Key Moves to Reshape Global Financial Reporting
Financial report readers should make themselves aware of possible changes on the global horizon. So how did the process get started to reshape the global financial road map, and who are the key players?
In 2002, the U.S. Financial Accounting Standards Board (which issues GAAP rules) and the London-based International Accounting Standards Board (which issues the IFRS) entered into the Norwalk Agreement, which lays out a plan to undertake efforts to converge the U.S. GAAP and the IFRS. The primary difference between the two is that the IFRS is more focused on objectives and principles and less reliant on detailed rules than the GAAP.
After much discussion and negotiation, the European Commission began its project on the equivalence of national GAAP and the IFRS and issued a draft report in 2005. The U.S. Securities and Exchange Commission (SEC) followed with its development of the IFRS Road Map in 2005.
In 2006, the FASB and IASB reaffirmed their commitment to converge the two reporting systems and updated the Norwalk Agreement based on findings in the 2005 reports. In 2007, the SEC eliminated the requirement for foreign companies that use the IFRS to reconcile to the GAAP. The first major step in accepting the IFRS in financial reports circulated to U.S. investors.
In 2007, in another major step to accept IFRS reporting requirements by U.S. companies, the SEC issued a “concept release” on the topic of giving U.S. companies a choice between filing their reports based on IFRS or GAAP requirements. A concept release opens up the question and seeks comments.
The SEC has not yet permitted U.S. companies to use IFRS reporting requirements for SEC reports, but it did move a step closer in May 2008 when it released a “proposing release” on the matter. The proposing release proposes the change and asks for comments.
In July 2012, the SEC issued a report entitled “Work Plan for Consideration of Incorporating International Reporting Standards into the Financial Reporting System for U.S. Issuers,” but it did not make any recommendations for a time frame in which to adopt IFRS. The staff concluded that more analysis and consideration was needed before IFRS could be incorporated into U.S. financial reporting.
The U.S. will be one of the last countries to jump on this bandwagon. Israel adopted the IFRS in 2008, Chile and Korea adopted it in 2009, Brazil adopted it in 2010, and Canada did so in 2011.
So global corporations will be able to adopt IFRS for almost all their reporting, unless they are a U.S.–based corporation.