International Financial Reporting Standards

Understanding the increasing complexities of changing laws and regulations—including the U.S. push for conversion to International Financial Reporting Standards (IFRS) from Generally Accepted Accounting Principles (GAAP)—can be challenging. The ultimate goal over the next few years is to take the best approach within GAAP and IFRS and converge the two sets of standards. We will all have to manage the implementation of change that is created as our standards we know are converged with IFRS. It is important to assess and understand how converting to these standards will affect your company.

While converging IFRS and GAAP is the objective, significant differences still remain between the two, including IFRS's acts to:

  • prohibit Last In First Out (LIFO) as an inventory costing method
  • permit the revaluation of assets in certain circumstances
  • use a single-step method for impairment write-downs to make them more likely, rather than the two-step method used by GAAP
  • requiring capitalization of development, contingent upon meeting certain criteria

Although conversion will not be mandatory for several years, it is critical that decisions made today incorporate requirements that will ensure the most efficient conversion to IFRS. Additionally, with the growth in foreign investments by U.S. residents, investors need to understand IFRS and its application.

What are the International Financial Reporting Standards (IFRS)?

  • Principles (instead of rules) to measure assets and liabilities
  • Judgment is often necessary
  • Concepts must be clearly defined
  • Allows for flexibility as new types of business transactions occur

Preparation for Adoption:

  • Expect a larger impact than Sarbanes-Oxley Act
  • Areas impacted – all, including:
    • Accounting, internal audit, finance, IS, legal, engineering, etc.
    • Debt covenants, financing agreements, compensation plans – revenue recognition differences, etc.
  • Changes and steering need to happen from the top down

Why a Weaver Pre-Adoption Assessment?

Let the assurance professionals at Weaver assist your company in assessing the impact of IFRS on key reporting areas with a pre-adoption assessment. This service delineates the statements affected in the conversion from GAAP and IFRS. It also assesses increases and amendments required of disclosures, examines operational impacts on compensation plans, loan covenants and dividend policies, as well as brings stakeholders up to speed on any changes.

Further, the assessment aids in the changes to internal controls, with a planned transition process and revisions made to controls documentation. Recommendations are made for IT systems and data collection methodologies, and policies are determined for parallel reporting. Also included are the establishment of policies and procedures to ensure consistency by level, and the definition of key performance measures through metrics, ratios and benchmarking. Finally, Weaver’s assurance professionals can help guide the formation of a core implementation team to help drive the change process within your organization.