ifrs vs. u.s. gaap a watkins meegan lunch & learn

International Financial Reporting Standards versus

U.S. GAAP

Gary Bulmash, CPA, D.B.A., Accounting, University of Maryland

Sandy Wendler, CPA, Manager, Watkins Meegan LLC

April 6, 2011

Proprietary and Confidential

Agenda

• World wide endorsement of IFRS• IFRS vs US GAAP• IFRS for Small & Medium-sized

Entities (SMEs)• Resources

Proprietary & Confidential 2

International Accounting Rules• Collectively referred to as IFRS:

– International Financial Reporting Standards (IFRS)• Numbered series of pronouncements issued by the International

Accounting Standards Board (IASB)– International Accounting Standards (IAS)

• Issued by the International Accounting Standards Committee (IASC) which is the predecessor to the IASB

• Issued almost 50 standards and over 40 interpretations• Three-tier structure based on the FASB governance model

– Monitoring Board (SEC)– IFRS Foundation Trustees (Appointments and Financing)– IASB (Full-time professionals)

• Includes US Representation at all levels

Proprietary and Confidential 3

Vision of the IASB

• “My vision, not surprisingly, includes IFRS as the common basis of financial reporting for listed companies throughout the world, including the United States. These standards, applied consistently, will provide high quality, transparent and comparable information for investors and other users of financial information. The standards must be based upon clearly articulated principles and not unnecessarily laden with detailed rules and guidance.”

– Sir David Tweedie, Chairman, IASB, March 10, 2011


Endorsement of IFRS

• Over 100 countries either require or permit the use of IFRS for publicly traded companies

• European Union – requires the use of IFRS for all public companies

• US – SEC allows foreign private issuers in the US to use IFRS

• AICPA – IFRS are GAAP• SEC decision due in 2011 – Endorsement or

Condorsement?Proprietary and Confidential 6

Convergence

• FASB and IASB joint projects defined in the 2006 Memorandum of Understanding are expected to be completed in 2011o Revenueo Leases o Financial Instrumentso Statement of Comprehensive Incomeo Fair Value Measuremento Balance Sheet Nettingo Financial Statement Presentation


IFRS vs US GAPP


Financial Statements

• Comparative Statements are required• Primary financial statements often include a separate column

titled “notes”• Companies may choose the presentation format for the

balance sheet– A=L + OE or A – L = OE– Decreasing or increasing order of liquidity

• Statement of Comprehensive Income– One or two statements– No extraordinary items– Expenses may be based on function (e.g. CGS) or nature (e.g.

advertising, salaries)Proprietary and Confidential 9

IFRS for SMEs

• “Good Financial Reporting Made Simple.”• IFRS simplified for Private companies• Self-contained, comprehensive set of

standards released in July 2009• 230 pages – 34 topics – updated periodically• Simplified measurement and disclosures• Omits complex issues


IFRS for SMEs

• What companies?o Definition is based on the ‘nature’ of the entity

not the sizeo Any entity that does NOT have public

accountabilityo Includes subsidiaries of public companies

oUS subsidiaries of foreign parentso It may be used in the US today.


IFRS for SMEs

• Differences with full IFRS– Goodwill and indefinite-lived intangibles are

amortized over useful life or 10 years– ALL R & D are expensed

• Differences with US GAAP– LIFO is not allowed, impairments of inventory may

be reversed– All borrowing costs are expensed


Resources

• IASB.orgo Supported by IFRS Foundation and IASBo Full IFRS in multiple languageso IFRS for SMEso Training modules and implementation guides

• IFRS.como Supported by AICPA

• Wiki.ifrs.como US GAAP – IFRS for SMEs comparison

• AICPA recently announced an IFRS certification that is earned on-line through 42 hours of CPE modules


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