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Posts Tagged ‘international financial reporting standards’

IFRS: Is the disconnect as significant as I believe?

May 29th, 2009 Comments off

            I wanted to follow-up on my posting from last week in which I commented on a recent AICPA press release regarding IFRS preparation. In that commentary I had commented on what appeared to be a disconnect between the preparation of the accounting sector and the timeline being pushed by the SEC for IFRS adoption.  One of my observations involved a review of the USC Leventhal School of Accounting curriculum and the fact that there are only 2 classes of 84 that are international in nature, neither of which even mention IFRS in the course description. I decided to expand the level of research and review accounting programs from a more geographically diverse population and look to top schools churning out new graduates.

 

            I took a look at 8 additional schools, while still keeping the data from USC. These schools included both Top-5 universities, as well as a local Cal State school (Fullerton), which is known for it’s Accounting emphasis.  

 

School

Profile

# Acctg Courses

# Intl / IFRS Courses

University of Chicago

No dedicated school

3

0

Wharton; U of Penn

No dedicated school

19

0

Northwestern

No dedicated school

19 seminars

0

Harvard

Acctg/Mgmt Unit

4

4

University of Michigan

No dedicated school

22

0

University of Southern California

Leventhal School of Accounting

84

2

Loyola-Univ. of Chicago

No dedicated school

15

0

UCLA

No dedicated school

10

0

Cal State Fullerton

Dedicated Program

40

1

 

            What continues to be so surprising to me is that there is hardly a mention of IFRS-related classes offered or that there is even a mention within the course descriptions. Perhaps something more surprising is that these schools are attracting an international student population and these students are not receiving any exposure to IFRS.  Only speculation, but will a lack of emphasis or development in this area affect the decision-making of whether foreign students continue looking to the U.S. for advanced business education?

 

            When I reviewed the course offerings at top schools such as Wharton and Chicago there was not a single mention.  Further, in reviewing the course offerings for the Accounting & Management Unit at Harvard, the courses were somewhat rudimentary in nature when it came to covering accounting topics in a more mechanical manner. Courses included:

         Business Analysis and Valuation using Financial Statements

         Customer Intelligence Advantage

         Designing Organizations for Performance

         Financial Reporting & Analysis for Managers (1/2 course in Spring)

 

My aim here is not to bash any one school or discredit the Accounting programs out there, but to bring light to what appears to be a significant shortfall in the U.S.’s preparation for the adoption, or convergence, of IFRS. Consider the timeline of designing course offerings, implementing that at the University level, bringing those graduates into the working force, and having an “experienced” accounting population ready to address IFRS. I don’t see that happening.   After coordinating an IFRS implementation in North America for a France-based company I have a sincere appreciation for the effort that this takes. I do not see the necessary preparation happening.

 

Is our source of expertise and support going to come from only our EU-based accounting friends? Is the disconnect as significant as it appears, or what I believe?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

 

 

 

 

IFRS: Misaligned SEC / AICPA Priorities . . . .

May 15th, 2009 Comments off

While I usually try and remain neutral and stay with the facts as it relates to accounting topics, I read a press release yesterday, which absolutely left me shaking me head with respect to the planned adoption of IFRS reporting in the U.S.  I have posted quite a few entries regarding this area and have my doubts that we are moving towards a successful implementation of these standards in the U.S. and this doubt was further reinforced after the AICPA press release from yesterday.

 

                Keep in mind that the schedule is still in flux as key business representatives are pushing for a delayed adoption of IFRS, but let’s assume that we are going forward with the SEC adoption date of mandated phased-in adoption starting in 2011. With this in mind, the accounting profession, who will be required to provide professional guidance, and my colleagues in the corporate sector, need to already be training on these standards and planning system reporting calendars for adoption.  It will not be as easy as “flipping the switch”. In fact, we ran IFRS reporting parallel to our GAAP reporting for two quarters before fully converting.  Back to the preparation though for IFRS – below is a sampling of statistics from yesterdays IFRS press release:

 

When asked to rate their level of familiarity with IFRS:

a.  36% responded they “want” Advanced or Expert knowledge

b.  24% responded there is a need for “some” knowledge.

c.  21% responded they require a “Basic” knowledge.

d.  There was no info reported on the missing 19%.

 

The AICPA further reported that “CPA’s are still evaluating their business & client needs”.   Really? What is there to evaluate on the “needs” front when the SEC is looking to have mandated phased-in reporting by 2011?

 

The AICPA further reported on the status of IFRS knowledge over the last 6-months:

                a.  22% responded they have no knowledge of IFRS (down from 30%).

                b.  43% have a “Basic” knowledge

                c.  24% have “Some” knowledge.

                d.  There was no info reported on the missing 11%.

 

I would also be interest to know what the difference is between “Basic” and “Some” knowledge.  I feel fortunate that I have been through a full IFRS implementation, but what if I were the CFO of a public company that wanted to start planning for an implementation and was looking to hire consultants, where 69% of the population has only “Basic” or “Some” knowledge?

 

                I took my review one step further and conducted a quick review of what the USC Leventhal School of Accounting is doing to prepare accounting students for what could be a massive shift in accounting standards and reporting.

 

                a.  For the MAcc degree, which has an offering of 21 classes to choose from, only one class was international in nature; Accounting in a Global Environment.

                b.  In further review of the entire Accounting course catalog, which consists of 84 classes, there are only two classes that are international in nature; the one listed above, as well as Taxation of Foreign Business Operations.

                c.  There is not one class that is titled as IFRS specific.

                d.  There is not one class that mentions IFRS in the course description.

 

                I would absolutely welcome feedback, but if we are truly moving towards an implementation of IFRS reporting in the U.S. does it really appear that we are preparing ourselves for this shift?  Does it appear from the stats above that we are being set-up for a massive talent squeeze of IFRS experts who can provide the appropriate guidance? I have had my doubts with the SEC calendar and the likelihood for an IFRS adoption for some time, but now that doubt seems to be further supported.

 

This is one area I’d love to hear back from peers on.

 

Thanks for reading….

 

Jeffrey Ishmael

As the IFRS World Turns – & continues turning. . . .

April 21st, 2009 Comments off

     It’s been quite a few months since I’ve touched on the topic of the pending IFRS conversion. I’ve just continued watching from the sidelines as to how it would develop as the entire global finance system worked its way through the existing meltdown.  Since I had the “luxury” of working through an full-length IFRS conversion during my time with a France-based company, I was provided with a great insight as to the merits, and difficulties, of such a conversion.  Through the majority of my posts during Q2/Q3 of last year I discussed the significant challenges U.S. companies would have going through such a conversion and whether the U.S. was truly prepared to cast aside a financial reporting structure that had been developed over decades, rigid in it’s application, for a system that was principles-based and open to the interpretations of those applying the “Standards”.

     Interestingly enough, the discussion boards are heating up to call for the SEC to discontinue its mandate of having U.S. companies adopt IFRS. In a recent article on CFO.com, finance executives have “cited concerns over whether the U.S. legal culture and auditors could handle a more principles-based accounting language, getting their staff up to speed on IFRS, the integrity of the IASB, and whether the international rules are truly bettern than U.S. GAAP”.  Some are arguing “that an outright adoption of IFRS, rather than convergence, may be a better route”. I will still take the position that while the current structure of IFRS is a quantum leap over what previously existed before, it is not strong enough to outright replace the U.S. GAAP system. 

     As in my posts from last year, there are still a number of questions that have yet to be answered, and are even more relevant now considerating the developments of the financial markets over the last year.

-Are we really prepared to enter into a 3-year moratorium on new accounting standards to work through the conversion? (consider that most significant changes in standard are born out of crisis…)

-Does the IASB have enough ful-time, technically capable, and independent staff members to support a broad-based U.S. conversion effort?

-What is the U.S. education / university system doing to bolster the number of qualified graduates with the proper IFRS knowledge base?

     There are countless questions which need to be addressed, which are over and above those centered around a comparison of the two reporting platforms and how they will be enforced. I have not read about these questions being addressed and would like to see articles quantifying the developing support in each of these areas.  With all this said, while I don’t believe that we are realistically looking at a conversion window in the near-term, I’m certainly going to continue keeping my IFRS knowledge up to date with any developments happening across the pond.

Thanks for reading . . . .

Jeffrey Ishmael

IFRS planning & IT collaborations

September 3rd, 2008 Comments off

In my post this morning about making the jump into an IFRS conversion, I wrote about the platform upgrade we had completed prior to our move into the adoption of IFRS. We had implemented Hyperion HFM, which would allow us to report under the new standards. I wrote that a word of caution was necessary knowing whether your current or planned system would be able to support IFRS since not all platforms are capable at this time. Just posted to CFO.com is a great article regarding the necessary collaboration that needs to happen with the Finance and IS departments. Definitely worth the few minutes to read.
CFO.com article:Can your CIO spell IFRS?

IFRS conversions . . . Planning your jump.

September 3rd, 2008 Comments off

Now that the SEC has just moved the U.S. one step closer towards IFRS conversion, have you really started considering the staffing needs that it will take to develop your new reporting platforms? Likely the biggest issue at this point is the available guidance on making the actual conversion. Approximate statistics reflect approximately 25,000 pages of GAAP/FASB related documentation while there is only 1/10th of that currently available for IFRS. Not to mention the small amount of knowledge resources that are available to assist corporations in this effort. This is an area that will see huge growth in the coming years. Keep in mind, with this being a summarization of info, that this is not intended to be a detailed oultine of all that should be considered.

In consideration to the conversion, there are 38 key areas (IAS and IFRS) that have been documented in the form of released statements covering their respective areas. While our conversion was a very time-consuming effort, we had a very good reporting foundation to work from and had already transitioned to a new reporting software that would accommodate our IFRS initiatives. Previous to our conversion, we had implemented Hyperion HFM for all our reporting and consolidation needs. It should be noted that not all software platforms are currently capable of supporting IFRS reporting needs. We also had to start bridging the gaps of what we were not reporting in North America, which would be required under IFRS. It was necessary to go through each of the standards and bridge the differences.

As you get down into the statements that have been released, they are as basic as IAS 1, which outlines the presentatation of financial statements. However, once you start moving into some of the other areas, the new reporting could be a bit more problematic. Under IAS 2, which relates to the reporting of inventories, there is no LIFO reporting allowed, whereas it is in the U.S.. Fortunately, this was not an issue, but for some it clearly will be. Not too mention the impact to the financial results when the change is made. For our company, IAS 18, which dealt with Revenue Recognition, was another key area. Unlike GAAP, where there is extensive guidance in this area, there is little with IFRS at the current time. For a company that dealt with large projects as well as deferred revenues related to Service contracts, this was an area we could not be loose in our applications. We defaulted to GAAP guidance in this area with the assumption that eventually IFRS would become more stringent, which still has not happened….

There will be further discussions on each one of the areas covered under IFRS and a summary of differing points between the two formats. Some of the more notable areas we’ll be looking at will be:
IAS 8 Changes in Accounting Methods
IAS 18 Revenue Recognition
IAS 14 Segment Reporting
IAS 36 Impairment
IFRS 3 Business Combinations
IFRS 5 Discontinued Operations

This is a large subject to tackle but it will be an interesting path.
Thanks for reading . . . .
Jeffrey Ishmael

IFRS – potential rollout after 12/15/09

August 27th, 2008 Comments off

As expected, the SEC announced a preliminary overview of the roadmap that would be put into place for the transition of financial reporting to IFRS. Overall, the Commission expects that there will be a full transition by 2014, but that there will be further details released with respect to the milestones needed achieve the goal.

Specifics of the information released this morning outlined the ability of certain companies to be able to begin reporting under IFRS after December 15, 2009. Companies that are considered to be in the Top-20 for their industry will be allowed to begin reporting after this date. There are approximately 110 companies in 34 industries that would be able to begin reporting after this date. This is probably a bit quicker than some might have anticipated, since this is only 16-months out.

Although the milestones have yet to be released, the Commission has tentatively scheduled a review of these milestones in 2011 to gauge the progress and determine if they will open up the ability to report under IFRS to a larger population of companies. There are also proposals for companies to provide reconciliations between prior GAAP reporting and the revised reporting under IFRS. The proposal calls for a 3-year reconciliation. This should be more than just a proposal at this point but an absolute requirement for investors to see the “walk” between the two reporting structures.

Even for a later date of 2011, this is not a very large window for governing bodies and schools to organize appropriate curriculum to cover the topic. The Commission requested that the AICPA and States add questions to existing exams for IFRS. Rather than add questions to the exam it would seem that there should be the introduction of a new module (?) that would cover IFRS. I still have a hard time believing that we are potentially looking at a 100% conversion to IFRS with no carry forward of GAAP. Not with the energies that have been expended over the last decade on new regulations, and prosecution of those regulations.

Time will tell. Thanks for reading . . . .

SEC set to announce IFRS dates. . .

August 25th, 2008 Comments off

The SEC has announced that on Wednesday it will release the tentative target dates for U.S. companies to convert to IFRS. There has already been quite a bit of speculation regarding the potential dates that might be rolled out, which ranged from initial targets of 2011 to coincide with Canada, India, and Japan, to 2015 for adoption by small companies. This change will involve more than just a simple restructuring of reporting standards. It will also have a huge ripple effect through accounting/finance curriculum and professional training standards.
In the coming weeks I’ll also be posting commentaries outlining the differences between IFRS and GAAP on a variety of subjects, including Revenue Recognition, Fair Value, and others. Until then, I’m eagerly awaiting the news on target dates.

The text of the article is listed below:

The long-awaited deadline will come in the form of a roadmap that the SEC commissioners will consider whether to propose — and which would open up the conversion date to public scrutiny and debate.

The SEC also plans to consider proposing amendments to various rules and forms that would allow “a limited number of U.S. issuers” to prepare their financial statements using IFRS rather than GAAP earlier than the roadmap proposes, the commission announced on Friday.

For the past year — ever since the SEC began allowing foreign companies to submit their SEC-prepared filings without reconciling them with GAAP — companies, academics, and accounting firms have been waiting to hear when U.S. publicly traded companies would be given a similar allowance. In the meantime, the Big Four accounting firms have been telling their clients that an SEC mandate for IFRS use is inevitable.

In Europe, companies were given three years to change over their financial reporting systems from their home-country GAAP to IFRS — an enormous switch that was completed in 2005. The experience has given large multinationals domiciled in the U.S. fodder for persuading the SEC that the largest of U.S. registrants could make a similar conversion by 2011. In that year, Canadian, Indian, and Japanese companies are expected to begin using the global standards.

Accounting firms also have predicted that the year 2013 could be cited by the SEC as an IFRS-switchover date for large U.S. companies, with 2015 being the deadline for small companies to begin using IFRS. Earlier this summer, Conrad Hewitt, the SEC’s chief accountant, said the U.S. shouldn’t be left behind while the rest of the world makes the switch to IFRS within the next three years.

While IFRS has become the most popular accounting language worldwide, it’s looked at speculatively by accounting experts based in the United States. Some say it’s more principles based and than the more time-tested GAAP, which provides accountants with more guidance for each of its rules.

For the better part of this decade, the Financial Accounting Standards Board and the International Accounting Standards Board have working on harmonizing U.S. GAAP and IFRS. Accounting experts say the standards are not yet close enough to ignore the quality differences between the two and the need for U.S. accountants to be schooled in IFRS.

What resources will you need for an IFRS conversion?

July 31st, 2008 Comments off

When we went through our IFRS implementation in 2005, we did so under the mandated schedule within the European union.  Since our corporate headquarters were based in Grenoble, France, our North American operations became a necessary participant in this effort. Never did we believe at the time that IFRS might one day become the global standard with reporting and that GAAP might play second fiddle. In hindsight, I feel fortunate to be a part of that early effort and to have a strong perspective on the resources it took to implement these new reporting standards.

One of the larger challenges we faced was the need to put these new reporting efforts in place, maintain our current focus on the business, but keep our headcount static.  We were not being given the latitude to hire new position(s) to assist with the effort.  It was huge task. I certainly would not endorse this approach again. I had been through other new reporting implementations but this one topped them all.  There was also the need to coordinate our efforts with our staff in Grenoble and develop global reporting and consolidation templates that would be used by each entity. Although we were not publicly traded in the U.S., we still needed to go through the efforts of comparing our GAAP-based results with proforma results calculated under the pending IFRS guidelines. For our entity, there were numerous considerations to the treatment of our R&D expenses and how those would be capitalized, as well as the overall cost-structures for our product. It also necessitated a review of our tax structure along with corporate policies on royalty and dividend payments.

I cannot include the elements of our timeline and all the other aspects we needed to cover in a summary post, but it was extensive.  We had to review areas such as contracts and other agreements to see if a conversion might trigger any covenants. There was also the issue of implementing certain reporting aspects that were required under IFRS but which we were not currently reporting, which needed to be coordinated with our IT team. We needed to ensure that our North American staff was properly trained & understood what was driving the effort.  We worked with the auditors to plan future engagements and how the scope would change under IFRS.  The list goes on.  The schedule for the U.S. conversion has not been defined as of yet, but when you start considering the forward-looking notifications and proformas that public companies will need to compile, it’s a huge undertaking. Today, the earliest estimation that U.S. companies might begin reporting under an IFRS-based format is 2011.  We’re certainly in for a very interesting period of transition….

Thanks for reading . . . .