IFRS in the U.S. An Overview

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Dec 13, 2013 (3 years and 10 months ago)

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IFRS in the U.S.

An Overview



Denver
August

13,
2011

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fir
ms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 67423NYO

1

Today’s Presenters


Holger

Erchinger
, CPA


KPMG Audit Partner


IAAER Advisory Board


Professor Donna L.
Street, PhD



University of Dayton


IAAER Past President and


Director of Research and Educational Activities


IFRS General Information


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fir
ms affiliated with KPMG
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3

IFRS implementation around the world (2011)

No/unknown convergence plans

U.S. GAAP and/or convergence intended

Convergence plans

IFRS permitted or required

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fir
ms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 67423NYO

4

Facts about IFRS around the world


IFRS as issued by the IASB or national/regional variant of IFRS is either permitted
or required in approximately 120 countries around the world



Very few jurisdictions use IFRS as issued by the IASB. Most follow some type of
endorsement mechanism


Flavors

of IFRS



The 4 largest economies in the world, which constitute approximately 45% of
global GDP (2011 IMF statistic), have
not

yet mandatorily adopted or fully
incorporated IFRS



U.S., Japan, China, and India



Japan now permits large issuers to adopt IFRS and China is in the process of
incorporating IFRS into its reporting regime

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
fir
ms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 67423NYO

5

“Wave II” is coming


Korea

2011 IFRS mandatory for listed businesses



Japan

Large
-
publicly traded companies given option to adopt IFRS for years ending
March 31, 2010


decision on mandatory adoption now planned for 2012


H
a
ve

ask ‘why decide before the U.S.’?



China

Convergence with IFRS on going



Brazil

Listed companies and banks following IFRS starting from 2010, IFRS
incorporated into Brazilian GAAP



Canada 2011 Reporting under IFRS for publicly accountable entities, private
companies permitted to

use IFRS



Mexico 2012



U.S. ???

5

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fir
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6

IFRS Foundation Governance Structure

6

appoint

inform

provide
strategic
advice

Inform


reports to

Oversee, review effectiveness,
appoint and finance

appoints, monitors

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fir
ms affiliated with KPMG
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7

IFRS Foundation Governance Structure (continued)

Monitoring Board

IOSCO

Technical

Committee

IOSCO

Emerging

Markets

Committee

SEC

EU

FSA

Japan

Observer Role

Basel Committee on

Banking Supervision

IFRS
Framework



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fir
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9

IASB Framework for Financial Reporting


Chapter 1 Objective

“Provide financial information about the re
porting entity that
is useful
to existing and potential investors, lenders and other creditors in
making decisions about providing resources to the entity.
1


1
Conceptual Framework for Financial Reporting 2010 paragraph OB2

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10

IASB Framework for financial reporting


Chapter 3 qualitative characteristics

Qualitative
Characteristics

Fundamental

Enhancing

Relevance

Faithful
representation

Timliness

Comparability

Under
-
standability

Verifiability

Predictive
value

Confirming
value

Completeness

Neutrality

Freedom from
material error

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11

Access updated IASB Framework free at:





http
://www.ifrs.org/IFRSs/
IFRS.htm

U.S
.
GAAP versus IFRS

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13

Key Projects Memorandum of Understanding

Fair Value Measurement

Financial Instruments

Revenue Recognition

Leasing

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14

Ongoing Differences
-

Examples

Inventories

Consolidation

Impairment of Non
-
Monetary Assets

Intangible Assets

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15

Ongoing Differences


Examples (cont.)

Presentation and Disclosures

Provisions

Debt versus Equity Classification

Industry Specific Areas (i.e., rate regulation)

IFRS in the U.S.

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17

Developments regarding potential U.S. move to IFRS

SEC issued Work
Plan
to
potentially
incorporate IFRS into
the U.S. Financial
Reporting System

Feb. 24, 2010

“The Commission
has consistently
promoted the
development of a
single set of high
-
quality globally
accepted
accounting
standards. I, too,
support this goal…”

IFRS Progress Report

October 2010

Report to G20 Finance

Ministers and Central

Bank Governors

April 2011

“The
SEC
continues to work
toward making a
determination by
end
-
2011 whether
to incorporate
IFRS into the
financial reporting
system in the
U.S.”

Staff Paper exploring one
possible approach for
Incorporating IFRS into the
Financial Reporting
System for U.S. Issuers

May 2011

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18

18

Use of IFRS by Foreign Private Issuers

December 2007



SEC issued final rule permitting foreign private issuers to file
financial statements in accordance with IFRS as issued by IASB
(SEC Release No. 33
-
8879)



Financial statements must contain explicit and unreserved
statement of compliance with IFRS as issued by IASB



Audit report must opine on application of IFRSs as issued by IASB



No reconciliation to U.S. GAAP
required

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
fir
ms affiliated with KPMG
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19

SEC Work Plan on Incorporation of IFRS Into Financial
Reporting System for US Issuers


The 2010 Statement and Work Plan was issued by the SEC on
February 24, 2010


The purpose of the Work Plan is to consider specific areas and
factors relevant to an SEC determination in 2011 of
whether, when,
and how
the U.S. should be transitioned to a system incorporating
IFRS


Successful completion of FASB/IASB MoU critical steps in process


Promise of periodic staff reports beginning no later than October
2010


Mandatory adoption, if any, would likely be no earlier than 2015 or
2016


19

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20

SEC Work Plan



Key Areas for Consideration

I. Sufficient development and application of IFRS

II. Independence of standard setting for the benefit of investors

III. Investor understanding and education regarding IFRS

IV. Examination of how the U.S. regulatory environment


would be affected

V. Impact on issuers

VI. Human capital readiness

20

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21

II. See also:

Criteria for an Independent Accounting Standard Setters: How Does
the IASB Rate?




Published by Council
of Institutional Investors, June 2011


www.cii.org
/.../June%202011%20 White%20Paper%20
-

%20Intl%20Accting%20Standards%
20FINAL.pdf


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fir
ms affiliated with KPMG
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22

Potential approaches to incorporate IFRS into the U.S. financial reporting
system include:

Retain U.S. GAAP with continued convergence/endorsement

Full adoption of IFRS on a specified date

(without any endorsement mechanism)

Full adoption of IFRS following staged transition

Optional adoption of IFRS for certain issuers

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23

SEC staff paper exploring one possible method of incorporation

(issued may 26, 2011)


Part of SEC staff Work Plan issued in February 2010 for consideration of whether
and if so, how and when, IFRS should be incorporated into the financial reporting
system for U.S.
I
ssuers



Focus of the SEC Staff Paper (May 26, 2011) is to describe one
possible

approach if the SEC were to decide to
incorporate

IFRS



Staff Paper states:


A potential SEC decision is not necessarily binary


Incorporation of IFRS is not inconsistent with the SEC maintaining ultimate
authority over the U.S. standard
-
stetting process


There are a variety of potential ways to minimize costs in conjunction with a
move towards a single set of globally accepted accounting standards

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24

SEC staff paper: One possible framework for incorporation of IFRS into the
financial reporting system for U.S. Issuers

http
://
sec.gov
/spotlight/
globalaccountingstandards
/ifrs
-
work
-
plan
-
paper
-
052611.pdf

Having a single set of high
-
quality, globally accepted accounting standards and providing for
a U.S. issuer being able to assert compliance with both U.S. GAAP and IFRS as issued by
the IASB

1.
Retain U.S. GAAP and the FASB would incorporate IFRS into U.S. GAAP over a defined
period of time (e.g., five to seven years)

2.
FASB would incorporate newly or amended IFRSs based on an endorsement protocol

3.
There would be no “traditional” first
-
time adoption of IFRS but there would be a transitional
period during which existing differences would be eliminated through ongoing FASB
standard
-
setting

Objective

Principles

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25

Summary of other jurisdictions’ approaches

Incorporation of IFRS into the reporting requirements

Use of IFRS after some form of national or
regional incorporation

Full use of IFRS as

issued by the IASB

Convergence

Endorsement

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26

Potential role of the FASB

FASB would remain the standard
-
setting body responsible for promulgating U.S. GAAP
under the framework and would participate in the process of developing IFRS. U.S. GAAP
would remain the reporting framework for U.S. issuers with the objective of achieving dual
compliance after a transition period.

FASB would play an instrumental role in global standard
-
setting by providing input and
support to the IASB in developing and promoting high
-
quality, globally accepted standards.

FASB would become an educational resource for U.S. constituents to facilitate the
understanding and proper application of IFRS and promote ongoing improvement in the
quality of financial reporting in the U.S.

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27

Potential role of the FASB (continued)

Adding disclosure requirements to those specified by IFRS, to address U.S. circumstances
in a manner consistent with IFRS.

Prescribing which of two or more alternative accounting treatments permitted by IFRS on a
particular issue should be adopted by U.S. issuers, to achieve greater consistency in U.S.
practice.

Setting requirements compatible with IFRS on issues not addressed specifically by IFRS.
For example, the FASB could decide to carry forward certain requirements that already exist
in U.S. GAAP.

FASB could exercise its authority in one or more of the following ways:

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fir
ms affiliated with KPMG
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28

Potential role of the SEC


SEC would maintain its oversight over the FASB as the designated U.S. standard
setter



Many of the SEC’s activities would remain similar to those performed currently
while other activities and interactions with the IASB would be expected to develop
and expand over time


The SEC already participates in the international standard
-
setting process in a
variety of ways



The SEC staff would expand its relationships with other securities regulators with
respect to interpretations of accounting matters

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29

Potential strategy for transition

FASB to develop a transition plan

Three categories during transition period: (1) MoU projects,

(2) Projects on near
-
term IASB standard
-
setting agenda, and

(3) Existing IFRSs with no anticipated near
-
term


standard setting

Transition should maximize use of prospective adoption

FASB plan would need to be flexible in response to changes

In IASB standard setting priorities

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30

Benefits and risks

There would be advantages and disadvantages to any approach taken to incorporate IFRS

Supports a flexible, tailored

transition strategy

Provides for gradual
implementation

Continued FASB endorsement

Retains U.S. GAAP as the
statutory basis of

financial reporting

SEC Roundtable
Discussions and

Comment Letters

submitted to the SEC

on IFRS in July 2011

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32


Key Comments by Supporters of “
Condorsement


http://
sec.gov
/news/
otherwebcasts
/2011/ifrsroundtable070711.shtml

Protection of U.S. investors and U.S. capital markets

U.S. GAAP embedded in too many aspects of domestic

laws, regulations, contracts, etc.

Flexible transition and timing

SEC and FASB continuing playing fundamental role

Perceived to be a process designed to mitigate costs

Prospective notion of the approach

32

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33


Key Comments by Supporters of Continuing U.S. GAAP (w/o cond.)

U.S. GAAP perceived to be best accounting framework globally

There are only domestic stakeholders that have not expressed

any interest in using IFRS financial information

Concerns about setting an appropriate
condorsement

threshold

Concerns that dual compliance never can be accomplished

given the remaining differences and inability of Boards to reach

common conclusions regarding key projects (i.e., FI, Offsetting)

Concerns about an ongoing period of change

33

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34


Key Comments by Supporters of Full IFRS Adoption

There is need for one global set of accounting standards for

global companies


Condorsement
” approach creates unnecessary artificial

complexities while creating a “third” or “hybrid” GAAP


Condorsement
” contradicts overall objective of having one

single global set of accounting standards

Concerns that dual compliance never can be accomplished

given the remaining differences and inability of Boards to reach

Common conclusions regarding key projects (i.e., FI, Offsetting)

The U.S. and the SEC only can play a key role in global standard

setting in case there is a commitment to fully adopt IFRS

34

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35


Other Comments

Request for a firm decision (incl. timeline) by the SEC in 2011

Views around “big bang” versus “gradual” approach mixed

Regulated industries and related regulatory bodies not

Supportive without a FAS 71
-
like standard in IFRSs

35

Consequences for non
-
public entities should be evaluated

(private equity concern)

Consider the “change management” aspect

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36


Other Comments

Questions around IASB’s independence, capabilities, funding etc.

and overall quality of IFRSs (see nest slide)

(
Dis
)advantages of prospective or retrospective application

and issues around IFRS 1 First
-
time adoption

Importance of stable platform during transitioning

Concerns about ability to exercise judgement in US environments

and related actions by auditors and regulators

36

Can the overall objective of having a single set of global standards

ever can be accomplished given differences in regulatory, legal

Inability of IASB and FASB to work together on key issues

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37

Affordable student access to IFRS


IAAER
Members Have Free Access to
eIFRS

Includes
A Guide Through IFRS

(free preview at
: http://eifrs.iasb.org/eifrs/
Preview)


Normal cost £
200 (less 45% academic discount)


IAAER membership

Faculty $US25

Student (including doctoral) $
US20


http://
www.iaaer.org
/join/
index.htm




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38

eIFRS


Powerful 'Search Standards' function lets you find exactly
what you are looking for just when you need it


Standards fully hyperlinked with cross
-
references and
you can search by issue date and much more


Includes dissenting opinions


Includes basis for conclusions


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39

Free access to IFRS


www.ifrs.org
/IFRSs/
IFRS.htm

a
nd

http://ec.europa.eu/internal_market/accounting/ia
s/index_en.htm


Both without
implementation guidance and the bases
for
conclusions



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40

Daily Updates

www.ifrs.com


www.iasplus.com


www.sec.gov


www.ifrs.org (website of IFRS Foundation and IASB)



Project updates including



‘snapshots’




comment letters




exposure drafts (with basis for conclusions)




webcasts





©
2011
KPMG LLP, a Delaware limited liability partnership and
the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
67423NYO

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