International Financial Reporting Standards Introduction What’s being covered in Acct 315 versus

Where do IFRS come from? International Accounting Standards Board (IASB) Standards Advisory Council (SAC) International Financial Reporting Interpretations Committee (IFRIC) International Accounting Standards Committee Foundation (IASC Foundation) Until recently, the attempt to achieve worldwide standardization of accounting seemed hopeless. However, the standards became increasingly “popular” in the 1990s and influenced even such outlier countries as the Soviet Union and China. Early standards were criticized for allowing too many options – but these were tightened in the 1990s at the prodding of IOSCO

Acct 561 9/18/2018 The IASC board was “bloated” (per Pahler Ch 13) had 16 members (all part-time) – so the new board still seems pretty bloated! OVERVIEW OF THE RESTRUCTURED IASB The IASB is organised under an independent Foundation named the International Accounting Standards Committee Foundation. That Foundation was created as a not-for-profit Delaware corporation on 8 March 2001. Components of the new structure: International Accounting Standards Board (IASB) – has sole responsibility for establishing International Financial Reporting Standards. IASC Foundation (IASCF) – oversees the work of the IASB, the structure, and strategy, and has fundraising responsibility. International Financial Reporting Interpretations Committee (IFRIC) – develops interpretations for approval by the IASB. Standards Advisory Council (SAC) – advises the IASB and the IASCF. Working Groups – expert task forces for individual agenda projects. IASB voting. The publication of a Standard, Exposure Draft, or final SIC Interpretation requires approval by 9 of the Board's 14 members. (From the IASB's inception in 2001 to 30 June 2005, the required vote was 8 out of 14.) Fall 2005

HISTORY - IASC 1973 - IASC formed Acct 561 9/18/2018 HISTORY - IASC 1973 - IASC formed 1974 - First Exposure Draft published 1995 - Agreement with IOSCO to complete core standards by 1999 1999 IOSCO review of IASC core standards begins IASC Board meetings opened to public observation IASC was founded in June 1973 as a result of an agreement by accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the United States, and these countries constituted the Board of IASC at that time. The international professional activities of the accountancy bodies were organised under the International Federation of Accountants (IFAC) in 1977. In 1981, IASC and IFAC agreed that IASC would have full and complete autonomy in setting international accounting standards and in publishing discussion documents on international accounting issues. At the same time, all members of IFAC became members of IASC. This membership link was discontinued in May 2000 when IASC's Constitution was changed as part of the reorganisation of IASC. IASC was an independent organization but the membership between IASC and IFAC was identical after 1977 and up until 2001 when IASB came into being. The original board members were the accountancy bodies of 10 developed nations. Fall 2005

Acct 561 9/18/2018 IOSCO – created in 1983 The International Organization of Securities Commissions (IOSCO) IOSCO is an international association of securities regulators Evolved from a predecessor organization of securities regulatory agencies from North & South America (formed in 1974) Now has 181 members that regulate more than 90% of the world’s securities markets Recognized today “as one of the world’s key international standard setting bodies” IOSCO Historical Background IOSCO was born in 1983 from the transformation of its ancestor inter-American regional association (created in 1974) into a truly international cooperative body. Eleven securities regulatory agencies from North and South America gathered in Quito, Ecuador in April 1983 to take that important decision. In 1984, securities regulators from France, Indonesia, Korea and the United Kingdom were the first agencies to join the membership from outside the Americas. The IOSCO July 1986 Paris Annual Conference was the first to take place outside of the American continents. On that occasion a decision was made to create a permanent General Secretariat for the Organization. Twenty years later, IOSCO's membership stands at 181 members and is still growing rapidly. The Organization's members regulate more than 90% of the world's securities markets and IOSCO is today the world's most important international cooperative forum for securities regulatory agencies. Among the recent key achievements of IOSCO are the adoption in 1998 of a comprehensive set of Objectives and Principles of Securities Regulation (IOSCO Principles) recognized today by the world financial community as international benchmarks for all markets, the endorsement in 2002 of a multilateral memorandum of understanding (IOSCO MOU) designed to facilitate enforcement and exchange of information among the international community of securities regulators, and the approval in 2003 of a comprehensive methodology (IOSCO Assessment Methodology) that will enable the objective assessment of the level of implementation of the IOSCO Principles in the jurisdictions of IOSCO members and the development of practical action plans specifically designed to correct identified deficiencies. IOSCO is recognized today as one of the world's key international standard setting bodies. Cooperation and transfer of expertise, in particular between developed and emerging markets, are at the heart of its mission. Fall 2005

Acct 561 9/18/2018 HISTORY - IASC 2000 IOSCO recommends that its members allow multinational issuers to use 30 IASC standards in cross-border offerings and listings 2001 Trustees announce members of the International Accounting Standards Board European Commission presents legislation to require use of IASC Standards for all listed companies no later than 2005 On January 1, 2005 companies listed on a European Union Stock Exchange were required to adopt IFRS resulting in a radical change in the way that many companies reflect their asset values on their balance sheet The most important single innovation of IFRS is to move away from historical cost Companies now have the option to carry their long-term real estate and other assets based on their original cost or at “fair value”, which typically equates to market value Fall 2005

Jurisdictions Using IFRS IFRS is For domestic LISTED companies For domestic unlisted companies Required for ALL 85 28 Required for some 4 20 Permitted 24 36 Note that over 100 countries use IFRS for listed companies and over 80 countries use IFRS for unlisted companies Based on slide: presentation as 2008 AAA meeting IFRS Is Here, and What to Do about It Stephen Zeff, Rice University and Paul Pacter, IASB Posted at AAAcommons

Who uses IFRS? In 2007, used by 15,000+ foreign companies By 2011, used by 27,000+ foreign companies Used by foreign subsidiaries of US-based multi-national corporations Used by US firms that are subsidiaries of foreign corporation Foreign registrants with SEC can file using IFRS (without reconciliation to US GAAP) Based on slide: presentation as 2008 AAA meeting IFRS Is Here, and What to Do about It Stephen Zeff, Rice University and Paul Pacter, IASB Posted at AAAcommons

Unlike the countries who’ve opted to simply adopt IFRS, the US has taken the “covergence route.” The FASB works closely with IASB (sharing staff when working on projects, etc) top try to reduce the number of differences

U.S. GAAP and IFRS Convergence: Where Are We Now? Boards have achieved “high-level” convergence in some areas Examples include income taxes, business combinations, share-based payments, fair value option, EPS, statement of cash flows, pensions Other areas, models are very different Examples include debt/equity classification, impairment of long-lived assets Acct 414 topics are generally similar under both US GAAP and IFRS – what they call “high-level convergence” which really means there can be some important differences that remain.

SEC “Roadmap” Roadmap released in April 2005 Intended to eliminate need for reconciliation between IFRS and U.S. GAAP by 2009 -- accomplished SEC will continue to review IFRS primary financial statements of FPIs – not mutual recognition Reaffirmed by SEC Chairman Cox and EC Commissioner McGreevy in February 2006 Elimination of reconciliation requirement for FPIs Use of IFRS by Domestic Issuers – Concept Release

Why learning IFRS matters SEC dropped Form 20-F reconciliation for adopters of ‘IFRSs as issued by the IASB’ SEC taking steps to allow US companies to adopt IFRSs AICPA moving to including IFRSs on CPA exam AICPA has amended Ethics Rules 202-203 to refer to IFRSs Big-4 firms have launched programs to help educators adapt to IFRSs

A few “big” differences you should know: IFRS is less rule based and requires more judgment as compared to US GAAP (at least that’s the myth) No LIFO permitted under IFRS Revaluation above historical cost is permitted under IFRS Biological assets (cows, trees, etc.) must be carried at fair value and reported separately R&D – a portion can be capitalized rather than expensed IFRS are becoming more rule-based over time: 1,200 pages in 2000 2,700 pages in 2008

Financial Statements Arranged Differently Balance Sheet (assets)

Financial Statements Arranged Differently Balance Sheet (L&OE)

Income statement – similar to multi-step US GAAP statement Differences: No extraordinary items Discontinued operations shown but some differences in the rules Similarities Earnings per share data is shown at bottom Salaries, depreciation, etc. instead of broad functional area like “selling and administrative”