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Get Ready—Here Comes IFRS

In November 2008, the SEC published its proposed “road map” for the transition to International Financial Reporting Standards (IFRS), with the goal of moving accounting principles generally accepted in the United States (GAAP) to IFRS over the next six to eight years. It’s possible that the SEC will push back the transition date. Nevertheless, public companies should begin developing an IFRS strategy now.

Hitting the milestones

The timing of the transition to IFRS will depend on achieving certain milestones including:

• Improvements in accounting standards
• The accountability and funding of the International Accounting Standards Committee Foundation
• Improved ability to use interactive data (XBRL) for IFRS reporting
• Improved education and training in the United States 
• Limited early use of IFRS by certain companies

Based on progress toward these milestones, the road map calls for the SEC to decide in 2011 whether to move forward with IFRS. However, the new SEC chairman, Mary Schapiro, said she won’t be bound by the road map, and the SEC has extended the comment period on it by two months.

If the SEC does follow the road map’s timetable, large accelerated filers (companies with a public float of $700 million or more) will be required to adopt IFRS for fiscal years ending on or after Dec. 15, 2014. Other accelerated filers (those with a public float of $75 million or more) follow one year later, in 2015, and, nonaccelerated filers (including smaller reporting companies—those with a public float of less than $75 million), in 2016.

The SEC’s road map would permit early adoption (for fiscal years ending on or after Dec. 15, 2009) by U.S.-based companies that are among the 20 largest firms worldwide in their industries and meet certain other requirements such as using IFRS more than any other basis of reporting. The SEC also outlined two alternative proposals under which companies that elect to adopt IFRS early would disclose GAAP information during the transition to mandatory IFRS reporting.

Mapping a strategy

Mandatory adoption of IFRS is several years away, but the sooner you begin preparing for the transition, the better. For starters, the SEC expects that it will require that all years presented in the first year of IFRS reporting be IFRS-compliant. This means companies will need to keep two sets of books and records, one in GAAP and one in IFRS, and implement internal controls with respect to IFRS for up to three years before IFRS reporting begins.

In addition, the transition to IFRS might require you to retool your IT systems, retrain your accounting staff, and modify policies and procedures. You’ll also need to evaluate the potential impact of IFRS on activities such as budgeting, compensation and benefits, tax planning, long-term contracts, debt covenants and even corporate governance. By beginning to address these issues now, you increase your chances of a smooth transition when you’re required to file using IFRS.

A change in philosophy

Making the transition to IFRS will take time, but preparing for the new accounting regimen involves more than learning a new set of accounting standards. IFRS also represents a major shift in accounting philosophy. 

Questions on IFRS? Contact Wendy Kelly at 312-980-2955.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.