September 18, 2008 - On August 27, 2008, the SEC approved for public comment its “Roadmap” for the eventual adoption of International Financial Reporting Standards (IFRS) by US issuers.  This “Roadmap” anticipates mandatory reporting under IFRS beginning 2014 for large accelerated files, 2015 for accelerated filers and 2016 for non-accelerated filers.  US issuers currently use US Generally Accepted Accounting Principles (US GAAP) in their SEC filings.  The SEC will make a decision in 2011 on whether or not to adopt IFRS.  That decision will include consideration of the progress on seven milestones identified by the SEC which including:

• Improvement of accounting standards

• Improvement in the structure and funding of the International Accounting Standards Board

• Interactive data tagging of IFRS statements

• Education of US accountants

• Experience of voluntary early adopters (as early as December 15, 2009)

• Anticipated timing of future rulemaking

• Implementation issues, including consideration of sequencing or staging companies use

Achievement of these milestones will take significant work.  Many differences exist between US GAAP and IFRS standards, including:

• IFRS does not permit use of LIFO for inventory costing;

•  Impairments of long-lived assets may be reversed under IFRS, and is required for increases in value of previous inventory impairments

• Probability threshold is lower for IFRS for contingencies

• IFRS permits revaluation of intangibles, property plant and equipment, and investment property to fair value

• Numerous differences in the accounting for business combinations, including contingent liabilities, acquired R&D (generally capitalized for IFRS) and valuation of minority interest

• Overarching difference in that IFRS is principles based and US GAAP is rules based with extensive guidance

The roadmap has been long anticipated and reflects the SEC’s belief that a common accounting language around the world is needed to improve comparability and transparency of financial reporting for investors.  Nearly 100 countries require or permit the use of IFRS, including all of Europe.

  Adoption of IFRS appears inevitable.  Now is the time for companies to assess the impact that IFRS adoption will have on its’ financial statements, processes, human resources and information technology needs.  Education of senior management; accounting, IT, legal and tax departments; as well as board of director members, will take time.  European companies experienced periods of 18 months or longer to convert to IFRS.  A timetable that extends five years or more from today should provide sufficient time to develop a comprehensive plan for the successful adoption of IFRS.

For more information, please contact Joann Doyle at 215-564-1900.

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