What if the whole world including the US Adopted/Converged to IFRS?

In the era where companies are aggressively headed towards globalizing their business operations, International Financial Reporting Standards (IFRS) has become the need of the hour. Across the globe equity investors, lenders and creditors all demand comparability of financial statements. The goal of the International Accounting Standard Board(IASB) and its predecessor, the International Accounting Standards Committee (IASC) has been to develop a single set of high quality globally accepted financial reporting standards.

What made us believe that IFRS would be the holy grail of accounting standards?

There are few major events in the history of Accounting that started a domino effect in the evolution of IFRS.

1. In 2000, International Organisation of Securities Commissions (IOSCO) endorsed IFRS for cross border securities offerings in the world’s capital market. Post which IASB was formed in 2001 with the sole responsibility for establishing IFRS.
2. In 2002, the European Union, with its 28 countries made a bold decision. It require’s all the companies which were listed on the regulated European stock exchange to adopt IFRS by 2005.
3. In 2002, IASB & FASB(Financial Accounting Standard Board) signed an MOU called “ Norwalk Agreement”. The goal was to develop full compatibility such that compliance with US GAAP would also result in compliance with IFRS. The standards were intended to be aligned if not identical.
4. In 2007 within U.S., The U.S. Securities Exchange commission (SEC) eliminated the need that a foreign issuer using IFRS should present a reconciliation between the US GAAP numbers to IFRS. In 2008 SEC also issued an outline to adopt IFRS by 2014 and stated that it will decide in 2011 if it would be beneficial to adopt IFRS.
5. The 2008 Financial crisis gave an alarm to the world stating the need for a single stable platform of transparency.
6. In 2017, World bank (WB) signed an MOU with IFRS foundation to develop material to support implementation of IFRS across developing economies. WB data suggested that the Group of Seven’s (G7) (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) global economic output has reduced from 60% to 48% in the time frame of 2010 to 2016. Meanwhile the emerging economies — Brazil, China, India, Indonesia, Mexico, Russia and Turkey’s contribution increased from 14% to 24%.

What are the benefits of having a single set of accounting standards?

To name few benefits:

1. Comparability and transparency.
2. Attract investment and boost development in emerging economies.
3. Increase in flow of trade and capital.
4. Currently numerous companies maintain their books by following two or more set of separate standards due to regulations across the countries they have presence in. Adopting IFRS could lead to cost saving by maintaining single accounting language company wide.

Where do we stand today in terms of US GAAP to IFRS convergence?

Almost from the outset, a key goal of the IASB and the IFRS foundation has been to bring the U.S. on-board. Convergence could make adoption of IFRS easier and less costly, it can also make adoption of IFRS completely unnecessary. Convergence may seem like a barter to full adoption of IFRS but its not. U.S. has toiled with the idea of convergence for nearly 10 years, but lately it has slowed down its pace on the IFRS road-map it initially outlined in 2008. It seems like a long, failed marriage between the IASB & FASB.

In 2012 the SEC publicly expressed the concerns regarding the challenges lying on the road of IFRS adoption being greater than initially anticipated. Series of joint short and long term convergence projects were launched under the Norwalk agreement aiming at eliminating differences in the two set of standards. As of today some projects have been successfully completed, some remain partially converged and some projects remain discontinued. U.S the worlds largest capital market is the only country among the G20 that is yet to decide a definitive date for adoption. But, SEC still publicly states that it supports the idea of a single set of accounting standard.

I-FRS-tration — (Noun) — feeling of being upset or annoyed as a result of being unable to achieve IFRS implementation across the globe. — Anonymous Accountant

What would happen if US adopts IFRS?

You might say there are other nations too who have still not adopted IFRS, Then why such special emphasis only to U.S. for not adopting IFRS. There is a reason. U.S. wields enough military, political and economic might that can exert influence on nations in all parts of the world to do things they otherwise wouldn’t. So when a superpower like U.S. comes on-board the IFRS band wagon, that would finally mean the holy grail of accounting standard is achievable.

Conversion to IFRS is much more than an accounting exercise. It will affect many aspects of a U.S. company’s operations, from IT systems and tax reporting requirements, to internal reporting ,key performance metrics and the tracking of stock-based compensation.

While the initial cost to identify and quantify the differences between U.S. GAAP and IFRS, staff training and implementing IT support could be significant, the conversion also could result in an ultimate reduction of costs for capital and financial reporting related to operations. In November 2008, the SEC estimated that the largest U.S. registrants that adopts IFRS early would incur about $32 million per company in additional costs for their first IFRS-prepared annual reports, and that the average U.S. company would incur costs of between 0.125% to 0.13% of revenue.

As IFRS grows in acceptance, most CPAs, financial statement preparers and auditors will have to be knowledgeable about the new rules. Others, such as actuaries and valuation experts who are engaged by management to assist in measuring certain assets and liabilities, are currently not well- versed with IFRS will have to undertake comprehensive training.

What is the impact of IFRS on the world today?

Source : www.slideshare.com

As of 2018, there are 195 independent sovereign nations in the world. Approximately 126 of them require the use of IFRS, with another 12 permitting its use. IFRS governs almost all of the developed economy with an exception to the U.S.

What do you think? By when would the whole world completely adopt/converge to IFRS? Do let me know your views in the comment section

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