort to create the financial reporting rules for
a worldwide capital market. For during that year’s financial reporting cycle,
the 27 European Union (EU) member states, plus many others in countries such as
Australia, New Zealand, Russia, and South Africa adopted International Financial
Reporting Standards (IFRS).
Since then, many countries, such as Argentina, Brazil, Korea,
Canada, Mexico, and Russia have adopted IFRS. China has substantially converted
their national standards in line with IFRS. All other major economies, such as
Japan and United States have established time lines to converge with or adopt
IFRS in the near future.
2007 and 2008 proved to be watershed years for the growing
acceptability of IFRS. In 2007, one of the most important developments was that
the SEC dropped the reconciliation (to US GAAP) requirement that had formerly
applied to foreign private registrants; thereafter, those reporting in a manner
fully compliant with IFRS (i.e., without any exceptions to the complete set of
standards imposed by IASB) do not have to reconcile net income and
shareholders’ equity to that which would have been presented under US GAAP. In
effect, the US SEC was acknowledging that IFRS was fully acceptable as a basis
for accurate, transparent, meaningful financial reporting.
This easing of US registration requirements for foreign companies
seeking to enjoy the benefits of listing their equity or debt securities in the
US led, quite naturally, to a call by domestic companies to permit them to also
freely choose between financial reporting under US GAAP and IFRS. By late 2008
the SEC had begun the process of acquiescence, first for the largest companies
in those industries having (worldwide) the preponderance of IFRS adopters, and
later for all publicly held companies. A new SEC chair took office in 2009,
expressing a concern that the move to IFRS, if it were to occur, should perhaps
move more slowly than had previously been indicated. In the authors’ view,
however, any revisiting of the earlier decision to move decisively toward
mandatory use of IFRS for public company financial reporting in the US will
create only a minor delay, if any. Simply put, the worldwide trend to uniform
financial reporting standards (for which role the only candidate is IFRS) is
inexorable and will benefit all those seeking to raise capital and all those
seeking to invest.
It had been highly probable that nonpublicly held US entities
would have remained bound to only US GAAP for the foreseeable future, both from
habit and because no other set of standards would be viewed as being acceptable.
However, the body that oversees the private-sector auditing profession’s
standards in the US amended its rules in 2008 to fully recognize IASB as an
accounting standard-setting body (giving it equal status with the FASB), meaning
that auditors and other service providers in the US may now opine (or provide
other levels of assurance, as specified under pertinent guidelines) on
IFRS-based financial statements. This change, coupled with the promulgation by
IASB of a long-sought standard providing simplified financial reporting rules
for privately held entities (described later in this chapter), has probably
increased the likelihood that a broad-based move to IFRS will occur in the US
within the next several years. The SEC commissioner and chair have confirmed
that they are committed to a single set of global standards and are still
considering the incorporation of IFRS in the US for US issuers.
The impetus for the convergence of historically disparate
financial reporting standards has been, in the main, to facilitate the free flow
of capital so that, for example, investors in the United States will become more
willing to finance business in, say, China or the Czech Republic. Having access
to financial statements that are written in the same “language†would
eliminate what has historically been a major impediment to engendering investor
confidence, which is sometimes referred to as “accounting risk,†which adds
to the already existing risks of making such cross-border investments.
Additionally, the permission to list a company’s equity or debt securities on
an exchange has generally been conditioned on making filings with national
regulatory authorities, which have historically insisted either on conformity
with local GAAP or on a formal reconciliation to local GAAP. Since either of
these procedures was tedious and time-consuming, and the human resources and
technical knowledge to do so were not always widely available, many otherwise
anxious would-be registrants forwent the opportunity to broaden their investor
bases and potentially lower their costs of capital.
The historic 2002 Norwalk Agreement—between the US standard
setter, FASB, and the IASB—called for “convergence†of the respective sets
of standards, and indeed a number of revisions of either US GAAP or IFRS have
already taken place to implement this commitment, with more changes expected in
the immediate future. The aim of the Boards was to complete the milestone
projects of the Memorandum of Understanding (MOU) by the end of June 2011.
Although the Boards were committed to complete the milestone
projects by June 2011, certain projects such as financial instruments
(impairment and hedge accounting), revenue recognition, leases, and insurance
contracts have been deferred due to the complexity of the projects and obtaining
consensus views. Details of these and other projects of the standard setters are
included in a separate section in each relevant chapter of this book.
Only after these projects are completed will the US make a final
decision on the adoption of IFRS in the US. Although the target date to make the
decision was for 2011, at date of completion of this book no decision was made.
Until this issue is resolved, IFRS and US GAAP will remain the two comprehensive
financial reporting frameworks in the world, with IFRS gaining more and more
momentum.
With the convergence projects ending, the IASB has started with a
new agenda consultation process on the future work program of the IASB. Most
respondents requested a period of stability, but indicated that the framework
project must be completed and that a theoretical definition for Other
Comprehensive Income (OCI) should be developed.
Content
- Chapter 1: Introduction to International Financial
Reporting Standards
- Chapter 2: Conceptual Framework
- Chapter 3: Presentation of Financial Statements
- Chapter 4: Statement of
Financial Position
- Chapter 5: Statements of
Profit or Loss and Other Comprehensive Income, and Changes in Equity
- Chapter 6: Statement of
Cash Flows
- Chapter 7: Accounting
Policies, Changes in Accounting Estimates, and Errors
- Chapter 8:
Inventory
- Chapter 9: Property, Plant and Equipment
- Chapter 10: Borrowing
Costs
- Chapter 11: Intangible Assets
- Chapter 12: Investment Property
- Chapter 13: Impairment
and Noncurrent Assets Held for Sale
- Chapter 14:
Consolidations, Joint Arrangements, Associates, and Separate Financial
Statements
- Chapter 15: Business Combinations
- Chapter 16: Shareholders’ Equity
- Chapter 17: Share-Based
Payment
- Chapter 18: Current
Liabilities, Provisions, Contingencies, and Events After the Reporting
Period
- Chapter 19: Employee
Benefits
- Chapter 20: Revenue Recognition, Including Construction
Contracts
- Chapter 21: Government
Grants
- Chapter 22: Leases
- Chapter 23: Foreign Currency
- Chapter 24: Financial Instruments
- Chapter 26: Income
Taxes
- Chapter 27: Earnings Per
Share
- Chapter 28: Operating
Segments
- Chapter 29: Related-Party Disclosures
- Chapter 30: Accounting
and Reporting by Retirement Benefit Plans
- Chapter 31: Agriculture
- Chapter 32: Extractive Industries
- Chapter 33: Accounting for Insurance Contracts
- Chapter 34: Interim Financial Reporting
- Chapter 35: Inflation and Hyperinflation
- Chapter 36: First-Time Adoption of International
Financial Reporting Standards
