Convergence Update

1. IFRS-
IFRS-US GAAP
Convergence or Keep Them
Separated?
FICPA Jacksonville, FL May 14, 2009
Neal J. Hannon
Senior Consultant, XBRL Strategies
The Gilbane Group
Cambridge, MA 401-225-6082
401-225-
neal@gilbane.com

2. Session WIKI

3. International
Financial
Reporting
Standards

4. International Accounting
Standards: Brief History
• IASC started 1973:
– Volunteer, part-time, met 3X/year
part-
– Issued IASs 1-41 + interpretations
1-
• Restructured 2001:
– Full-time IASB based in London
Full-
– 14 members
– Issues IFRSs
• Old IASs (most revised by IASB) remain in force

5. Potential for IFRS as the Global
Accounting Standard
• 113 countries require or permit IFRS
• Market capitalization of exchange listed companies in
the European Union, Australia, and Israel comprises
26% of global market capitalization
• Market capitalization of exchange listed companies in
those countries plus Brazil and Canada totals 31% of
global market capitalization
• SEC believes that the benefits of moving towards
IFRS are attainable only if IFRS represents a single
set of high-quality accounting standards, which can
be accomplished with IFRS as issued by the IASB

6. 113 countries, including the members of the European
Union and much of Asia, have already adopted and implemented
IFRS. Israel, Chile and South Korea are set for 2009, Brazil for 2010,
and Canada for 2011.

7. IFRS
Or is it?

8. • AICPA, Big-4, and major US
Big-
multinationals favor use of IFRSs but
support is wavering.
• Designation of IASB under AICPA Rules
202-
202-203 (May 2008)
– Potential for use of IFRS for Private
Entities when it is finished early 2009
• FASB favors convergence; SEC is in
comment period on IFRS roadmap
• IFAC stands behind high quality global
standards

9. Why global
accounting standards?

10. • Enhanced worldwide comparability
for investors
• Enhanced quality of reporting
– Some national GAAPs are weak or
outdated
• Possibly a lower cost of capital for
companies adopting IFRSs
• More company-friendly US securities
company-
market for foreign listings

11. • Reduced reporting costs
– For instance, multinational with
subs applying many GAAPs
• No need to develop and maintain
national standards
• For audit firms and companies: Easier
movement of auditors and
accountants across borders

12. Past SEC Policy Considerations
Regarding IFRS
• SEC has long expressed its support for a single set
of high-quality global accounting standards (e.g.,
SEC Release 33-6807 – November 14, 1988)
• Convergence of U.S. GAAP and IFRS as issued by
IASB (predominant approach)
2002 Norwalk Agreement
2006 Memorandum of Understanding
• SEC allows foreign private issuers to file IFRS
financial statements without reconciliation to the U.S.
GAAP (SEC Release 33-8879)
• 2007 Concept Release – whether U.S. issuers should
be permitted, but not required, to use IFRS in their
filing with the SEC
12

13. US vs. the World?
The stated objective of the 2002 “Norwalk Agreement”
between FASB and the IASB is the development of
high quality, compatible accounting standards that
could be used for both domestic and cross-border
financial reporting.
Clearly, this approach says let’s make both sets of
standards better, not choose one set over the
other.

14. ROADMAP FOR THE POTENTIAL USE
OF FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL
REPORTING STANDARDS BY U.S.
ISSUERS

15. 2011 Roadmap Milestones
• Improvements in Accounting Standards
• Accountability and Funding of the IASC Foundation
• Improvement in the Ability to Use Interactive Data for
IFRS Reporting
• Education and Training
• Limited Early Use of IFRS Where This Would
Enhance Comparability for U.S. Investors
• Anticipated Timing of Future Rulemaking by the
Commission
• Implementation of the Mandatory Use of IFRS

16. Ernst & Young
Comment on 2009 IFRS Draft
Taxonomy
Currently the IFRS taxonomy is
not complete as it does not
contain IFRS common practice or
industry concepts. The
taxonomy does not contain
descriptions or definitions of
concepts.

17. Limited Early Use of IFRS
• Roadmap: SEC to decide in 2011
mandated use of IFRS for U.S. issuers
• The proposed rules allow limited early use
of IFRS by certain U.S. issuers
• The “early use” proposal has been
somewhat controversial; respondents have
proposed other alternatives
Option to use IFRS should be extended to all
U.S. issuers
SEC should require IFRS for all U.S. issuers (no
option for anyone – even early adopters)
Continue convergence project without
mandatory use of IFRS

18. Anticipated Timing of Future
Rulemaking by SEC
• Review milestones in 2011, determine if
mandatory IFRS starts in 2014
• Use U.S. GAAP during 2012, 2013, and the first
three quarters of 2014
• 2014 financial report would show financial
statements using IFRS for 2012, 2013, and
2014
• SEC directed the Office of Chief Accountant to
undertake a study and report to the SEC on the
implications for investors and other market
participants of the use of IFRS

19. Implementation of Mandatory Use of
IFRS
• All U.S. issuers adopt IFRS at same
time
• Staged transition
Large accelerated filers must adopt for
financial statements for 2014
Accelerated filers must adopt for financial
statements for 2015
Non-accelerated filers must adopt for
financial statements for 2016

20. The FASB’s participation in the evolution of the international
accounting system has been guided by the belief that, ideally, the
ultimate goal is the worldwide use of a
single set of high-quality accounting
standards for both domestic and cross-border
financial reporting. We continue to support that goal.
Robert Hertz, Chairman, Financial Standards Board
Letter to the SEC, March 11, 2009

21. Decisions about the role that a single set of high-quality
global accounting standards plays in investor protection
and the efficiency and effectiveness of capital formation
and allocation involve complex, multidimensional and
perhaps controversial issues that require
careful,
measured, and comprehensive study
and analysis.

22. FASB’s Comment
To the SEC on IFRS
….134 pages

23. IFRS and US GAAP
considered high quali

24. No significant
macroeconomic effect

25. Additional discretion
not likely to
result
in major
differences

26. Jurisdictional
effect on
accounting
standards

27. Standards just
one factor in
comparability
of financial
reports

28. Large
multinationals
may achieve
limited cost
savings

29. Adopting IFRS in US
involves substantial
costs
disproportionate
with smaller firms

30. Maintaining
status quo
might result in
additional costs
for firms,

31. Political challenges for
US Congress to designate
international
standard setting
body

32. • IFRS and US GAAP considered high quality
• No significant macroeconomic effect
• Additional discretion not likely to result in
major differences when IFRS applied
• Jurisdictional effect on accounting standards
• Standards just one factor in comparability of
financial reports

33. • Large multinationals may achieve limited cost
savings
• Adopting IFRS in US involves substantial
costs disproportionate with smaller firms
• Maintaining status quo might result in costs
for firms, investors
• Political challenges for US Congress to
designate international standard setting body

34. Convergence Still On
• Sep 11, 2008 FASB, IASB To Complete Major Convergence
Projects by 2011, Says MoU FASB expects to release proposals
in 2008 on Subsequent Events and Income Taxes.
• Similar to the ‘improve and adopt” approach described by FASB
Chairman Robert Herz in interviews and Senate testimony
• Other matters noted in 2008 MoU Update: Conceptual
Framework: Work is ongoing on the boards’ joint conceptual
framework projects.
• FASB and the IASB recognize the need for due process
• Work Programs Include Other Matters:
– The boards “remain committed to completing the MoU projects because
they represent a significant step toward the goal of a common set of
high quality standards.”

35. Joint Technical Plan and
Project Updates

38. Some observers argue that adoption of IFRS, rather than
convergence, may be the better route.
“Adoption would eliminate quot;the arbitragequot; between the
two standards that has caused politicians to exert undue
influence over what should be an independent
standard-setting process”
DJ Gannon, a Deloitte & Touche partner specializing in
international accounting and reporting.
CFO.com, April 17, 2009

40. In a perfect world, with full
resources and free from
outside influence, quot;when could
we get convergence?,quot;
Goldschmid asked Herz.
quot;Ten to fifteen years,quot; the
FASB chairman replied.

41. “We have been accelerating [the
convergence effort,” says IASB chairman
Sir David Tweedie, who reports that
only nine major areas are left where
differences have to be reconciled.
“We’re both working to scrap our
existing standards and write joint new
standards,” he adds. “We hope to finish
by 2011, so by then, the answers you’ll
get on U.S. GAAP and IFRS will be very
similar. And that, as the U.S. has said, is
going to make it easier for them to
change.”

42. CFOs on IFRS:
Forget about It

43. “Converting to IFRS is
a solution without
an underlying
problem”
Melissa Sungela, vice president, corporate controller, and
chief accounting officer for Great Atlantic & Pacific Tea
Co.

44. “We believe some companies that are
eligible for early-adoption
early-
would not even consider such
an option if they use the LIFO
inventory method and would
incur a significant income-tax
income-
penalty …. for IFRS reporting,”
Chevron vice president/comptroller Mark Humphrey

45. quot;Conversion to IFRS could lead to
confusion and reduced marketplace
confidence in financial statements at a
time when confidence in the U.S.
financial markets is already lowquot;
Patrick Mulva, controller for
ExxonMobil.

46. “We have significant concerns with the
roadmap and therefore encourage the
commission to focus on convergence as a
means to developing the highest quality
globally accepted accounting standards at
a lower cost and with less risk than the
proposed mandatory conversion to IFRS,”
Boeing vice president and corporate controller, Robert
Pasterick

47. IFRS is a relatively new
body of literature and
has not been tested to
the same extent as U.S.
GAAP
Boeing's vice president and corporate controller,
Robert Pasterick

48. speed-versus-
speed-versus-quality

49. “there will be
pressure to cut the
US loose …

50. “there will be
pressure to cut the
US loose” from the
process. The US must
get on or get
off the train
- Goldschmid

51. Principles Vs. Rules
Rule: 55 Drive safely
Principle: MPH Limit

52. Voices of Note
The question about whether the world is going to
global standards is no longer ‘if,’ but ‘when’.
Switching to IFRS significantly reduces the
cost of accounting and financial reporting for
multi-national companies, which would
otherwise have to translate and reconcile
records prepared under various country-specific
standards.
KPMG Chairman and CEO Timothy P. Flynn

53. Voices of Note
“An international language of disclosure and transparency
is a goal worth pursuing on behalf of investors who
seek comparable financial information to make well-
informed investment decisions,” said SEC Chairman
Christopher Cox.
“The increasing worldwide acceptance of financial reporting
using IFRS, and U.S. investors’ increasing ownership of
securities issued by foreign companies that report
financial information using IFRS, have led the
Commission to propose this cautious and careful plan.
Clearly setting out the SEC’s direction well in advance,
as well as the conditions that must be met, will help fulfill
our mission of protecting investors and facilitating capital
formation.”

54. Voices of Note
• Meanwhile the IASB at the dawn of the 21st Century
began to add meat to but left out many of the bright line
rules. Hence it generated a reputation for principles-
based standards instead of rules-based its milk toast
quot;politically correctquot; starter-set of international standards.
In many instances it copied FASB standards.
– Bob Jensen, Professor emeritus Trinity University.
www.trinity.edu/rjensen

55. Voices of Note
• quot;We should start off [a financial reporting
standard] with the core principle, which is really
the 'true and fair' core of the standard.quot;
Sir David Tweedie, Chairman IASB.
• “The idea of true and fair in accounting is little
more than faith-based accounting, and most
certainly not the appropriate starting point for
any process of developing high-quality
accounting standards.”
Tom Selling (www.accountingonion.com)

56. Voices of Note
• On accounting, SEC Chairman Cox has unveiled a
roadmap where US companies would switch from US
GAAP to IFRS by 2014. Unthinkable only two years
ago! A dramatic signal indeed. Following the EU's lead,
the US is indicating it also wants to choose global
standards. One set, in sight, at last. And of course we
need to strengthen the governance of the IASB. That
is why we are working hard with some of our major
counterparts to install new, strengthened oversight
mechanisms.
Charles McCreevy, European Commissioner for Internal Market 14
September 2008.

57. Voices of Note
• A precipitous move away from U.S. Generally Accepted
Accounting Principles will undermine the U.S. regulatory
system, and thereby quot;put in jeopardy the thing that
gives the U.S. a competitive advantage. All research
shows that the U.S. is unique in its regulation. No
[country] is as effective . . . . We have the lowest cost of
capital in the world. Do we really want to give that up?”
Charles Niemeier, a member and former acting chair of the
Public Company Accounting Oversight Board

58. During her confirmation hearings, Schapiro
expressed concern about the pace of accounting
conversion proposed by her predecessor,
noting,
quot;I will not be bound by the existing
roadmap that's out for public
comment,quot;
and expressing reservations about quality of
IFRS and the independence of the International
Accounting Standards Board, which writes those
rules.
Mary Schapiro, SEC chairwoman as reported
by CFO.com

59. Voices of Note
By the logic of others, which I can’t explain,
fuzzy lines in accounting standards have
come to be exalted as “principles-based”
and bright lines are disparaged as “rules-
based.”
Tom Selling, author of The Accounting Onion blog

61. It is important to note that conversion to IFRS
will require the retroactive restatement
of certain historical periods presented
within a company’s first set of IFRS based
financial statements. Those restated periods
could show a host of changes to a
company’s key metrics, bottom-line
bottom-
performance and financial position.
Source: PriceWaterhouseCoopers, September 2008

62. What Are the Major
Differences?

63. Major Differences
US GAAP - IFRS
• Revenue recognition
• Expense recognition: share-based
payments
• Financial liabilities and equity
• Consolidation
• Assets—nonfinancial assets
• Assets—financial assets

64. Major Differences
US GAAP - IFRS
• Liabilities—taxes
• Liabilities—other
• Financial liabilities and equity
• Derivatives and hedging
• Consolidations
• Business combinations
• Other accounting and reporting topics

66. What If IFRS starts 12-31-11?
• Preparing IFRS financial statements for the three years ending
December 31, 2011, would have a transition date of January 1,
2009. That would also be the date of the opening IFRS balance
sheet.
– IFRS 1 requires that the opening IFRS balance sheet:
– Include all of the assets and liabilities that IFRS requires;
– Exclude any assets and liabilities that IFRS does not permit;
– Classify all assets, liabilities and equity in accordance with IFRS; and
– Measure all items in accordance with IFRS.
• These general principles are followed except where one of the
optional exemptions or mandatory exceptions does not require or
permit recognition, classification and measurement in accordance
with IFRS.

68. IFRS Resources
• Comprehensive list:
www.iasplus.com/resource/0808aaaifrsresour
ces.pdf
• Growing Resource:
ficpa-
ficpa-ifrs.wikispaces.com

69. IFRS Resources
• Deloitte
– iGAAP 2009 – A Guide to IFRS Reporting (2nd ed.,
2,100 pages)
– iGAAP 2008 Financial Instruments: IAS 32, IAS 39
and IFRS 7 Explained (4th ed., 851 pages).
– www.iasplus.com
– IFRS e-Learning
e-
– IFRSs in your Pocket 2008

70. IFRS Resources
• Ernst & Young
– Ernst & Young International GAAP 2009 (2
volumes)
– www.ey.com/ifrs
– New academic resource center launched
Fall 2008
• Grant Thornton
– http://faculty.gtexperience.com

71. IFRS Resources
• KPMG
– KPMG IFRS Institute
• www.kpmgifrsinstitute.com/
– KPMG faculty portal
• www.kpmgfacultyportal.com
– KPMG IFRG website
• www.kpmgifrg.com
– IFRS publications library
• www.kpmgifrg.com/pubs/index.cfm

72. IFRS Resources
• PricewaterhouseCoopers
– IFRS reporting website
• www.pwcglobal.com/ifrs
– IFRS Pocket Guide 2008
– ’IFRS Ready’ toolkit for educators
• www.pwc.com/faculty
– PWC IFRS Blog
• http://pwc.blogs.com/ifrs/

73. IFRS Resources
• US SEC Global Accounting Page
– www.sec.gov/spotlight/ifrsroadmap.htm
• IASB
– www.iasb.org
– Subscriptions and e-IFRS
e-
– Webcasts of meetings
• World Accounting Report
– www.i-financial.com/
www.i-

74. IFRS Academic Resources
• IAAER
– www.iaaer.org
– Offers very low-cost academic subscription to
low-
eIFRS (from IASB)
• Includes all IFRSs and other educational materials of the
IASB $25 (academician) and $20 (student)
• Normal price from IASB $400
• Base 2009 standards are now free

75. IFRS Resources
• AICPA
– IFRSs on CPA Exam:
• www.cpa-exam.org
www.cpa-
– New IFRS website
• www.ifrs.com
• Canadian Institute of CAs
– IFRS Transition Page:
• www.cica.ca/index.cfm?ci_id=39166&la_id=1

76. IFRS Resources
• European Commission
– Accounting:
• http://ec.europa.eu/internal_market/accounting/index_en.htm
– This includes links to:
• EU accounting news
• IFRS news and information
• EU IFRS-related committees
IFRS-
• EU IFRS directives and regulations

77. IFRS Resources for Educators
• Textbooks – some recent ones:
– Nobes and Parker
– Roberts, Weetman and Gordon
– Choi and Meek
– Holt, Mirza and Orrell
– Alfredson, Leo, Picker, Pacter et al
• Histories of the IASC:
– Camfferman and Zeff
– Kirsch

78. Credit for IASB history and IASB
Resources:
Stephen Zeff, Rice University
and Paul Pacter, IASB
Credit for SEC roadmap slides to
Professor Herschel Mann
Texas Tech University

79. Thank you.
Questions and comments?
Details at: ficpa-ifrs.wikispaces.com
ficpa-
Neal J. Hannon
Senior Consultant, XBRL Strategies
The Gilbane Group
Cambridge, MA 401-225-6082
401-225-
neal@gilbane.com