JANUARY 2014 / THE CPA JOURNAL6

By 2000, the IASC had pretty muchdone what was expected of it—thatis, develop a comprehensive body ofaccounting standards that was endorsedby the International Organization ofSecurities Commissions (IOSCO) andby the International Federation ofAccountants (IFAC). The trouble wasthat not one of the nine founding coun-tries had yet adopted these standards.

At that same time, the EuropeanUnion (EU) was debating whether todevelop its own accounting standardsfor listed companies across Europe orto adopt the IAS as Europe’s standards.It chose the latter, which triggered sim-ilar adoption decisions in a number ofjurisdictions outside of Europe, includ-ing Australia, New Zealand, HongKong, and South Africa. Most of thoseadoptions were effective in 2005.Public expressions of support for theconcept of global accounting standardswere soon forthcoming from the G20,the World Bank, the InternationalMonetary Fund (IMF), and the Basel Committee, among many othergroups concerned with the global finan-cial system.

Formation of the IASBAs a consequence, in 2001 the old

part-time, poorly resourced IASC wasrestructured into the full-time, better-financed IASB, under the oversight ofa new IFRS Foundation. In the 12years since the reform of the IASC, theIASB has produced many new stan-dards under IFRS and has overhauledthe standards it inherited from theIASC. More than 100 jurisdictionshave now adopted IFRS.

But during that time, an odd thingwas happening: the producer of theIFRS product (the IASB and IFRSFoundation) did not pay close atten-tion to exactly who the consumerswere or exactly how they were usingthe product. Adoption of IFRS is notblack or white (yes or no)—it isshades of gray. For example, is IFRSfor listed companies only or unlistedas well? Is it only for some unlistedcompanies, such as financial institu-tions? Is it required or permitted? Isit for consolidated financial statementsonly or also for separate companystatements? Is it for domestic listedcompanies only or foreign listed com-panies as well? Are IFRSs written intolaw? Is there some sort of endorse-ment process and, if so, is that doneon a timely basis? Did the jurisdictionadd any disclosures or other require-ments? Did it make any modificationsto IFRSs? Did it change the effectivedates? Does the process for translat-ing IFRSs from the original Englishensure a faithful translation?

In February 2012, the Trustees of theIFRS Foundation completed a strategyreview and published their report. They

By Paul Pacter

n June 1973, in recognition of the rapid globalization of the world’s capitalmarkets, the professional accountancy bodies in nine countries, including theUnited States, created the International Accounting Standards Committee(IASC). The IASC’s stated mission was to “formulate and publish in the pub-lic interest, basic standards to be observed in the presentation of audited accountsand financial statements” (http://www.fasb.org/jsp/FASB/Page/Section

Page&cid=1176156304264). Those nine professional bodies pledged in writingto use their best efforts to get the newly launched set of InternationalAccounting Standards (IAS) adopted in their home countries and to “promotetheir worldwide acceptance” and observance.

Global Accounting Standards—From Vision to Reality

I

P E R S P E C T I V E Ss t a n d a r d s s e t t i n g

(Continues on page 8)

Assessing the State of IFRS Adoption, Jurisdiction by Jurisdiction

reaffirmed their commitment to achievingthe vision of global accounting standards.At the same time, the Trustees acknowl-edged that they needed detailed answers toadoption questions country by country. TheTrustees’ report said:

The Trustees remain committed to thebelief that a single set of InternationalFinancial Reporting Standards (IFRS) isin the best interests of the global econ-omy, and that any divergence from a sin-gle set of standards, once transition toIFRS is complete, can undermine con-fidence in financial reporting.” (“IFRSsas the Global Standards: Setting a Strategy for the Foundation’s SecondDecade,” IFRS Foundation, http://www.ifrs.org/Theorganisation/Governance-and-accountability/Strategy-Review/Documents/TrusteesStrategyReviewFeb2012.pdf, p. 11)The trustees went on to say:With co-operation from national andinternational market and audit regulators,accounting standard-setters, regionalbodies involved with accounting stan-dard-setting, and accountancy bodies, theIFRS Foundation should seek full dis-closure where adoption of IFRS isincomplete or where there is divergencefrom the full set of IFRS as issued bythe IASB. The Foundation should seeka mechanism to highlight instanceswhere jurisdictions are asserting com-pliance with IFRS without adoptingIFRS fully. (Trustees 2012, p. 11)

Assessing IFRS AdoptionIn late 2012, the IFRS Foundation

began working on a comprehensive pro-ject to assess progress toward the goal ofglobal accounting standards, directed bythis author. The project has three relatedobjectives:n To develop a central source of infor-mation to chart jurisdictional progresstoward global adoption of a single set offinancial reporting standardsn To respond to assertions that manynational variations of IFRS exist aroundthe worldn To identify how the IFRS Foundationcan help countries progress on their pathto adoption of IFRS.

To achieve the first of those objec-tives, the IFRS Foundation is developingand publishing profiles about the use ofIFRS in individual jurisdictions. Usinginformation from various sources, includ-ing a survey of standards-setting bodies,the foundation drafted the profiles andinvited the respondents to the survey andothers (including regulators and interna-tional audit firms) to review the drafts.Their comments are reflected in the report-ed findings.

Currently, profiles are completed for122 jurisdictions (see http://go.ifrs.org/global-stan dards). Each profile shows,among other things, details on the surveyparticipant, whether the jurisdiction hasmade a public commitment to globalaccounting standards, the extent of IFRSapplication (which companies? required orpermitted? consolidated only? unlistedalso?), the endorsement process, wordingof the auditor’s report, whether the juris-diction has eliminated options or mademodifications, the process for the transla-tion of IFRS, and adoption of IFRS forSmall and Medium-Sized Entities (IFRSfor SMEs). Ten observations stand out aslearning points from the 122 jurisdictionprofiles.

Nearly All Jurisdictions Have PubliclyStated a Commitment in Support ofGlobal Accounting Standards

Of the 122 jurisdictions studied, 115have made such a public statement. Only7 have not: Albania, Bermuda, CaymanIslands, Egypt, Macao, Paraguay, andSwitzerland.

Nearly All Jurisdictions Have PubliclyStated That IFRS Should Be the GlobalAccounting Standard

All but 5 of the 122 jurisdictions havemade such a public statement; the excep-tions are Bermuda, the Cayman Islands,Egypt, Macao, and Switzerland. AlthoughSwitzerland has not made a formal publicstatement that IFRS should be the globalaccounting standard, the Swiss governmentaccepts IFRS as issued by the IASB (inaddition to the IFRS for SMEs, U.S.GAAP, International Public SectorAccounting Standards [IPSAS], and SwissGAAP FER) as an acknowledged account-

ing framework in accordance with theSwiss Code of Obligations. In addition,84% of the companies on the main boardof the Swiss stock exchange use IFRS.Similarly, although Bermuda and theCayman Islands have not made a formalpublic statement that IFRS should be theglobal accounting standard, IFRS is per-mitted and frequently used in both juris-dictions.

IFRS Is Required for Listed Companiesin Most Jurisdictions

In total, 101 (83%) of the 122 jurisdic-tions profiled require IFRS for most or alldomestic listed companies. This includes sev-eral jurisdictions that do not have stockexchanges but require IFRS for banks andother publicly accountable entities.

Most of the Remaining Jurisdictions DoUse IFRS to Some Extent

The remaining 21 jurisdictions that donot yet require IFRS for all or most domes-tic listed companies do, nonetheless, useIFRS to some extent:n 10 permit IFRS for at least some listedcompanies (including Japan and India). n 2 require IFRS for financial institu-tions (including Saudi Arabia andUzbekistan). n 2 others are in process of adopting IFRS(including Thailand and Indonesia). n 7 use national standards (includingChina and the United States).

The Majority of Jurisdictions RequiringIFRS for Listed Companies Also RequireIFRS for Certain Unlisted Companies

Approximately 60% of the 101 juris-dictions that require IFRS for listed com-panies also require IFRS for unlistedfinan cial institutions or large unlisted com-panies. Those jurisdictions regard banks,insurance companies, and other economi-cally significant companies, as publiclyaccountable.

Nearly All of the Jurisdictions That HaveAdopted IFRS for Listed Companies AlsoPermit IFRS for Unlisted Companies

Approximately 90% of the 101 juris-dictions that have adopted IFRS for listedcompanies also require or permit IFRSfor many unlisted companies.

JANUARY 2014 / THE CPA JOURNAL8

(Continued from page 6)

Modifications to IFRS Are Rare This finding is important because it

responds to the incorrect assertions thatthere are many national variations of IFRSaround the world. What kinds of modifi-cations were found?

EU: the much-publicized IAS 39 carve-out. The EU describes the carve-out from IAS 39, Financial Instruments:Recognition and Measurement, as “tem-porary.” It is used by fewer than two dozenof the 8,000 listed companies in theEU—99.5% of EU-listed companies useIFRS as issued by the IASB.

Effective dates. A few jurisdictions havedeferred the effective dates of several stan-dards, notably IFRSs 10 (ConsolidatedFinancial Statements), 11 (JointArrangements), and 12 (Disclosure ofInterests in Other Entities). Most of thosedeferrals terminated on January 1, 2014.

Modifications or deferrals pendingcompletion of IASB projects. Several juris-dictions permit the use of the equitymethod in separate financial statements(e.g., Argentina, Brazil, Taiwan, Uruguay).Several use a regulatory measurement forloan loss provisions of financial institutions(e.g., Chile, Serbia). Canada has deferredthe mandatory adoption of IFRS by rate-regulated companies until 2015. All ofthese issues represent active projects on theIASB’s agenda.

Older version of IFRS adopted by lawor regulation. Four jurisdictions have notadopted the current versions of IFRS(Macedonia, 2009 version; Myanmar, 2010version; Sri Lanka, 2011 version; andVenezuela, 2008 version). Those jurisdic-tions are working to bring their adoptionup to date.

Other modifications of IFRS. The studyfound a number of other modifications:n Pakistan has not adopted IFRS 1, First-Time Adoption of IFRS; IFRSInterpretations Committee (IFRIC) 12,Service Concession Arrangements; orIFRIC 15, Agreements for the Constructionof Real Estate. For banks, Pakistan has notadopted IAS 39; IAS 40, InvestmentProperty; and IFRS 7, FinancialInstruments: Disclosures. The bank regu-lator prescribes its own standards.n In Serbia, the National Bank of Serbiarequires certain accounting treatments

that differ from IFRS for banks, insurancecompanies, pension funds, and other finan-cial institutions. For example, the treatmentof loan loss provisions for banks and therecognition and impairment of premiumreceivables by insurance companies differfrom IFRS.n Sri Lanka made some modifications toIAS 34, Interim Financial Reporting;IAS 40; and IFRS 7. Sri Lanka hasadopted IFRIC 15, but the effective datehas been deferred. In addition, the SriLanka version of IAS 41, Agriculture,allows measurement of bearer biologicalassets (for example perennial crops suchas tea, rubber, and coconut) as property,plant, and equipment under the Sri Lankaversion of IAS 16, Property, Plant andEquipment. The fair value requirement inIAS 41 is an option.n In Uzbekistan, while IFRS has beenadopted for banks, banks applying IFRSuse certain prudential accounting require-ments established by the UzbekistanCentral Bank that are different from therelated IFRS requirements.

In a Majority of Jurisdictions, the Auditor’s Report Refers to Compliancewith IFRS as Issued by the IASB

In 70 of those jurisdictions where IFRSis required or permitted, the auditor’s reportrefers to compliance with IFRS. In another33 jurisdictions, the auditor’s report refersto compliance with IFRS “as adopted by theEU.” In the remaining 19 jurisdictions, theauditor’s report refers to national stan-dards—in some of those cases, such asHong Kong and Malaysia, the national stan-dards are virtually identical to IFRS.

Most Jurisdictions Do Not IndividuallyEndorse IFRSs

The EU/European Economic Area(EEA) has an endorsement process thatinvolves endorsement advice and an effectsstudy from the European FinancialReporting Advisory Group (EFRAG), afavorable vote of the AccountingRegulatory Committee (ARC), favorableopinions of the European Parliament andthe Council of the European Union, andpublication in the Official Journal of theEuropean Union. The EU/EEA and EUcandidate countries represent 33 jurisdic-

tions. Most (78%) of the remaining 89jurisdictions that require or permit IFRSfor domestic companies do not gothrough an endorsement process for indi-vidual new or amended IFRSs.

The following is a summary of theapproaches to endorsement in the 122 juris-dictions for which profiles are posted:n No endorsement is required in 52 juris-dictions. n EU process is used in 33 jurisdictions. n Endorsement is done solely by a professional accounting body in 10 jurisdictions. n Endorsement is done solely by a gov-ernment agency in 12 jurisdictions. n Endorsement involves both a profes-sional body and government in 6 jurisdictions. n IFRS is not yet required or permitted forany domestic companies in 9 jurisdictions.

Most Jurisdictions Permit IFRS forSMEs or Are Considering It

Of the 122 jurisdictions surveyed, 57require or permit IFRS for SMEs; anoth-er 16 are actively considering it. Severalof those 57 jurisdictions have made mod-ifications (mostly small) in adoptingIFRS for SMEs. Of the 57 that require orpermit IFRS for SMEs, 7 require it for allSMEs that are not required to use fullIFRS; 34 give SMEs the option to usefull IFRS instead; 15 give SMEs the optionto use either full IFRS or local GAAPinstead of IFRS for SMEs; and 1 jurisdic-tion requires local GAAP if an SME doesnot choose IFRS for SMEs.

Next StepsThe Trustees of the IFRS Foundation are

currently working to develop several dozenmore jurisdiction profiles beyond the 122already posted. The goal is to have a pro-file for each jurisdiction that uses IFRS oris on a path toward adoption. In addition,the Trustees plan to do a follow-up sur-vey in early 2014 with the followingthree objectives:n Reaffirm initial data or determinewhether any circumstances have changed.n Fix one or two matters that were unclearon the original survey. n Obtain additional information aboutIFRS adoption. Examples include infor-

JANUARY 2014 / THE CPA JOURNAL 9

mation about dual reporting (assertingcompliance with both IFRS and nationalGAAP); whether a jurisdiction prohibitsearly adoption of a new or amended IFRS,even if early adoption is permitted;whether the jurisdiction has added anyaccounting standards or disclosures thatare mandatory for the fair presentation offinancial statements described as con-forming to IFRS; and whether the juris-diction requires IFRS financial state-ments to be published using ExtensibleBusiness Reporting Language (XBRL).

The formation of the IASC in 1973 wasbased on a vision of a common account-

ing language around the world, so that cap-ital providers would not be forced tomake back-of-the-envelope adjustments totry to compare investment opportunitiesacross borders—or worse, so that capitalproviders would not end up making sub-optimal decisions because of false or mis-leading comparisons. The first 122 pro-files of jurisdictions regarding their adop-tion or consideration of IFRS providesolid evidence that IFRS has alreadybecome the de facto global language forfinancial reporting; 101 of those jurisdic-tions already require IFRS for all or mostdomestic listed companies, and many of the

remaining 21 permit IFRS for at least somedomestic listed companies. Very fewjurisdictions have made modifications to thestandards. As Loretta Lynn sang back in1978, “We’ve come a long way, baby.” q

Paul Pacter, PhD, CPA (inactive), is aformer member of the IASB and current-ly manages the IFRS Foundation’s studyof IFRS use around the world. From 1973to 2010, he was a staff member ofFASB, the IASC, and the IASB. He is alsoa member of The CPA Journal EditorialBoard.

JANUARY 2014 / THE CPA JOURNAL10

The IASB’sAchievements

in 2013IASB Chair Hans HoogervorstTalks about IFRS in the UnitedStates and Around the World

By Maria L. Murphy

At the annual AICPA NationalConference on Current SEC and

PCAOB Developments in December 2013,IASB Chair Hans Hoogervorst took a retro-spective look at his organization’s accom-plishments last year. These included further-ing the IASB’s mission of global account-ing standards and increased transparency; cre-ating the Accounting Standards AdvisoryForum (ASAF); signing an agreement withthe International Organization of SecuritiesCommissions (IOSCO); publishing impor-tant research on the use of IFRS; and pro-gressing toward full IFRS adoption in othercountries, including Japan.

IFRS in the United StatesThe IFRS footprint in the United States is

already large, Hoogervorst indicated, and itis expected to continue growing as economicglobalization continues to increase. U.S.investors hold $6 trillion foreign debt and

equity securities, a majority of which isissued by entities in countries that use IFRS,including the European Union, Canada,Mexico, Brazil, and Korea. (China is almostconverged.) More than 450 non-U.S. com-panies that report in the United States, witha combined market cap in excess of $5 tril-lion, are using IFRS, Hoogervorst said. Inaddition, U.S. multinational companies haveextensive operations and subsidiaries in juris-dictions that report in IFRS.

The ASAF’s MissionTo continue deepening its cooperation with

national standards-setters, such as FASB, andto ensure that IFRS meets the needs of allcapital markets, including the United States,the IASB created the ASAF in April 2013.The ASAF’s goals include contributingtoward the development of a single set ofglobal financial reporting standards, stream-lining the IASB’s engagement with thenational standards setters around the globe,and facilitating technical discussions on stan-dards-setting issues (http://www.ifrs.org/Theorganisation/Advisorybodies/ASAF/Pages/Accounting-Standards-Advisory-Forum.aspx). The ASAF has met three timesduring 2013 and has “helped to identify areasof consensus for the IASB,” including sup-port for a “behavioural change” in disclosuresand a consensus that leases should go onthe balance sheet (http://www.iasplus.com/en/meeting-notes/ifrsf/october-2013/chair-and-director-reports).

Global Adoption and Support of IFRSTo address the cost of the transition to

IFRS for U.S. issuers, Hoogervorst dis-cussed Canada’s adoption of IFRS. TheIASB and the Canadian AccountingStandards Oversight Council cofunded anindependent survey by FEI Canada on thetransition costs for companies moving fromCanadian GAAP to IFRS. At the AICPAconference, Hoogervorst reported—

62% of those companies surveyedreported transition budgets under$500,000. For larger companies withrevenues of more than $1 billion, thehighest recorded transition cost was lessthan 0.1% of turnover. These numbersare consistent with surveys elsewheresuch as in Europe and Korea, so weknow the costs of transition are man-ageable.To address the status of adoption and

support the widespread use of IFRS,Hoogervorst cited the 2013 research sur-vey by former IASB board member PaulPacter (discussed in greater detail in“Global Accounting Standards—fromVision to Reality: Assessing the Stateof Adoption, Jurisdict ion byJurisdiction,” on p. 6 of this issue). It sur-veyed jurisdictional authorities and val-idated their responses against informa-tion from large accounting firms, secu-rities regulators, and others. Of the 122countries researched, more than 100 havealready adopted IFRS for most or all

i n t e r n a t i o n a l v i e w p o i n t