International Financial Reporting Standards (IFRS)

Oct 9th, 08
IFRS: No longer if, but when . . . .

International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). IFRSs are considered a "principles based" set of standards in that they establish broad rules, as well as dictating specific treatments. The concepts of accrual basis and going concern remain the underlying assumptions. Qualitative characteristics of financial statements include understandability, relevance, reliability, and comparability. As of August 27, 2008, more than 100 countries around the world, including all of Europe, currently require or permit IFRS reporting. Approximately 85 of those countries require IFRS reporting for all domestic listed companies.

In August 2008, the SEC announced a proposed “roadmap” that could allow some companies to report under IFRS as soon as 2010 and could require it of all SEC regulated companies by 2014. (Currently, the SEC allows U.S. GAAP or IFRS financial statements from foreign issuers.) Several of the Big Four accounting firms have said they expect the U.S. to convert sometime between 2013 and 2015.
However, The Financial Accounting Standards Board (FASB) and the IASB have an ongoing convergence project to strengthen both standards, which will continue, according to the FASB. Continued progress toward convergence is a factor that the U.S. SEC will consider in evaluating its recent proposal to permit or require use of IFRS’s in the U.S.

The National Association of Insurance Commissioners (NAIC) has also begun to weigh in on IFRS. At the Fall 2008 National meeting, the Statutory Accounting Principles (SAP) Working Group was instructed to begin the process of identifying significant differences between SAP and IFRS, as well as any potential implementation issues or concerns. If GAAP is replaced, much of SAP will be affected as the current hierarchy is heavily GAAP-laden. Many believe that IFRS will soon make its way into the SAP hierarchy and we could be headed towards “Codification II”!