Finance and Accounting

International Financial Reporting Standards – What Are They and How Do They Impact Our Clients?

By Wade Lindenberger

Finance and Accounting Services Leader January 2012

What Is IFRS?

International Financial Reporting Standards (also known as “IFRS”) are constantly in the news. What are they? The simplest explanation is that IFRS represents the financial reporting and accounting standards followed by most of the rest of the world and is comparable to the Generally Accepted Accounting Principles (“GAAP”) followed in the U.S.

Why the Change to IFRS?

In theory, the U.S. Securities and Exchange Commission (“SEC”) wants U.S. companies to follow IFRS so financial statements are easier to compare to those of companies in other countries, easing the way for U.S. companies to enter and compete in international capital markets. In practice, the SEC is having trouble relinquishing U.S. GAAP and the path to the adoption of IFRS has been slow and tortured. Instead of the wholesale adoption of IFRS touted by the SEC a few years ago, the SEC now wants to work with the International Accounting Standards Board (or “IASB”), the body responsible for IFRS, to “converge” U.S. GAAP with IFRS standard by standard, a process that could, and most likely will, take several years.

How Does It Mean for Our Clients?

A few years ago, companies faced an expensive process to transition to IFRS, as all aspects of IFRS were required to be implemented at a single point in time. Now, clients can focus on understanding and implementing individual accounting standards as they are “converged” with IFRS.

Heading Down the Condorsement Path

“Condorsement” is the new buzzword coined to describe this new approach. According to the work plan issued by the Office of the Chief Accountant, “The gradual transition of existing standards to IFRS could increase the opportunities for successful transition by decreasing the severity of the IFRS learning curve.” In any event, the SEC has targeted specific standards for condorsement in the near future, among them leasing and revenue recognition, so clients can follow developments, educate themselves on the proposed changes and implications for their companies and implement each new standard as required. When it comes down to it, this approach is not all that different from the way U.S. companies have always implemented new U.S. GAAP standards.

360° Intelligence Delivery and Condorsement – A Perfect Fit

Our 360° Intelligence Delivery approach enables us to collaborate with our clients as IFRS continues to unfold. We intend to keep our clients updated on significant developments, standard by standard. We can help them understand the implications of each standard, from the identification of how it changes their current accounting and financial reporting to how the new standard can be implemented. We can also help them update their policies, procedures and internal control documentation and train their

personnel accordingly. If there are system changes required (for example, for revisions to revenue recognition software), we can support that as well. The most important first step is to let our clients know we are there as an advisor. Once they recognize that, we can start to collaborate with them and be an equal partner as they go through the process.