When was SEC roadmap proposed?

What is the SEC Roadmap?

roadmap for the potential use of financial statements prepared in accordance with IFRS by US issuers.  SEC

What did SEC roadmap propose? 

Eventual mandatory shift to ifrs after hitting certain milestones along the way.

What were the detailed “milestones” in the Roadmap? 

1.improvements in accounting standard

2. accountability and funding of iasc foundation

3. ability to use interactive data for ifrs reporting (xbrl)

4. education and training

5. limited early use of ifrs where this would enhance comparability for US investors

6. anticipated timing of future rulemaking by the commission

7. implementation of the mandatory use of ifrs

Where do we stand on it (SEC roadmap) now?

Some milestones have been met but there is a lot of uncertainty about mandatory IFRS in the future, and its looking unlikely in the short term

MOU-2009 oWhat is this? 

Memorandum of understanding.  A  joint statement from fasb and iasb in 2009 that reaffirmed the commitment to achieving convergence of us gaap and ifrs.

Who was involved in the MOU?  

FASB and IASB

Norwalk agreement 

Fasb and iasb met to converge us gaap and ifrs. Norwalk happened partially because eu adopted ifrs by 2005.  Fasb and iasb agreed to work together on standards.  Agreed to get interpretation committees to work together.

When did Norwalk take place? 

September 18 2002

Who was involved? 

FASB and IASB

What was the point of the Norwalk agreement?

Have FASB and IASB work together to converge us gaap and ifrs.

What did the parties agree to in Norwalk? 

1.short-term project to remove a variety of differences between us gaap and ifrs

2. remove other differences that will remain as of jan1 2005 through coordinated work programs

3.continue progress on joint projects that they are currently undertaking

4.encourage respective interpretive bodies to coordinate activities

Criteria for an Independent Accounting Standard Setter  Who was involved with writing this? perspective?

    Prepared by Donna Street, Mahrt chair in accounting, University of Daytona.  The council of institutional investors.  perspective is opposing replacing us accounting standards with international standards unless and until 7 criteria have been met:

What issues were discussed in criteria for an independent standard setter? 

1.     quality of ifrs is at minimum as good as us gaap

2.     application and enforcement of ifrs are at least as rigorous as application and enforcement of us accounting standards

3.     IASB has sufficient resources including a stable source of funding that is not dependent on voluntary contributions of those subject to the standards

4.     IASB has a full time standard setting board and staff that are free of bias and possess the necessary technical expertise to fulfill their roles

5.     IASB must demonstrate that investors are the key customers and users of audited financial reports.  Primary function should be to provide information for investors.

6.     IASB has a public process that includes solicitation of investor input.

7.    IASB has a process that protects standard setters decision and judgements from being overridden by government officials or bodies

How did the IASB/FASB stand up to the 7criteria for an independent standard setter (in general)? 

Generally IFRS and IASB couldn't meet more than a couple of the 7 criteria.

EU Implementation Issues

oWhat does this paper examine? 

Implementation of IFRS in the EU and the impact it made there.

What data was used to answer the question? (EU implementation) 

Questionnaires sent to interested parties, surveys and other literature, roundtables of investors preparers auditors from 23 member states. An academic research paper

Positive effects of EU implementation: 

1.IFRS had made financial statements easier to compare across countries and competitor

2. 63% thought IFRS had improved quality of financial statements.

 Overall message was that implementation of IFRS had been challenging but successful

Negative effects of EU implementation:

1.49% thought IFRS made statements harder to understand

2.too early to tell if there were real substantial improvements.

3.Tougher for smaller companies to switch than for larger

4.Questions about consistency of application across jurisdictions

Consider who the winners/losers were in this process. (EU implementation) 

Smaller companies faced greater cost and greater difficulty because of lack of experience than did larger firms.

What was the purpose of the AICPA backgrounder? 

Increase public awareness.  Make sure aicpa had a voice in the debate

What were the findings of AICPA backgrounder? 

1.no lifo

2.ifrs allows revaluation of assets

3.ifrs has single step for impairment rather than us gaap 2 step method

4.ifrs requires capitalization of r&d

5.ifrs provides less detail and industry specific guidance

Who was AICPA backgrounder aimed to? 

Public, CPA’s

What are Comment letters? 

            Letter to SEC regarding potential adoption of IFRS

What issue was under consideration for the three comment letters we read (from the

AICPA, CFA, CMA)?

Whether to incorporate IFRS into the financial reporting system for US issuers.

Know who each of the three groups that wrote the comments letters represent and what

the general issues they discussed. Did the various groups support the issue in question?

Why or why not?  

AICPA: accountants.  Focused on contracts and education.  Worried about adequate transitional period.

CFA: institutional investors. Sophisticated investors.  Opposes prospective adoption, info needs to be retrospective.  Concerned about being able to keep IFRS in line.  Think a decision is premature until workplan is complete.  Wants fasb and sec to have major role.  Doubts that us gaap and ifrs equivalence can be achieved.

CRM:  Capital research and management, controls about $1 trillion.  Hates ifrs.  Doesn't want optionality, no accounting choices need rules.

Roadblocks to IFRS Adoption 

oWhat were the primary issues raised in terms of the “roadblocks”? 

1.difference in principles based vs. rules based interpretations

2.designation of ruling governing body

3.distinctions in company size and type/phase integration

4.cost of implementation

5.education and training gaps

Convergence Flaws – Speech

oWho wrote this speech; what was the perspective of the speechwriter?

Written by David Reilly of the wall street journal

What significant issues were raised in this speech? 

Enforcement of standards.  Who are standards meant to serve.  What is driving the move to global standards.

Did the speechwriter support the move to IFRS? 

Six Degrees of Separation

oWhat is the perspective of the author? 

There are a number of things that have to be ironed out before adopting ifrs standards.

What are the “six degrees….”

1.     error correction: according to IFRS its not always necessary to retrospectively restate financial results when a company errors.  Us gaap requires restatement in many cases.

2.     Death of lifo:

3.     Reversal of impairments

4.     Pp&e valuation under ifrs ppe can be revalued but the entire asset class must be revalued

5.     Component depreciation

6.     Development cost

European-US GAAP Gap 

oWhat issue(s) did this study consider? 

The difference in firms financial results using ifrs as opposed to us gaap

Where did the gaap gap data come for this study? 

20f’s from 75 cross listed companies.

What were the general findings of this gaap gap study related to?

income and ROE under ifrs is in general higher than under us gaap.  Overall findings indicate significant numerical differences exist between gaap and ifrs.

What general/overall findings can we take from this study…in terms of US companies

switching from US GAAP to IFRS? 

Its tough to compare for us companies.

SEC Review of Differences-2011

oHow were the differences classified in this article? 

1.financial instruments

2.revenue recognition

3.consolidations

4.fair value measurement

5.financial statement presentation

6.derecognition

7.post employment benefits

8.business combinations

9.financial instruments with characteristics of equity

10.  intangible assets

11.  insurance

What is IFRS for SMEs? 

Ifrs for small and medium size entities

What is the analogous setting to ifrs for sme's under US GAAP? 

there is none.

 How does the AICPA comment letter relate to this? (IFRS for SME's)

The aicpa is one of the biggest proponents of creating a separate set of us gaap standards for sme’s analogous to ifrs for sme’s

What is the Blue Ribbon Panel and what did their panel recommend? 

AICPA, FAF, FASB, NASBA.  The panel recommended a separate set of accounting standards for private companies.  US GAAP with exceptions and modifications for private companies.

What was the general idea of the panel recommendations and of the dissenting

opinion? 

With the exception of one dissenting view the panel recommended separate standards for private companies.  The dissenting view was that there is no benefit to the creation of new standards and that the users that financial statements are created for haven’t asked for separate standards and generally finds the current standards acceptable.

FAQ Private company reporting

•Who wrote this?

The AICPA

Who do you think was aimed to help? (FAQ private company reporting) 

It seems to be directed toward aicpa members 

Historic moment for private company….what does this speak to? 

This is an article speaking to the urgent nature of the necessary switch to separate set of accouting standards for private companies.

Statement from Barry Melacon. Who is this?

AICPA president and CEO

harmonization:

improving comparability across sets of standards by setting limits on the alternatives allowed within each set.

Convergence:

local standards are migrated to being closely aligned with and ultimately become IFRS

Adoption:

a switch from local standards to ifrs without convergence

Condorsement:

middle road between convergence and endorsement

What are the objectives of financial reporting and the role of accounting standards? 

Provide information useful to: Investors, creditors, Employees

Provide information about the economic resources of an entity and claims on those resources

Provide information that helps stakeholders assess future cash flow

Conform to regulatory requirements

FASB:

financial accounting standards board – us standard setter

FAF:

financial accounting foundation – organization responsible for oversight, admin, and finances of the fasb

FASAC:

another group appointed by the faf consults and provides advice for fasb

AICPA:

American institute of certified public accountants

IASB:

international accounting standards board – IFRS standard setter

IFRS advisory council:

advises IASB

Monitoring board: 

mechanism for formal interaction between capital market authorities and IASCF

Understand the financial statements required, the names that they might be called, and

what type of information they contain.

Statement of operations: income statement

Statement of financial position: balance sheet

Statement of cashflow

Statement of shareholders equity

Know the difference between a direct/indirect cash flow statement, the role of footnotes

in a financial report, the difference between net income and comprehensive income.

Indirect method includes net income from the statement of consolidated operations as the beginning amount and then details adjustments to the net income from accruals that do not reflect cash or cash equivalent transactions to obtain the net cash provided by operations.

Substantive/cosmetic

substantive differences are real in that they reflect the fact that a single value a different class of asset, liability, or expense, or with different types of disclosures than if the same transaction was reported using ifrs an outcome that differs in substance.

Cosmetic differences occur when us gaap and ifrs result in the same values but are presented differently such as in a different order or under a different classification

measurement differences

where the options and requirements available to value specific assets and liabilities varies across the two sets of standards

classification differences

where one set of standards requires the transaction to be classified different than the other

recognition threshold differences

The threshold established by us gaap to record an expense and corresponding liability differs from the threshold established by IFRS to do the same