Have you heard about the International Financial Reporting Standards? These International reporting standards have been relevant to the United States since FASB issued the Norwalk Agreement in 2002 which stated their commitment to rules for universal financial reporting that is accepted across countries.
There are nearly 100 countries requiring or allowing publicly held companies to prepare financial statements using IFRS principles.
In 2005 the European Union required over 12,000 companies listed on an EU-regulated stock exchange to adopt IFRS when they prepare consolidated financial statements. Canada is planning to require IFRS starting in 2011.
Where GAAP and IFRS Differ
The Financial Accounting Standards Board and International Accounting Standards Board are working to close the gap (pun intended) between IFRS rules and GAAP/IASB rules. Currently the following differences exist:
- IFRS does not permit Last In First Out (LIF) as an inventory costing method
- IFRS uses single-step method for impairment write-downs rather than two-step used by GAAP
- IFRS has a different probability threshhold and measurement objective for contingencies
- IFRS does not permit curing debt covenant violations after year-end
- IFRS guidance regarding revenue recognition is less extensive than GAAP and contains less industry-specific guidance.
When Will This Affect US Companies?
The earliest expected adoption dates for large US public companies to convert financials to IFRS is 2013 which is the year which all major capital markets are expected to operate from one set of accounting standards.
Given the worldwide meltdown of credit markets it’s reasonable to expect that many new rules and regulations will be introduced over the nexte several years. The IFRS may further be updated to address the perceived weaknesses in the existing reporting guidelines.
Mike Morper of Sage Software has a post that addresses how Sage MAS 90 and 200 will be updated to conform to any new reporting guidelines. He provides assurance that the product team at Sage Software is working on making sure the software conforms to any new reporting rules.