At present, the IASB and the US Financial Accounting Standards Board (FASB) are considering a variety of approaches which could possibly lead to divergences between IASB and FASB standards with respect to:

• improving and simplifying financial instruments accounting, where FASB is considering an approach that is based on fair value measurement for most financial instruments, which would be proposed by early 2010, while the IASB has proposed a mixed model of historical cost and fair value, to be available for use in 2009 year-end financial statements;
• provisioning and impairment, where the IASB plans to propose a standard using an expected loss or expected cash flow approach to loan loss provisioning in October 2009, which would generally recognise credit losses earlier and mitigate procyclicality,1 whereas the FASB continues to consider changes to impairment recognition, including an approach based on fair value with plans to issue its proposal by early 2010;
• off-balance sheet standards, where the IASB's proposal on derecognition, which is now subject to consultation, would require repurchase agreements to be treated as sales and forward contracts in certain situations (thus leading to off-balance sheet treatment), instead of as financing transactions on the balance sheet as under current IASB and FASB standards.

Moreover, continuing differences in accounting requirements of the IASB and FASB for netting/offsetting of assets and liabilities also result in significant differences in banks' total assets, posing problems for framing an international leverage ratio.

Therefore, additional work in the areas above is urgently needed in order to meet the important objectives of convergence, transparency and the mitigation of procyclicality, as standard setters continue their efforts to improve the quality of their standards and reduce the complexity of their standards on financial instruments.

Official Welcome

Maria Clara Cavalcante Bugarim, the President of Brazil's Federal Accounting Council, welcomed the delegates. She said that a key goal of the conference is to encourage cooperation on accounting across Latin America in the interest of economic growth and economic stability. Accounting should be a universal business language across borders. To achieve that, she said, accounting must report economic reality without bias.

Plenary Addresses

Pamela Cox, Regional Vice-President for Latin America and Caribbean of The World Bank, said that accounting has risen to the top of the global economic agenda as a result of the current economic crisis. Because of strong prudential and economic regulation, Latin America has weathered the crisis better than other regions of the world – no banking crises, no increase in inflation, no devaluations of currencies, and no current account deficits. Still, there are some regional problems, including declines in economic growth and significantly reduced exports. Ms Cox cited three critical imperatives for Latin American economic growth: sound financial management, transparency, and confidence in financial reporting. In particular, she said, SMEs need reliable accounting. The regrettable consequence of poor accounting is lack of access to capital. Capital providers want accurate and reliable information about an SME's financial condition, future cash flows, profitability, and viability. She said the World Bank is pleased with the new IFRS for SMEs. 'It is an important step to link lenders and small businesses. We see major benefits for the IFRS for SMEs.'

Roberto Vellutini, Vice-President for Countries of the Inter-American Development Bank, said that the IDB is increasingly relying on national fiduciary systems rather than imposing its own. That is true in 21 of the 26 IDB borrowing countries.

Robert Bunting, IFAC President, noted the importance of a single set of high quality accounting standards for listed and other public interest entities. He also said that IFAC was 'instrumental in supporting the IFRS for SMEs'. While expressing the view that SMEs 'at the bottom level of the hierarchy' need a third set of very simple accounting standards, Mr Bunting also spoke of the importance of a 'single set of common global accounting standards' for SMEs. He said that banks are wary of lending to SMEs because they do not have the quality of financial information that banks can trust.

Makhtar Diop, World Bank Country Director for Brazil, spoke mainly about Brazil's success in coping with the global financial crisis. Because of Brazil's strong financial sector, small mortgage market, and strong banking supervision, the effect has been more like a small recession in Brazil rather than a major crisis. He said Brazil still needs more transparent financial reporting in all sectors. Mr Diop pointed out that Brazil has adopted IFRSs for all listed companies, banks, and insurance companies starting in 2010. In this regard, Brazil is leading the path in Latin America.

After the Financial Crisis: Lessons Learned for Financial Reporting

Beth Brooks, member of the Global Public Policy Committee (GPPC) of the Six Largest Global Audit Networks, said that strengthened corporate financial reporting is critical to restoring confidence in the markets. She noted that the leaders of the G20 nations are meeting 24-25 September in Pittsburgh and are likely to reaffirm their commitment to a single set of global accounting standards. 'Global standards are fundamental to what the G20 want to accomplish' – more integrated global financial markets. Ms Brooks described the current global financial crisis as a 'global illness being treated with national remedies'. Because capital moves across borders, global accounting standards are essential for better capital allocation and market efficiency. For emerging markets, global standards will improve comparability and enhance trust in their reported numbers. Global standards also prevent 'regulatory arbitrage'. Ms Brooks also said the GPPC favours not only global standards but a single global accounting standard setter. Citing examples in both the United States and the European Union, she expressed concern about political interference in accounting standards, which 'harms the quality of the standards and destabilises capital markets'. Finally, Ms Brooks urged the United States to set a date certain for adoption of IFRSs.

Jan Engstrom, member of the IASB, spoke about 'the enduring need for strong international standards'. He said that the speed with which IFRSs have been adopted around the world in the past eight years – now 120 countries – has surprised everybody. The current financial crisis, Mr Engstrom said, is the result of bad business decisions in an environment where political and regulatory systems failed. Politicians need to know the truth about businesses to make sound public policy decisions. Mr Engstrom reviewed the IASB's response to the current global financial crisis, including more fair value guidance, proposals on consolidation and derecognition, and a fast-track project to replace the existing IAS 39. In Mr Engstrom's view, the IFRS for SMEs is the most important standard issued by the IASB. Millions of companies are expected to adopt it, and the SME standard is already providing direction for changes to full IFRSs – for instance in simplifying IAS 39.

Michael Hathorne, chairman of the International Public Sector Accounting Standards Board (IPSASB), noted that the financial crisis is not just a private sector phenomenon. Many government balance sheets have been damaged by a sharp rise in government debt and deficits, plus the existence of contingent liabilities for guarantees. General purpose government financial reports must clearly show what governments have done in response to the financial crisis, and how governments will pay for it. The IPSASB has three critical goals:

• Complete by 31 December 2009 the current project to converge IPSASs with IFRSs as they stood at 31 December 2008.
• Provide guidance for governments' reporting of long-term sustainability, particularly reporting all obligations and resources expected to meet those obligations. Mr Hathorne said the current cash basis of reporting used by many governments fails to provide this information.
• Develop the first international conceptual framework for public sector financial reporting, particularly what is the objective and how is the reporting entity defined.

IFRSs: Changes, Challenges, and Opportunities in Adopting Them

Geraldo Toffanello, Director of Corporate Accounting for Gerdau Group (a Brazilian steel company) discussed his company's experience in switching from Brazilian GAAP to IFRSs. He said that migration to IFRSs required 60 major adjustments from Brazilian GAAP. The most significant effects resulted from stopping amortisation of goodwill, measuring assets and liabilities acquired in a business combination at fair value, measuring financial instruments at fair value through profit or loss, and including noncontrolling (minority) interest in equity and in profit or loss. Gerdau data:

Mr Toffanello noted that while 2009 is not yet over, the IFRS impact is expected to be very different due to the fiscal crisis – significant asset impairments and declines in fair values of financial instruments. He said his company is a US SEC registrant because their shares trade on the NYSE, and switching to IFRSs had a major benefit of eliminating the need for them to prepare financial information based on US GAAP, which had been a costly process in the past.

Henri Fortin, Senior Financial Management Specialist at The World Bank, discussed the regional picture of IFRS adoption in Latin America and the Caribbean. Nearly all countries in the region have adopted IFRSs or are in the process of doing so (Colombia and Suriname being exceptions), generally for listed companies and in some cases more broadly. Mr Fortin noted a growing interest in the IFRS for SMEs in the region. Among the challenges that have arisen in IFRS adoption in the region, Mr Fortin mentioned:

• The need to integrate IFRSs into the whole business culture, not just financial reporting (eg corporate governance and contracts)
• The need to separate financial reporting to investors and creditors using IFRSs from tax accounting requirements
• The need to integrate IFRSs into university accounting curriculums
• The need for IFRS training and perhaps an 'IFRS Certificate'.

Ramon Jubbels, IFRS Practice Head at KPMG Brazil, listed a number of objectives in migrating from Brazilian GAAP to IFRSs:

• Comparability of Brazilian companies with those in the rest of the world
• Greater transparency afforded by IFRSs
• Strengthen Brazilian capital markets
• Improved internal financial information systems
• Enhanced global recognition of Brazil as a major economy

Closing Remarks for Day One

Jose Luis Lupo, Country Representative for Brazil for the Interamerican Development Bank, concluded the day by saying that the financial crisis has demonstrated that 'this is the moment' for IFRSs. Countries need more reliable standards for information in which users can have confidence.

This summary is based on notes taken by observers at the conference and should not be regarded as an official or final summary.

Financial standards and regulations created or modified in the midst of any crisis should be considered carefully. This is particularly true with regard to the current review of accounting standards because these standards play an important role in public company financial disclosures, and these financial disclosures, in turn, are an important part of the foundation upon which fair and efficient capital markets are based. Financial crises have historically sparked panics in capital markets, and regulators and standard setters recognise that market panics should not be allowed to evolve into regulatory panics, where important regulatory fundamentals are inadvertently undermined in an effort to respond quickly to the symptoms – rather than the root causes – of a market crisis.