The IFRS Foundation said Wednesday it has completed the first phase of an effort to assess the state of progress on global adoption of International Financial Reporting Standards.
The G-20 has called for global adoption of a single set of high-quality financial reporting standards, and the IFRS Foundation’s initiative aims to provide a central source of information for interested parties to chart the progress on achieving that goal.
The IFRS Foundation, which oversees the International Accounting Standards Board, is publishing “IFRS profiles” for all G-20 jurisdictions, along with profiles of another 46 jurisdictions that responded to a survey of national and regional bodies with overall responsibility for accounting standards within their jurisdiction.
The profiles are available on the Jurisdiction Profiles section of the IFRS website, marking the completion of the first phase of the project. A second phase of the project is underway and further profiles will be posted on the website during the coming months with the ultimate goal of providing profiles for most jurisdictions in the world by the end of 2013.
The U.S. has been engaged in a process for more than a decade of converging U.S. GAAP with IFRS, but the two sets of standards remain far apart. The Securities and Exchange Commission has yet to say whether it will allow U.S.-based companies to use IFRS or if it will incorporate IFRS into U.S. GAAP.
In their February 2012 strategy review report, the IFRS Foundation trustees recognized that adoption of IFRS is a voluntary public interest decision by the legislative and regulatory authorities in individual jurisdictions and it is for individual public authorities to determine the most appropriate method for bringing IFRSs into national law. But they said that regardless of the mechanics of IFRS adoption, the end result should be the same—full adoption of IFRS in order to achieve the goal of a single set of global accounting standards.
The jurisdiction profiles were prepared by the IFRS Foundation under the direction of former IASB member Paul Pacter on the basis of information from multiple sources. The starting point was the answers provided by standard-setting and other relevant bodies in response to a survey that the Foundation conducted between August and December 2012 on the application of IFRS around the world. The IFRS Foundation drafted the profiles and invited the respondents to the survey and others, including regulators and international audit firms, to review the drafts, and their comments are reflected in the published profiles.
“This is an important initiative that seeks to describe progress around the world towards the G20-endorsed goal of a single set of high quality global accounting standards,” said IFRS Foundation chairman Michel Prada in a statement. “Collectively, the profiles illustrate the remarkable progress that has been achieved in little more than 10 years. Although different countries are at different stages along the path to IFRS adoption, the direction of travel is clear and the momentum is unstoppable. I would like to thank the many people around the world who are helping us with this project, especially former IASB member Paul Pacter, whose knowledge has helped us to assemble such an impressive library of information.”
IASB chairman Hans Hoogervorst spoke about the project during a speech Wednesday at the IFRS Asia-Oceania Policy Forum in Hong Kong.
“So, how are we doing? Who is using our standards and how are they being adopted? Thus far, we have formed estimates of progress based on our own knowledge and the experiences of the large accounting firms,” he said. “Still, up to now, our knowledge has not been very precise. As a result people often doubt whether progress has really been as great as we think. Some believe that many countries have adopted locally modified versions of IFRS. They claim that the use of unmodified IFRS is actually relatively limited. For these reasons, we felt it necessary to get a clearer understanding of which jurisdictions have adopted our standards and how. So, in 2012 the trustees’ strategy review recommended that we come up with a more precise assessment of progress towards IFRS as the global standard.”
Of the 66 jurisdictions that responded to the IFRS Foundation survey, 95 percent have made public commitments supporting IFRS as the single set of financial reporting standards suitable for global application. Eighty percent have already adopted IFRS as a requirement for all or nearly all companies whose securities are publicly traded, while most of the remaining jurisdictions have made significant progress toward use of IFRS.
Jurisdictions that have adopted IFRS have made very few modifications to IFRS, while the few that were made are generally regarded as temporary steps in the jurisdiction’s plans to adopt IFRS. In almost all cases, the IASB has active projects on its agenda that will result in an updated version of the standard to which the jurisdiction has made modifications.
More than half of jurisdictions have either already adopted the IFRS for SMEs (small and medium-size entities) or are planning to do so in the near future.
The profiles describe each jurisdiction’s decision regarding use of IFRS. They also cover, if applicable, each jurisdiction’s process for adopting or endorsing IFRSs under local law or regulations, as well as the process (if any) for translating IFRS into the local language.
In the profile for the United States, the IFRS Foundation refers to a February 2010 statement from the SEC: “In addition to reaffirming the Commission’s strong commitment to a single set of global standards, the recognition that IFRS is best-positioned to be able to serve the role as that set of standards for the US market, and the convergence process ongoing between the Financial Accounting Standards Board (‘FASB’) and the International Accounting Standards Board (‘IASB’), this statement outlines certain of these factors that are of particular importance to the Commission as it continues to evaluate IFRS through 2011.”
However, in terms of the status of adoption, the profile noted, "The SEC permits but does not require its foreign private issuers to use IFRSs as issued by the IASB in preparing the issuer’s financial statements. The SEC does not permit its domestic issuers to use IFRSs in preparing their financial statements; rather, it requires them to use US GAAP. However, pursuant to the Sarbanes-Oxley Act, the SEC’s continued recognition of the standards of the FASB as ‘generally accepted’ is, among other things, contingent on whether the FASB “…considers, in adopting accounting principles, … the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors.” The FASB is currently completing its responsibilities pursuant to the 2002 Norwalk Agreement, which has focused on standard-setting efforts to converge IFRS and US GAAP. On 18 May 2008 the Council of the American Institute of Certified Public Accountants (AICPA) amended its member Code of Professional Conduct to designate the IASB with respect to international financial accounting and reporting principles. Such a designation affects whether an AICPA member who prepares or audits financial statements prepared pursuant to IFRSs may affirmatively state that those financial statements are in conformity with ‘generally accepted accounting principles’. This designation allows an AICPA member to do so. As part of this decision the AICPA Board agreed that the AICPA Council would reassess in three to five years whether this designation of the IASB remains appropriate."
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