By Darla Sycamore
"Be Prepared" is the motto of the Scout movement and goes back to before the First World War. To be prepared means "you have to be prepared at any moment to face difficulties and even dangers by knowing what to do and how to do it."
So how can you be prepared for the coming of International Financial Reporting Standards (IFRS) to America? The smart money is on the eventual adoption of IFRS at some time in the USA. According to the International Accounting Standards Board (IASB) site, nearly 100 countries currently require or permit the use of, or have a policy of convergence with, IFRS. The number is higher if we include countries that have set deadlines for adoption in the next few years. It is probably just a matter of time for IFRS adoption IFRS in the USA. However, so far, there is no required date for adoption .The SEC has been creating a roadmap to IFRS compliance. The agency has enumerated these activities on its IFRS Web site. The SEC has eliminated a U.S. GAAP reconciliation requirement for foreign issuers filing IFRS financial statements. However, we are still awaiting a date from the SEC for mandatory or voluntary adoption of IFRS by U.S. companies.
Canada is on a track to adopting IFRS for "publicly accountable enterprises" (including publicly listed companies) for years beginning on or after January 1, 2011.
So U.S. companies start to prepare for IFRS adoption? Conventional wisdom is that it is never too early. First, keep in mind the fact that the conversion to IFRS is not just an accounting exercise; there are many areas of company operations affected.
Here are ten steps you can take now, gleaned from Canadian and other experiences:
- Read the IFRS summaries of Standards on the IASB Web site (free access) and become familiar with the IASB process by browsing the IASB site.
- Read annual reports of companies in the same industry as yours that follow IFRS. Typically these would be companies in the European Union and perhaps Australia but they could be elsewhere - you know who they are. Prior to the elimination of the reconciliation requirement by the SEC, comparisons with competitors were possible on a U.S. GAAP basis. Now some companies are preparing data on a high level IFRS basis for their companies to compare with competitors.
- Take a tour of the Web sites of the accounting firms where you will find a wealth of IFRS information gleaned from affiliates in IFRS filing countries. The AICPA has also started an IFRS Web site that is worth bookmarking and looking at from time to time.
- Obtain a U.S. GAAP/IFRS differences document and review it as a first step to obtain an overview of where you may be affected. Beware of dates of issue. These documents can become quickly out of date and there are a lot of convergence projects in the works between FASB and the IASB.
- Prepare a brief for your Audit Committee, even if it is just a watching brief. The Canadian Institute of Chartered Accountants has issued an excellent document on 20 Questions directors and audit committees should ask about IFRS conversions.
- If you are thinking about a systems change in the near future, especially a new Enterprise Resource Planning (ERP) system, be sure that you consider carefully the ability to produce IFRS-related data if this is to be required in the future.
- Review IFRS 1 to see what would be required on initial adoption of IFRS. Are there any specific needs to be addressed? In Canada we are reviewing IFRS 1 to ascertain if there would be special requirements for Canadian companies.
- Anticipate the potential effects of changing the whole GAAP reporting system in covenants and other contracts, especially in negotiating new agreements.
- Consider the potential effects of a change to IFRS in compensation agreements that are based on financial information such as net income.
- Develop a draft plan now for IFRS conversion to assess steps to be taken and resources required. Advice on the elements of such a plan can be found on the Web sites of accounting firms. The plan can be activated and adjusted when the timeframe is known.
It's a shameless plug but you also could tune into my blog, IFRSCanada: The devil is in the details. I deal with both Canadian and USA issues. You will also need to keep up a continuing dialogue with your auditors.
Of course this is not a comprehensive discussion but if you undertake the activities I suggest you will be well up on the learning curve.
It is interesting to note that even though we have a fixed deadline in Canada that is really not too far off, evidence suggests that the level of preparedness is not as high as it should be at this point. This was the message in a study published by the Canadian Financial Executives Research Foundation (CFERF) in April. It's worth reading and can be downloaded for free.
Although the study was done in the first quarter before there was a confirmation of the date that had been known for over a year, there is anecdotal evidence that there is considerable work to be done yet by Canadian companies.
My advice to you is to start to "Be Prepared" for IFRS conversion and do it now.
About the author
Darla Sycamore is a professional accountant based in Toronto. She is a trustee of the Canadian Financial Executives Research Foundation. The views expressed in this article are entirely her own. She writes a blog under the nickname of The IFRS Exorcist that deals with IFRS implementation matters. Darla consults on IFRS matters.