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In focus: IFRS

ACCA technical director Sue Almond

by Sue Almond

Creeping IFRS

The year 2005 was the dawn of a new era in financial reporting, with the requirement in a number of jurisdictions, including Australia, South Africa and Europe, for listed companies to adopt global accounting standards IFRS.

Back then it felt like a big step, and many of us were convinced that this was just the start. Not just because more countries would formally adopt IFRS, but because of the increasingly global nature of business. 'IFRS creep' would begin through the group reporting and supply chains of many businesses.

And this certainly seems to be the case, and may end up being one of the major influencers behind IFRS adoption in the US. As recently as 2007, a large US conference on financial reporting contained virtually no reference to IFRS. It was clearly not seen as being of interest or relevance to the attendees.

Yet when I attended a similar event in 2010, not only was IFRS very much on the agenda, but there were detailed practical workshops on certain individual standards. Global businesses and their advisers were clearly engaged with the topics. The attendees were not only familiar with the requirements, but were really digging into the practical impact and options.

And just two years on from that, when I spoke at a recent Association of Chartered Certified Accountants (ACCA) members' event in New York, a show of hands demonstrated that a number of the audience had not just had exposure to IFRS in theory, but had gotten their hands dirty as well. We had a fascinating discussion that ranged between the high level politics of US adoption and the practicalities of particular account line items.

Changing position
However, accountants in business and in practice in the US have really changed their position on IFRS, and now an ACCA survey of investors shows that 'IFRS creep' is also happening in this key stakeholder group.
The report, IFRS in the US: the investor's perspective, highlights the general perception among investors that the US will eventually adopt IFRS, and more investors feel this will be beneficial for the domestic economy than not.

Awareness of IFRS among US-based investors is modest, but I suspect is significantly higher than several years ago.

The report found 38% of investors surveyed said they were comfortable comparing statements prepared under IFRS with statements prepared under US GAAP, which perhaps reflects the global nature of their portfolio. And among investors with a solid understanding of IFRS, there is strong support for the quality of disclosures under IFRS.

Despite this, it is still interesting that more than 57% expect the US Securities and Exchange Commission (SEC) to adopt IFRS at some point, with only 12% expressing the view that the SEC would never adopt.

Adoption challenges
There are, of course, challenges and reservations about IFRS adoption, with questions over the perceived risk of a business, as well as the predictable desire for increased influence over the international standard-setting process. Questions for the future raised by respondents also identified the issues that are most responsible for shaping US investors' attitudes towards IFRS. By order of significance, these were:

  • Will IFRS adoption lead to reduced complexity for US corporates?
  • Is IFRS adoption going to lead to a dangerous loss of US influence over the standard-setting process?
  • Are US corporates likely to see cost savings and synergies emerging as a result of IFRS adoption?
  • Will IFRS adoption make it easier to compare the performance of US corporates with that of other companies overseas?
  • Are US auditors likely to second-guess management more frequently as a result of IFRS adoption?


Over the past few years, we have seen IFRS adoption increase around the world, including in Canada and South America, which leaves the US in the interesting position of being sandwiched between major trading partners where at least some reporting is now done using IFRS.

Now that IFRS is on its doorstep, will practical exposure increase even more?

To mandate or not to mandate
The debate around whether the SEC will mandate adoption of IFRS in the US continues with slow, if any, progress. It certainly appears the IASB is losing patience. But could there be a 'third way'? Could 'IFRS creep' be the answer? Given how much the real world landscape has changed in such a short period, will acceptance and use of IFRS continue to increase and essentially make the SEC's decision?

While we don't have answers to all these questions yet, one thing is certain in my mind: a better understanding of global standards produces greater assurance. It will also prompt more investors to learn about the IASB and the work it is doing on convergence.
The accountancy profession, on the global stage as much as in the US, will have a significant role to play in educating the business community about global standards, and needs to prepare for this.

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