Finance and Accountancy Briefing
IFRS: the future of financial governance
Financial reporting has been on a tumultuous ride these past several years, and it does not seem as if things will get any smoother with the onset of Extensible Business Reporting Language (XBRL) and the adoption of International Financial Reporting Standards (IFRS.)
Both these standards are meant to increase the comparability of reported financial information. The XBRL debate is over and was adopted for Securities and Exchange Commission reporting starting in December 2008. However, the discussion around IFRS in the United States continues to cause consternation.
IFRS is a set of accounting standards stating how financial results should be reported. IFRS are issued by the International Accounting Standards Board (IASB) and replace the International Account Standards issued previously by the IASB.
The move to IFRS presents a dramatic change for US companies. IFRS has been mandated in the EU since 2005. A core difference is that IFRS is principles-based and US GAAP is rules-based.
Principles-based standards allow much interpretation and require extensive documentation of positions taken. Some of the areas that differ under IFRS include complex topics such as fair value accounting, revenue recognition, segment reporting and share-based payments.
The existing dialogue focuses on the convergence of standards as opposed to the conversion or adoption of IFRS. This subtle difference is important and infers that US standards will be much more like IFRS in nature.
The indicators of impending change include continued growth of a global marketplace, a desire for more comparability in information and the 'IFRSesque' nature of more recent US accounting releases.
Although the required reporting of IFRS in the US is not yet set, and the earliest date suggested is 2011, many companies are devoting some time to understanding the impacts.
A shortlist of areas to consider include financial impacts, personnel knowledge gaps, policy and documentation requirements, process changes and technology modifications.
Looking at each issue briefly in this paper gives a sense of what is ahead. Please download it now.
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