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As deliberation continues on whether the United States (“U.S.”) will incorporate International Financial Reporting Standards (“IFRS”) into the U.S. financial reporting system, many public companies are left uncertain about their future accounting principles. The Security Exchange Commission (“SEC”) proposed a “Roadmap” regarding the possible adoption of IFRS back in 2008; however, a decision by the SEC isn’t expected to be made until the end of 2011.
As the SEC has recognized the growing demand for harmonization of global financial reporting, the question no longer seems to be “if” the U.S. will make the transition to IFRS, but rather “when” and “how”. Therefore, the SEC has responded to speculation by sharing its observations on methods of transition.
The majority of countries, such as Australia, have endorsed IFRS without fully adopting the framework as issued by the International Accounting Standards Board (IASB). Most of these countries have taken a standard-by-standard adoption approach. Other countries, such as India and China, have used an alternative IFRS incorporation approach: converging local standards as IFRS compliant over time. Full adoption has not been a popular approach by the majority of jurisdictions, thus creating differences among the majority of countries. This is likely due to compliance with local legislation, and a desire to maintain control over their own financial reporting systems.
The recently coined transition approach, “Condorsement”, is the SEC’s first public offering of a potential transition to IFRS and has been generating a lot of discussion. Under this method of combining convergence and endorsement, both the Financial Accounting Standards Board (“FASB”) and IASB would work on converging U.S. GAAP (“Generally Accepted Accounting Principles”) standards to become IFRS compliant. This would allow for more flexibility and continued U.S. control, while mitigating the effort and costs involved in full adoption.
Private U.S. companies are currently required to report under the same U.S. GAAP framework. However they too are seeking a shift from their current framework. Although IFRS seems to be the route for public companies, private companies are seeking a more relaxed version of U.S. GAAP more suited to private company needs, and dictated by a separate board than FASB.
Until the SEC comes to a decision, it seems as though the U.S. accounting framework will be the subject of much speculation.It is important for U.S. companies, as well as cross-border operations and financing in the U.S., to keep up to date with the latest IFRS developments and learn about how to ensure companies are prepared.
For guidance on your individual situation, we recommend you consult your local MNP Public Company advisor or Jason Kingshott, CA National IFRS Leader at 1.877.500.0792
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