Upload
alycia-skousen
View
226
Download
0
Embed Size (px)
Citation preview
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
1/20
IFRS: What should boards and auditcommittees be considering now?
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
2/20
Contents
3 Foreword by Jim Quigley
4 Where are we now?
5 What are U.S. companies doing today?
6 What should boards and audit committees be considering?
Set the toneFocus on the process
Understand the risks
9 Conclusion
10 Appendix - Issues Guide
This publication contains general inormation only, and Deloitte is not, by means o this publication, rendering accounting, business, fnancial,
investment, legal, tax, or other proessional advice or services. This publication is not a substitute or such proessional advice or services, nor should
it be used as a basis or any decision or action that may aect your business. Beore making any decision or taking any action that may aect
your business, you should consult a qualifed proessional advisor. Deloitte and its afliates and related entities shall not be responsible or any loss
sustained by any person who relies on this publication.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
3/20
IFRS: What should boards and audit committees be considering now? 3
Audit committee members play a critical role in the eective unctioning o the capital markets. Their oversight and
experience assists company management teams to navigate rough waters, capitalize on opportunities, operate efciently,
and, o course, provide timely, reliable fnancial inormation to investors.
In an eort to support these important audit committee activities, and to help directors stay current, this publication
provides guidance on an important emerging topic or audit committees: IFRS International Financial Reporting
Standards. This publication has two sections: (1) an overview o IFRS with considerations or the board and audit
committee; and (2) an issues guide in the appendix, a tool that outlines a number o the technical accounting
dierences between U.S. Generally Accepted Accounting Principles (GAAP) and IFRS and provides some key questions touse in meetings with management.
Since 2005, when the European Union required European companies to use IFRS or fnancial reporting, the global trend
has been towards adoption o IFRS and away rom U.S. GAAP. Today, more than 40 percent o Global Fortune 500
companies use IFRS and by 2011 a clear majority will likely do so. The goal o a single set o high quality accounting
standards has been envisioned or many years. The growing acceptance o IFRS brings that vision closer to reality. The
Securities and Exchange Commission (SEC) has solicited comments on a proposed road map to adopt IFRS in the U.S. or
all flers, but the SEC has not yet committed to a date certain or adoption. The Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board (IASB) recently announced their continued commitment to
convergence o U.S. GAAP and IFRS.
The benefts o global adoption o IFRS are signifcant or investors. Global adoption will create a common denominator
rom which regulators and supervisors can assess the operations o the entities and markets they oversee. It will permitinvestors to compare the fnancial position o companies across borders, potentially allowing investors to more efciently
allocate capital on a global basis. And or many global companies, global adoption will likely eliminate the need to keep
multiple sets o books in order to comply with divergent accounting regimes and thus improve the quality o fnancial
statements by reducing the risk o translation errors between dierent accounting standards.
Although converting to IFRS will present challenges, we believe it will be worth the eort. Capital markets do not unction
eectively without a solid oundation o trust and confdence. Comparable, transparent, and reliable fnancial reporting
provides a undamental pillar o trust that enables global markets to unction more eectively, acilitating international
investment, and stimulating the investments necessary or economic recovery.
We hope you fnd this compilation useul. Feel ree to distribute it to your colleagues; i you need additional copies,
contact your Deloitte proessional, who would be happy to provide them.
As always, we value and welcome your comments and eedback.
Jim Quigley
Chie Executive Ofcer, Deloitte Touche Tohmatsu
Foreword by Jim Quigley
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
4/20
4
Where are we now?
In 2002, the twenty-fve member states o the European
Union (EU) met and decided to require EU companies listed
on EU exchanges to report under International FinancialReporting Standards (IFRS) beginning in 2005. Today,
IFRS is used or public reporting in over 100 countries
throughout the world. Other countries, namely Argentina,
Brazil, Canada, Chile, India, Korea, and Mexico, will be
ollowing over the next couple o years. Japan also is
weighing mandatory use in 2015. In addition, now or in
the near uture, many o these countries will permit or
require the use o IFRS or local statutory purposes.
The movement toward IFRS has challenged regulators
to revisit current public reporting requirements and the
inormation needs o investors. In 2007, the U.S. Securities
and Exchange Commission (SEC) began allowing oreigncompanies the ability to fle IFRS fnancial statements
in order to ulfll U.S. public reporting requirements.
As a result, those oreign companies that fle IFRS
fnancial statements are no longer required to include a
reconciliation to U.S. GAAP.
The discussion has now turned to the U.S. domestic
environment. Last year the SEC issued or comment its
IFRS Roadmap, proposing an eventual adoption o IFRS
beginning in 2014 or U.S. public companies. The IFRSRoadmap also included a proposal to permit certain U.S.
issuers the option o using IFRS early.
The issuance o the SECs IFRS Roadmap comes at a time
when national governments are addressing issues relating
to the global fnancial crisis. The leaders o the Group o
Twenty countries (G-20) recently reiterated their desire or
a single set o global standards in response to the current
fnancial crisis.
In determining how to move orward with the proposed
IFRS Roadmap, the SEC will likely consider recent
developments related to the fnancial crisis, includingthe loss o confdence in the U.S. capital markets, the
development o capital market alternatives outside the
United States, and the impact on global competitiveness.
IFRS: What should boards and auditcommittees be considering now?
Over the last several years, the worlds capital markets have
undergone tremendous expansion, diversifcation, andintegration. Accompanying these changes has been amovement away rom local fnancial reporting standardstoward global standards.
As proposed, select U.S.
flers will be eligible to fle
IFRS fnancials
2011: SEC to decide
whether to mandate IFRS
January 1, 2012:
Beginning o the frst
comparative IFRS year
December 31, 2014:
Large accelerated flers
could be mandated to
report fnancial results
using IFRS
2009 2010 2011 2012 2013 2014
Transition date Reporting date
Representative U.S. Timeline, as proposed*
* Representative timeline o proposed SEC Roadmap or large
accelerated flers (as proposed, IFRS required or accelerated flers
in 2015 and non-accelerated flers in 2016)
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
5/20
IFRS: What should boards and audit committees be considering now? 5
The increasing use o IFRS around the worldand the
likelihood that IFRS will eventually be required in the
U.S.is driving a growing number o U.S. companies todevelop an IFRS transition strategy.
As U.S. executives await the SECs next steps to ollow
up on the proposed IFRS Roadmap, many are preparing
their organizations or change and mobilizing around
IFRS planning and transition activities. Boards and audit
committees have the important roles o overseeing the
development o a comprehensive transition plan; helping
to ensure that the potential risks surrounding conversion
are being addressed; and helping to set the tone or an
eective IFRS conversion.
What are U.S. companies doing today?
Many companies have undertaken assessment activities to
identiy areas o signifcant impact. According to a recent
Deloitte survey,1 80% o fnancial executive respondents
indicated that their companies are involved with an IFRS
assessment: 40% are perorming or have perormed a
high-level IFRS assessment, while another 40% plan to
perorm one. Survey results also indicate that 60% o
companies that are perorming or have perormed a
high-level IFRS assessment sought or are seeking external
assistance. Approximately 40% are taking on the task
themselves.
1 IFRS Survey Results 2009: Update on views and activities, Deloitte
Development LLC, September 2009. Survey participants were sel-
selected, and responded through a web-based survey. Survey results
are solely the thoughts and opinions o survey participants and are
not necessarily representative o the total population o fnance
proessionals.
Given the broader implications that IFRS may have,
company executives are fnding the need to take a more
holistic approach to those assessments. For example: taxstructures may be aected as a result o IFRS being used
by subsidiaries or statutory reporting purposes; changes
in inormation technology inrastructure may be needed
to address such areas as parallel reporting during the
transition period; and agreements such as loans and leases
may require revisions.
A high-level IFRS assessment generally includes the
ollowing activities:
Identiying the key impacts o IFRS throughout
the organization This involves comprehensively
analyzing the potential impacts o IFRS throughout
the organization, ocusing not only on accounting and
systems impacts, but also on impacts in such areas as
income taxes, sales contracts, loan agreements and
employee compensation arrangements. Companies with
global operations are already getting a taste o IFRS in
countries in which their subsidiaries fle IFRS fnancial
statements or statutory purposes. For such companies,
the assessment process should include determining
which countries require IFRS or statutory reporting
purposes, and assessing that the application o IFRS by
subsidiaries in those countries is appropriate.
Determining project interdependencies and
lead-times This involves mapping the necessary
implementation actions and evaluating the time
needed to complete such actions, considering the
interrelationship among activities, both related and
unrelated to IFRS. This also includes actoring IFRS into
current or upcoming systems implementation projects.
Estimating resource needs Based on the outcome
o the previous steps, an estimate o the time and
resources needed to complete the implementation is
developed.
The product o a well-executed IFRS assessment is typically
a company-specifc roadmap designed to enable an orderly
migration to IFRS, while anticipating and mitigating risk,
and acilitating greater value or the organization.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
6/20
6
What should boards and audit committees be
considering?
Early and comprehensive oversight by the board and auditcommittee in the development o an IFRS implementation
program can help ensure the program has the appropriate
level o managements attention. It is essential that the
board and its committees, along with management,
begin to orm the companys perspective on IFRS and
begin discussions on the potential risks and benefts
o IFRS. Through insightul discussion, members o the
board and its committees (e.g., the audit committee and
the compensation committee) can begin to coordinate
themselves become aligned with management and
determine the companys IFRS direction and strategy.
To begin to set expectations or the organization, the
board and audit committee should consider the ollowing:
Set the tone. The board and audit committee may
play leading roles in the prioritization o IFRS or the
organization.
Raising the ollowing key questions with management
now can help establish the proper tone at the top:
Has management aligned key stakeholders?
Establishing a steering committee o high-level
executives representing the unctional groups most
aected by IFRS, who are empowered to allocate
resources as needed, is an important element o
achieving buy-in throughout the organization.
What is management doing about
communications? Open and regular communication
with internal and external constituents regarding the
changes around IFRS may contribute positively to
the perception o a company. Investors and analysts
appreciate being kept inormed.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
7/20
IFRS: What should boards and audit committees be considering now? 7
What steps are being taken to educate the
organization? Generally, training that is timely and
specifc to individual needs yields the greatest beneft.I training is too general and too early, inormation
learned may not be retained. Timely education or the
board and its committees is also important. Building
IFRS profciency will enhance board members ability
to lead productive dialog and provide useul insights in
IFRS planning discussions.
Focus on the process. Both the board and audit
committee members should ocus early on in overseeing
the companys approach, timeline, and budget or
transition. The amount o time companies have to
prepare may be less than many would expect, and a
thoughtul approach to conversion can help to control
costs. Encourage management to consider short- and
long-term planning issues in determining what the
company needs to do now versus later. Be mindul o
opportunities in the IFRS conversion process that could
translate into longer-term benefts.
Key questions to consider raising with management
include:
Has a PMO been established? A dedicated
project management ofce provides a single point
o coordination that can help companies adhere to a
unifed plan by: establishing milestones and monitoring
perormance against them; acilitating a globally
consistent application o IFRS; ostering the creation o
and deploying standard templates; and coordinating
training activities.
Is management taking a resh look at policies?
IFRS provides an opportunity to reresh accounting
policy implementation, with a ocus on achieving
greater transparency and more timely fnancial
reporting. (See Appendix, Issues Guide, or a more
detailed view o key IFRS/U.S. GAAP dierences.)
Is the company monitoring evolving standards?
The Financial Accounting Standards Board (FASB) andthe International Accounting Standards Board (IASB)
are working toward convergence o their standards.
There are currently several active projects, some o
which may result in signifcant impacts. While a goal
o the projects is to achieve ull convergence, some
dierences may remain upon their completion. When
a company adopts a new U.S. GAAP standard, it
should also be considering the related IFRS standard,
and addressing the impact o the dierences that
remain between the two standards. Management
should also consider anticipated changes related to the
convergence agendaand incorporate those into any
long-term plan.
Will the company be ready by the transition
date? Under the SECs proposed Roadmap, largeaccelerated flers would be required to fle their 2014
fnancial statements using IFRS, along with comparative
fnancial statements or 2013 and 2012. For such
companies, this would mean an adoption date o
December 31, 2014, with a transition date o January
1, 2012. To efciently and properly transition to IFRS,
it is advisable to run parallel IFRS and U.S. GAAP
reporting, and this would mean fnalizing the beginning
balance sheet by the transition date.
Is the independent auditor involved? The early
and continued involvement o the independent
auditor can prevent uture surprises and can provide
management with a well-inormed source o assistance
that has a deep knowledge o the company.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
8/20
8
Lessons rom the European experience
U.S. companies have the advantage o learning romcompanies in countries, such as those in the European
Union, that have already transitioned to IFRS. Consider
these cautionary lessons (based on the observations
and experiences o Deloitte proessionals in the feld)
in an attempt to avoid common pitalls and overcome
challenges.
The eort was oten underestimated The
original misconception that conversion was solely
an accounting issue was replaced with a growing
realization that the initiative was larger and more
complex.
Projects oten lacked a holistic approach
Because o the limited view cited above, companies
requently did not take the collateral eects into
consideration, such as the impacts on inormation
technology, human resources, and tax.
A late start oten resulted in escalation o
costs Those ew companies that anticipated
conversion and took steps to prepare or it were
oten in much better shape than those that d id not.
Companies that delayed their response oten paid a
price, in terms o higher costs and greater diversion
o resources.
Many companies did not achieve business
as usual state or IFRS reporting The highest
quality fnancial data is obtained when companies
ully integrate IFRS into their systems and processes.
The compressed timerames oten precluded this
possibility; instead, frst-year fnancials were in many
cases produced using extraordinary, labor intensive,
and unsustainable measures.
Several companies are only now starting to
explore benefts rom IFRS implementation Due to multiple constraints, the frst-year eort
in the EU was ocused more on getting it done.
Potential benefts in terms o reducing complexity,
increasing efciency, decreasing costs, and
improving transparency had to be deerred.
Understand the risks Work with management
to be aware o potential risks up ront, includingunderstanding the risk o waiting too long to develop
a plan. Also, IFRS contains less detailed guidance
than U.S. GAAP and thereore requires the use o
more proessional judgment. How will the board and
audit committee address the risk that IFRS is applied
consistently throughout the organization?
Key questions to consider raising with management
include:
Is management preparing or an increased use
o judgment? In contrast with U.S. GAAP, IFRS has
ewer bright-line rules, resulting in the need or the
increased application o judgment. Depending on such
actors as complexity and level o decentralization, a
company may need to develop a ramework or how
judgments will be made, ocusing on transaction
analysis, accounting research, and decision making.
With the increased use o judgment, it is also expected
that the level o d isclosure will increase. As IFRS
policies are considered or adoption, it is important to
understand whether management's policy selections
may be overly aggressive or conservative, and how
such selections stack up against peers in the industry.
What is the company doing about statutory
conversions? Centrally managed IFRS
implementations by subsidiaries should be considered
to potentially avoid inefciencies and inconsistencies
when IFRS is adopted or consolidated reporting in
the U.S.; to identiy shared service opportunities; and
to develop individuals whose IFRS experience can be
leveraged in uture conversion activities.
What are the Sarbanes-Oxley (SOX)
implications? To guard against alling out o
Sarbanes-Oxley compliance during the IFRS conversion
process, as process changes are designed, it makes
sense to consider the eects o such changes on
existing internal controls.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
9/20
IFRS What should boards and audit committees be considering now? 9
Conclusion
With IFRS so clearly on the horizon, boards and audit
committees should consider asking the key questionsand engaging management now. Establishing processes
or requent updates and communications can help drive
a sustainable plan going orward. Underestimating the
planning involvedand the time requiredor a change
rom U.S. GAAP to IFRS could prove risky. The board and
audit committee can serve as a guiding orce in positioning
a company to achieve strategic, operational, and economic
benefts rom a transition to IFRS.
In the appendix, an Issues Guide is provided, outlining
some o the key potential accounting dierences between
IFRS and U.S. GAAP, along with the related broader
impacts o those dierences, and presenting questions
that board and audit committee members should consider
asking as they help to guide their companies down the
path o IFRS implementation.
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
10/20
10
Appendix Issues Guide
11 Inventory
11 Consolidation Policy
12 Financial Statement Presentation
12 Revenue
13 Business Combinations
13 Investments in Associates & Joint Ventures
14 Long-lived Assets
14 Asset Impairment
15 Intangible Assets
15 Leasing
16 Provisions and Contingencies
16 Income Taxes
17 Employee Benefts
17 Share-based Payments
18 Financial Instruments Presentation and Disclosure
18 Financial Instruments Recognition
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
11/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
12/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
13/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
14/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
15/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
16/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
17/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
18/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
19/20
8/9/2019 IFRS: Current Considerations for Boards & Audit Committees 15Jan10-Deloitte
20/20
About Deloitte
Deloitte reers to one or more o Deloitte Touche Tohmatsu, a Swiss Verein, and its network o member frms, each o
which is a legally separate and independent entity. Please see www.deloitte.com/about or a detailed description o the
legal structure o Deloitte Touche Tohmatsu and its member frms. Please see www.deloitte.com/us/about or a detailed
description o the legal structure o Deloitte LLP and its subsidiaries.
Copyright 2009 Deloitte Development LLC. All rights reserved.
#9126