IFRS as a global language – a tentative step forward

The past few months have represented a tumultuous chapter in the history of IFRS reporting. Criticisms of the IASB have come from all directions, and there has been some concern that IFRS’s future as the single global accounting language might be in doubt. Although the SEC voted in August to seek public comments on a roadmap for the potential adoption of IFRS in the US, some have seen the delay in the publication of final proposals for comment as a sign that US views of IFRS might be changing.

But earlier this month, significant steps were taken towards IFRS adoption, not just in the US but elsewhere in North America. On 11 November, the Mexican Comisión Nacional Bancaria y de Valores, together with the Mexican Accounting Standards Board, announced that Mexico would adopt IFRSs for all listed entities from 2012, with early adoption permissible for some entities from 2008. Also on 11 November, the Canadian Accounting Standards Oversight Council reconfirmed its support for plans to require Canada’s publicly accountable entities to follow IFRSs as issued by the IASB by 2011. Then on 14 November, the SEC issued its long-awaited roadmap.

The key provisions of the SEC’s roadmap are similar to those I described in a previous posting, including the milestones against which progress will be evaluated before IFRS reporting will be mandated. These include:

• Continued improvements to IFRS.
• Accountability and independent funding of the International Accounting Standards Committee Foundation.
• Enhanced ability for interactive data (XBRL) to accept IFRS information.
• Sufficient progress in IFRS education and training in the US.
• Experience of eligible IFRS adopters

Assuming the SEC makes a decision when it reconvenes in 2011, the roadmap contemplates a phased transition to IFRS beginning in 2014 for large accelerated filers, 2015 for accelerated filers and 2016 for remaining public companies.

So does this represent a ringing endorsement of IFRS? Positive statements about IFRS adoption by three countries in only a few days are surely a good sign. But recent events cast a shadow. The SEC has made it clear that “any decision we may take to expand the use of IFRS to US issuers would necessitate our evaluation of whether global developments support the assertion of IFRS as the single set of high-quality globally accepted accounting standards that is applied consistently across companies, industries and countries”.

I would be interested in your thoughts, either by commenting here or by email.

Comments

[Mary Clay]

Hello,

I am wondering what your thoughts are on fair market value for fixed assets? I know Australia and New Zealand just to name a few are allowed to re-value their fixed assets? I believe any gain or loss associated with the re-valuation is shown under stockholders' equity.

My concern is that there will be abuse in this area. I found a great research article that traced historical cost (in the US) for fixed assets back to the depression era. The first SEC chairman felt there was a lot of abuse in this area.

I would appreciate your opinion on this.

Thank you

Mary Clay

[Richard Keys]

Fair value, if reliably determinable, can provide very relevant information to investors. While several of the existing IFRS standards require or permit fair value for non-financial assets, mandatory measurement at fair value remains fairly rare outside of accounting for financial instruments. Valuation techniques and disclosure have improved and expanded quite a bit since the first chairman of the SEC, and times have changed. Concerns about abuse around revalued non-financial assets would probably not be at the top of the list today. Having said that, revaluation of assets used in the production process or the delivery of services are seldom revalued. Property is more commonly revalued and accompanied by disclosures about historical cost if so. This should allow users of financial statements sufficient information.

Many thanks,

Richard