Adoption of International Financial Reporting Standards(IFRS) by US Companies will change the role of finance professionals. On November 14, 2008, the SEC released its proposed roadmap for the adoption of IFRS in the US thus affirming SEC focus on moving towards global accounting standards. In the Roadmap, the SEC did not set a definitive adoption date, but rather set forth several milestones that, if achieved, could lead to the required use of IFRS by US issuers beginning in 2014. Early adoption is permitted for the qualified companies for the period ending as early as December 15, 2009.
Following are the major highlights of the roadmap-
* 2009- Early adoption permitted for qualified companies for periods ending December 15, 2009
* 2011-SEC will evaluate the success of early adopters and progress against the pre-defined mile stones.
* 2014- IFRS filing for large accelerated filers for Fiscal years ending on or after December 15, 2014.
* 2015- IFRS filing for accelerated filers for Fiscal years ending on or after December 15, 2015
* 2016- IFRS filing for non- accelerated filers for Fiscal years ending on or after December 15, 2016.
Regardless of the date US companies are required to adopt IFRS, in the near-term one can see continued convergence between US GAAP and IFRS accounting standards, followed by ultimate conversion to IFRS.
An agreement between the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”), called the Memorandum of Understanding (“MoU”) pledges to improve both US GAAP and IFRSin 11 major topical areas such as revenue recognition, leasing, consolidation, financial instruments, debt and equity. The effects of these accounting changes reach far beyond just financial reporting.
We believe that the adoption is inevitable and would also be in the best interest of investors and companies as they move towards a single set of robust global accounting standards ensuring better transparency across nations.
Steps to be taken by US Companies to get IFRS Ready
-Understand the change – CEOs and CFOs of companies should know about the impact of IFRS on the entity as the change affects not just financial statements but also other regulatory, legal or operational obligations that rely on financial reporting.
-Perform an Initial assessment – Hire IFRS advisors to do a detailed and in depth assessment on the current process and practices.
-Impact on foreign subsidiaries – Consider how new adoption of standards will influence business across international boundaries. There might be a need to re-visit long term strategies, international taxation, financing and other processes.
-Corporate GRC (Governance, Reporting and Compliances- Starting early is the key to avoid huge costs later.
-Solid planning – Companies need to consider the short term and long term effect of conversion and prepare a timeline to effectively integrate them into existing processes.
-Impact of IFRS on US Companies Better transparency.
-Initial assessment of the differences in GAAP and IFRS accounting is necessary within a company
-Advanced accounting and financial systems needed for IFRS accounting
-Transitioning will require lot of work such as maintenance of dual ledgers, better information and reporting systems and increased costs
While IFRS implementation is focused on public companies, soon private companies will adopt too if they have overseas subsidiaries, foreign based operations or foreign based investors etc.