And perhaps a good starting point would be some of the recent submissions that have arrived at the SEC's offices in response to their staff paper on a possible approach to IFRS adoption.

Many of these submissions take the view that the idea of moving from the tried and trusted US GAAP to the IFRS system which has taken a hold around the world should be dismissed. Companies cite the perceived costs of doing so. They argue that they don't see the point of such a move and they argue, understandably, that within the internal US market alone there is no need for it.

But at for many multinational companies the submissions are more focused on the global outlook.

You could start with the comments from CalPERS, which runs the largest US public pensions plan. If you want the views of investors this is a pretty good place to start. And what CalPERS wants is simple. It is the big bang approach, or as they put it: 'A single effective implementation approach to ensure comparability'. And they cite the obstacles to that goal: 'Uncertainty is costly; lack of clarity in the timeline makes it hard for investors to know when and how to prepare and is an obstacle to committing resources towards movement to IFRS'. And from the investor perspective the big bang version of implementation would simply 'allow investors and issuers to be better prepared and able to provide retrospective data for analysts'.

And it also points clearly to the improvement in US financial reporting which would follow a decisive SEC move towards IFRS. 'The focus on investors and investor representation, where standards are consistently interpreted and applied to ensure comparability —with consistent audit application and enforcement — are integral to adoption of one set of high-quality, global accounting standards', it says. 'CalPERS believes that the SEC has the opportunity to effectively improve accounting standards, and to regain and increase investors' trust in financial reporting'.

And CalPERS would find its views endorsed by another submission, this time from a powerful group of preparers in their comments to the SEC. A joint paper from seven important corporations, including the Ford Motor Company, Kellogg, Bank of New York Mellon Corporation, Archer-Daniel-Midland, and United Continental Holdings, provides equally forthright views, though they are closer to flexibility than big bang when it comes to implementation. But they also emphasise that anyone who wishes to adopt IFRS on a voluntary basis ahead of the end of any transition arrangements should be allowed to do so. In other words those who wish to act with urgency should be allowed to do so.

As multi-national organisations they are naturally in favour of dealing with the same accounting rules wherever they are operating. That is a simple truth running through all of their comments. 'In today's global economy', they say, 'companies such as ours often are involved in business transactions that must be accounted for and reported using multiple methods as a result of differences between the requirements of local and US GAAP. Having to account for a single business transaction using multiple accounting methods drives unnecessary cost, including systems and process complexity, which can ultimately put US registrants at a competitive disadvantage in the global marketplace. In certain instances, parties to a business transaction may even find that conflicting interests during negotiations are driven exclusively by differences in financial statement outcome under local and US GAAP'.

They elaborate on this: 'As multinational companies, we also engage in cross-border strategic funding transactions', they say. 'A number of companies have faced limitations on access to global transactions or funding opportunities based solely on the inability to produce carve-out financial statements for foreign affiliates under a universally accepted set of financial reporting standards. We believe a common platform such as IFRS is critical to enhancing capital formation that will allow us to compete most effectively in a global economy. A global accounting language will facilitate our ability to effectively participate in the globalization of capital markets, and enhance our ability to access the cross-border flow of funds. Furthermore, we believe the adoption of a universally-accepted financial reporting language is an important step in providing a common platform for investors to more easily compare the financial health and operations of our companies'.

That sums up the current plight of many companies which operate out of the US and around the world. These are among the organisations which would stand to benefit the most from adopting IFRS. What they are looking for is a firm commitment from the SEC. 'Uncertainty', they point out, 'is a significant cause for delay, and delay will only increase the cost of implementation'. On the other hand: 'Certainty will enable us to develop detailed implementation plans, negotiate agreements, design systems architecture and establish processes and procedures once in a cost efficient and resource effective manner'.

And they dramatise what they are up against. 'We believe', they say, 'that the introduction of one global financial reporting standard will provide global enterprises with significant tangible benefits, including the reduction of conflicting accounting standards, simplification of business operations, elimination of multiple instances of operating systems, and more efficient leveraging of resources, while standardizing internal controls and enhancing communications with investors'.

The parameters of financial reporting and the reach of organisations in the US which will be affected by the upcoming SEC decision are huge. They extend from the global giants to sizeable companies which operate in the US market alone.

Supporters of IFRS believe that investors will be better served by shifting to IFRS. And they feel that using IFRS is critical to allow US companies to compete most effectively in a global economy. But that cannot be allowed to outweigh the domestic US opposition to IFRS. 'We recognise that some companies with exclusively US operations may find the cost of conversion to IFRS outweigh the benefits', say the preparers in their submission. 'We believe the SEC will best accommodate the needs of a diverse US market by providing flexibility in the transition'. In other words those companies which operate globally should have the advantage of IFRS, and soon.

Robert Bruce
September 2011

Related links

• The Bruce Column – Condorsement Still in the Pending File (June 2011)
• The Bruce Column – The Challenges of the Year Ahead (January 2011)
• The Bruce Column – No News could be Good News in the Debate over IFRS in the US (November 2010)
• The Bruce Column – Great Expectations in October (September 2010)
• The Bruce Column – A Roman Holiday For the SEC (September 2010)
• Our United States country page
• Our SEC page

 

 

The (then) China Auditing Standards Board and the Hong Kong Institute of CPAs had previously signed a joint declaration on the convergence of auditing standards on 6 December 2007 (see our earlier story). Since the time of signing the original declaration, the International Auditing and Assurance Standards Board (IAASB) has issued new standards arising from its clarification project. The Hong Kong Institute of CPAs issued equivalent standards in June 2010 and the Chinese Institute of CPAs completed a revision of China Auditing Standards in November 2010.

The Institutes believe the only difference between the Hong Kong and mainland standards is an additional standard included in the revised China Auditing Standards about communication between predecessor and successor auditors. This reflects specific requirements and circumstances in mainland and does not conflict with the clarified Hong Kong Auditing Standards.

Click for press release (link to HKICPA website).

The IFRS in Focus newsletter provides an overview of the IASB's Exposure Draft ED/2011/4 Investment Entities, which proposes to define 'investment entities' as a separate type of entity that would be exempt from the consolidation accounting requirements in IFRS 10 Consolidated Financial Statements. See also our earlier story on the exposure draft.

Click for:

• IFRS in Focus — IASB issues exposure draft on investment entities (PDF 88k)

We welcome the IASB's continuing efforts to deal with certain amendments to IFRSs in an efficient and effective manner and are pleased to note that the proposed amendments address discrete areas where differences in interpretation or possible conflicts between IFRSs have been identified.

The following is an excerpt from the letter:

We are generally in agreement with the intentions of the proposed amendments, but are concerned that some amendments (in particular, those to IFRS 1 First-time Adoption of International Financial Reporting Standards) may have unintended consequences. These unintended consequences arise principally from ambiguous drafting which... include inconsistencies between the Basis of Conclusions and the actual wording of the amendment. In addition, we note that the amendments introduce a number of terms (for example, 'required comparative period' and 'additional comparative information') for which a formal definition is not provided. This could also contribute to a lack of clarity over the scope and effect of the proposed amendments. The use of clearly defined terms will become more important as IFRSs are applied in new jurisdictions as terms in common use in one jurisdiction may be unfamiliar in another and also because any lack of clarity is likely to be exacerbated upon translation of IFRSs into another language.

Comments on ED/2011/2 close on 21 October 2011. Click for our Comment Letter on ED/2011/2 (PDF 42k).

The penalty orders follow on from an earlier decision on 27 June 2011 where the Court found directors had breached their duties when they signed off on financial reports that failed to disclose significant matters.

The Centro case includes allegations brought by the Australian Investments and Securities Commission (ASIC) over two financial reporting matters: the classification of liabilities (between current and non-current) and the disclosure of guarantees given.

Under the Australian Corporations Act 2001, financial statements are required to comply with Australian Accounting Standards (equivalent to IFRSs) and directors are required to approve the financial statements. Accordingly, non-compliance with Accounting Standards or the approval processes is a contravention of the law. In the most recent judgement, the Court refused the directors' applications to be exonerated from their contraventions and made declarations that all directors and the Chief Financial Officer contravened the law.

The Centro case considered the obligations of directors in relation to Australian financial reporting, including the extent to which directors can rely on management and external advisers, the degree of financial literacy required of directors, and the approval process for financial statements. It has been the matter of considerable debate in Australia.

Click for ASIC announcement (link to ASIC website).

The first, Boards and Risk: A Summary of Discussions with Companies, Investors and Advisers, summarises these discussions held over the last six months. The second, Effective Company Stewardship: Next Steps, outlines the responses received by the FRC to its original discussion paper and summarises the future actions that the FRC intends to take. In these reports, the FRC notes that there is one common issue to be addressed: "audit is not meeting user and/or public expectations and . . . there is a need for greater transparency about the judgements made by management and auditors in the course of preparing and auditing financial statements".

Click for (all links to FRC website):

• FRC press release
• Boards and Risk: A Summary of Discussions with Companies, Investors and Advisers
• Effective Company Stewardship: Next Steps

 

IFRS for SMEs adopted: In July 2011, the Parliament of Mauritius adopted amendments to the Companies Act 2001 to permit the following classes of companies to use the IFRS for SMEs as issued by the International Accounting Standards Board (IASB):

• a private company, other than a small private company, or public company, which does not qualify as a public interest entity as defined in the Financial Reporting Act; and
• any group of companies which does not qualify as a public interest entity under the Financial Reporting Act.

According to Finance Bill 2009 enacted in February 2010 small state owned companies were already allowed to use the IFRS for SMEs. Please click for Act No. 20 of 2011 containing the July 2011 amendments (link to Mauritius Parliament website).

IFRS for SMEs training modules: The IFRS Foundation Education Initiative has developed a training module for Section 2 of the IFRS for SMEs Concepts and Pervasive Principles. Ultimately, the IFRS for SMEs training material will include 35 stand-alone modules – one for each section of the IFRS for SMEs. Currently, 24 modules are available. Please click for access to all training modules on the IASB's website.

IFRS for SMEs translated: Macedonian and Polish translations of the IFRS for SMEs have been completed and available for free download on the IASB's website. Translation into the following languages are still in process: Albanian, Hebrew, Japanese, Kazakh, Khmer, Mongolian, Serbian, Ukrainian.

This interim release enhances the IFRS Taxonomy by providing common-practice extensions for the face of financial statements, to reduce the work load of preparers filing electronically.

In June 2011, the IASB published for public comment an exposure draft of the IFRS Taxonomy 2011 interim release: common-practice concepts which contained supplementary tags that reflected disclosures which were commonly reported by entities in their IFRS financial statements.

Click for IFRS Foundation announcement (link to IASB website). More information about XBRL is available on our XBRL page.

As proposed, the finalised revised regulations revert back to the situation before a revision made in December 2009, which introduced a prohibition on the use of US GAAP with effect from fiscal years ending after 31 March 2016. Accordingly, under the revised regulations, in principle:

• United States Securities Exchange Commission (SEC) registrants are permitted to also use US GAAP for domestic Japanese filing purposes
• Non-registrant current US GAAP users (typically companies which started using US GAAP for Japanese domestic purposes before 1977) are permitted to continue using US GAAP for domestic Japanese filing purposes. This option remains in place for an unspecified period, but may not be permanent.

Click for access to the announcement by FSA including the revised ordinances (link to FSA website, in Japanese).

The National Standard Setters (NSS) are meeting in Vienna on 12 and 13 September 2011. The NSS is a grouping of national accounting standard-setters from around the world, plus other organisations that have a close involvement in financial reporting issues. An agenda for this meeting is not publicly available. For topics discussed during the last meeting and likely to be continued at the upcoming meeting please see the report from the March 2011 NSS meeting.

The World Standard Setters (WSS) are meeting in London on 15 and 16 September 2011. The WSS meeting offers a forum for the NSS to exchange views with the IASB. On the agenda (PDF 192k, link to IASB website) are updates on new standards and staff drafts, the future agenda of the IASB and post-implementation reviews. The WSS meeting also offers an opportunity for regional groups of standard setters to draw the IASB's attention to developments in the Asia and Oceanian region, Africa and Latin America.

The AOSSG (Asian-Oceanian Standard-Setters Group) will hold its third annual meeting in Melbourne on 23 and 24 November 2011. The tentative agenda for the meeting indicates the meeting will consider a range of topics, including a 'vision paper', IASB projects such as financial instruments, revenue, leases and insurance contracts, and other topics such as Islamic finance and agriculture. Click for more information about the meeting (link to AOSSG website).