This article is the first in a series of articles that will take our readers on a journey through International Financial Reporting Standards (IFRS) with a special focus on the standards’ quintessential feature: they are principles-based.
In a June speech addressed to the Chartered Financial Analysts Institute, SEC Chairman Christopher Cox announced that the SEC expects to release a proposed rule later this summer on whether U.S. issuers will be allowed to prepare their financial statements using IFRS. Previously, at a joint meeting, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) updated their existing Memorandum of Understanding on the convergence process between IFRS and U.S. generally accepted accounting principles (GAAP) to incorporate new milestones covering the period to 2011 and, in general, to accelerate the overall convergence process. These are just two examples of significant events that recently have taken place regarding the issue of applying IFRS in the United States.
The debate regarding the use of IFRS in the United States has been around for a few years and has been gaining tremendous momentum since the end of 2007 when the SEC, in a galvanizing move, made the historical decision to remove the required reconciliation to U.S. GAAP for foreign private issuers preparing financial statements using IFRS. That decision has moved the debate to the next level. In other words, things are moving very quickly, and everything appears to indicate that the adoption of IFRS in the United States is no longer a question of “if”, but a question of “when”. Moreover, it is likely that by the end of this summer the “when” question will be somehow answered.
The first part of the forthcoming article series will focus on the concept of the accounting and reporting environment over which IFRS have been designed, which in many aspects might be significantly different compared to what U.S. preparers and auditors are used to. The following topics will be covered in future articles:
- Principles vs. Rules. This article will provide an overview of the concept of a principles-based set of standards (IFRS) as opposed to a rules-based set of standards (U.S. GAAP).
- A Closer Look at the Convergence Process. In this article, we will provide an overview of the convergence process between IFRS and U.S. GAAP. In particular, we will analyze how convergence worked in practice with regard to accounting for business combinations in IFRS 3/FASB Statement No. 141(R) and operating segments in IFRS 8/FASB Statement No. 131.
- Focusing on Differences between IFRS and U.S. GAAP: is this the Right Approach? This article will take a short excursion into the pros and cons of an approach to IFRS and U.S. GAAP based on the knowledge of one of the two sets of standards and bridging to the other by purely focusing on the differences between them.
- How Judgment Is Applied in Practice. In this article, we will explain how the exercise of judgment is not the result of obscure decisions but rather is intended by the IASB to be the result of a thoughtful process that combines two major ingredients: knowledge of principles-based IFRS, and sound and professional business and accounting knowledge.
- Get up to Speed with IFRS. This article will provide advice to help professionals in managing the changeover from U.S. GAAP to IFRS.
The second part of this article series will focus on some selected technical topics and, in particular, will approach the challenge of the changeover to IFRS and how U.S. first-time users of IFRS can capitalize on the field-work experience accumulated by European companies when they first moved to IFRS in 2005.
For further information, please contact Bob Dohrer (robert.dohrer@rsmi.com) or Marco Marcellan (marco.marcellan@rsmi.com) in our International Assurance Services Group. |
