Questions for the audit committee to consider
- When will the audit committee and company management review the status of the Boards’ deliberations on the proposed new accounting changes as compared to the company’s current practices?
- At what point should management complete an evaluation of the potential accounting and business effects of the convergence projects and IFRS?
- What are management’s views of the IFRS transition approach outlined by the SEC staff compared to a mandatory, date-certain adoption or an optional adoption of IFRS?
- What planned or ongoing IT system initiatives could be affected by accounting change?
- Does the parent company have control over the roll-out of IFRS for statutory reporting at foreign subsidiary locations?
While the road towards convergence of US GAAP and International Financial Reporting Standards has become a little longer, companies can still plan early.
Standard setters and regulators continue their march toward the new reality of financial reporting.
The road toward converging US GAAP and International Financial Reporting Standards (IFRS) has become a little longer. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), collectively the Boards, together issued a progress report on their joint convergence projects, announcing that they had extended their target completion date beyond June 2011.
The Boards had prioritized certain projects (i.e., financial instruments, leasing and revenue recognition) in an effort to complete them by June 2011. But heeding the advice of several constituents, Leslie Seidman and Sir David Tweedie, Chairs of the FASB and IASB, respectively, announced in April 2011 that the Boards jointly decided to extend their timetables by a few months.
Seidman said the Boards concluded they could benefit “from a few more months to develop these standards, some of which really go to the core issues of many companies.” Both chairs emphasized that the quality of the standards remains of the utmost importance, as does the need for robust due process.
After reaching final decisions on the key aspects of these projects, the Boards will determine whether they need to issue another exposure draft to solicit feedback, or whether another form of constituent outreach is sufficient.
The Boards also stated they will set effective dates that will give preparers adequate time to implement the new standards.
The Securities and Exchange Commission (SEC) is continuing to study whether (and how) to incorporate IFRS into the US financial reporting system based on the work plan announced in February 2010. In May 2011, the SEC staff published a paper outlining a possible approach for a transition to IFRS.
The approach would establish an endorsement protocol for the FASB to incorporate new or amended IFRSs into US GAAP. During a defined transition period (e.g., five to seven years), the FASB would eliminate differences between IFRS and US GAAP through standard setting.
The staff notes that this approach is one of several ways that IFRS could be incorporated into the US financial reporting system and that the SEC has not yet decided whether to move ahead with incorporation. SEC Chairman Mary Schapiro has indicated the SEC expects to make this decision in 2011.
The SEC staff requested feedback from constituents on this possible approach to incorporating IFRS and any other possible approaches, e.g., providing for optional use of IFRS or specifying mandatory, date-certain incorporation.
Additionally, the SEC staff will sponsor a roundtable on July 7 to discuss benefits and challenges of IFRS in the US. The event will feature three panels representing investors, smaller public companies and regulators.
What can companies do now?
While the future direction and timing of accounting change remain uncertain, more and more aspects of the joint FASB-IASB projects are coming into focus. Planning early gives companies the opportunity to reduce overall implementation costs and be better prepared for the uncertainties that lie ahead.
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