subject: The IFRS Roadmap- Is it possible? [print this page] The IFRS Roadmap- Is it possible? The IFRS Roadmap- Is it possible?
The Road Map
On November 14, 2008 the SEC released a public a roadmap that included a timeline and obstacles that still needed to be overcome in order to adopt IFRS by the year 2014. This was just released over a year ago, but is not as new as some people may think. The SEC has been working on developing an international set of standards since the year 1988. It has been a long developing process that is now changing faster than some realize. For example, from the year 2005 to 2006, foreign private users that file with the SEC and now use IFRS, went from only a handful to about 110, and are still increasing. If that many companies can change over within a year, while a lot more changes are still being made, then imagine what the number will increase to when there are only a few changes left. The SEC believes that by 2014, the United States public companies will be required to adopt IFRS, but that year is not set for everyone. Between 2011 and 2012 the SEC expects Canadian, Indian, Japanese, and Mexican companies to already be using IFRS (IFRS, page 2, 8). If that actually occurs, then the United States will have no choice but to convert to IFRS, and fast. With this road map in mind, there is a lot of work to be done, and still many changes to be made to convert GAAP to IFRS.
Two Sides
There are always two sides to everything, especially those which cause changes in the world. Is the change good in the long run, or just the short run? What will I have to do to make this change? Will it hurt or help my company? These are all questions you have to ask yourself to be able to pick a side. With IFRS, there are two sides, for and against.
IFRS is a huge change that is occurring in the world today. It is believed that IFRS will put everyone on the same page and make doing business easier for businesses everywhere. But because of how big this change is, it seems to scare a few people. IFRS is not as thorough as GAAP. For example, U.S. GAAP is around 25,000 pages, where IFRS is around 2,000 pages. Yes, IFRS is still making changes and is still growing but it doesn't seem like it will get to that 25,000 page mark, which makes people think that maybe it is a little too vague and some important principles might fall through the cracks. For example a survey taken in the beginning of 2008 by Deloitte & Touche among chief financial officers and other financial professionals showed that only thirty percent considered adopting IFRS now, 28 percent were unsure, and 43 percent said they would not (IFRS, page 5). Although this number has changed, it still shows that at this time many were unsure of IFRS and weren't ready to take that big step away from GAAP.
On the other hand many companies are now for IFRS. U.S. GAAP is not used everywhere in the world, and for businesses to constantly change from U.S. GAAP to whatever international standards the country they are dealing with has and vice versa, is a huge hassle and time consuming. Today a lot of business is done internationally, so why not find a way to make it easier on everyone? The people who do support IFRS believe that it will make it easier for public companies to compare financial statements and be able to use "one accounting language company-wide" (IFRS, page 5). Another benefit is that because the economy today is so international, IFRS will help people such as CPAs be able to be more mobile (IFRS, page 5). For example, if a business or company does most of its business overseas or in a different country, or even just wants to expand, sending professionals, or even building offices would make it easier to run the company and help it grow. IFRS will give companies more options world-wide, and make it easier on everyone to become in sync.
IFRS is already in the process of becoming such a huge change within companies. Soon it will be far enough spread that even if everyone does not convert to it, so many people will that those who do not will possibly be forced to do so. "An AICPA survey conducted in fall 2008 among its CPA members [showed that] a 55 percent majority of CPAs at firmsare starting to prepare for eventual adoption of IFRS" (IFRS, page 5). That was a year ago, and firms were already preparing to change over. Imagine how much that number has increased in addition to all the companies that already use IFRS. So it seems that even if some are against IFRS, they might one day not have much of a choice if they want to do business internationally.
Changes
The fact that U.S. GAAP is so large, and IFRS is so vague, is what makes this process so long and the year 2014 seems almost impossible. There are so many areas and principles that need to be examined carefully and explored to see what exactly is the most important, and where they can be more lenient.
One of the big changes that have been being made is a three-part project to replace IAS 9 Financial Instruments: Recognition and Measurement with IFRS 9 Financial Instruments. This is an example of how IFRS is really shortening the in depth rules of GAAP. For example, IAS 9 uses a single approach to determine whether a financial asset is measured at fair value or amortized cost, and a single impairment method is used, both replacing the many different rules IAS 39 had for both of these concepts (IASB, page 1). IAS 39 is only one of the narrowed down principles, along with topics such as LIFO, contingencies, inventory, investments, and many more. This will make financial statements easier to understand for investors, and also other companies that may use numerous different methods for each of these subjects. Converting to IFRS will bring everyone to one page, instead of trying to have numerous financial statements, or trying to convert others so you can compare your business to theirs.
Many changes still need to be made to finish converting to IFRS, which may make the year 2014 seem unreal, the SEC, IASB, and others are all working to quickly but successfully make these changes, and notifying companies of these changes so they can also make them as they are changing over to IFRS. This in mind, the FASB and IASB believe that the key accounting standards should be changed by the year 2011.
Is it Possible?
The question is, is it possible for IFRS to be adopted by the year 2014? The fact that many changes have been made to major sections such as asset impairments, inventory, and investments, and the rules that apply to them, make it seem like IFRS will be the majority of the way complete by the year 2014. If the question is will IFRS be fully completed, down to every detail, and adopted by every company? That may not be the case. U.S. GAAP has been around for so long, that there still might be some tweaks and changes made to IFRS, once in use. Issues might come up that might change a rule, or add a little more to it seeing as how IFRS is so vague compared to GAAP. Questions have been added to the CPA exam, students are learning about the differences between GAAP and IFRS, and some firms have already converted if not started to convert to IFRS. If the timeline does end up being wrong, it will not be by much, and most of the world will be using IFRS before we know it.
Works Cited
International Accounting Standards Board. IASB completes first phase of financial instruments
