An Introduction to International Financial Reporting Standards
International Financial Reporting Standards (IFRS) are the collection of reporting standards developed by the International Accounting Standards Board (IASB). The IASB
is committed to developing “a single set of high quality, understandable and enforceable accounting standards to help participants in the world’s capital markets and other users make economic decisions.”
IFRS reporting is now required or permitted in nearly 100 countries, including the European Union and most of Asia Pacific. India, Japan, and Brazil plan to adopt or converge with IFRS over the next three years.
In the US, the Financial Accounting Standards Board (FASB) is working with the IASB to align US Generally Accepted Accounting Principles (GAAP) with IFRS reporting standards. The goal for both organizations is a single set of global standards for financial reporting of public companies listed anywhere in the world. The US Securities and Exchange Commission (SEC) has eliminated IFRS/US GAAP reconciliation requirements for foreign-owned filers, and published a preliminary timeline for US companies to adopt IFRS.
The SEC proposes that 2014 be the first year for USregistered companies to file their financial statements in an IFRS format. On this timetable, the current requirement for companies subject to SEC regulations in the US is to prepare opening balances plus the two most recent years of comparative statements, meaning that 2012 is the first year for which IFRS-formatted statements would need to be produced.
For companies that only operate in the US and have neither overseas subsidiaries nor a need to raise capital or debt in overseas markets, a more gradual approach to IFRS transition is under consideration. However, with multiple large economies and trading partners at various stages in the IFRS adoption process, domestic companies should begin to assess their business requirements over the next five years relative to IFRS deadlines. US firms should develop a timeline for internal adoption of IFRS accounting standards and the presentation of IFRS statements.
IFRS reporting encapsulates a principles-based framework, as opposed to the rules-based standards of US GAAP. Many US-based companies are comfortable with the financial certainty of a rules-based accounting system. Companies familiar with US GAAP should not be distracted by the debates about which system is inherently more or less complex or utilitarian. The fact remains that accounting standards conversion and dual reporting programs in the US are well underway. GAAP-based financial discipline must continue, as sound financial judgment and experience will be called upon to translate financial treatments in GAAP to their equivalents under IFRS.