accounting standards – the international setting
TRANSCRIPT
International Financial Reporting Standards
The views expressed in this presentation are those of the presenter, not necessarily those of the IASC Foundation or the IASB
Accounting Standards – the International Setting
Sir David Tweedie IASB Chairman
2 The IFRS Objective
• Goal to be the single set of accounting standards used worldwide
• Aimed at providing high-quality, transparent, and comparable information for investors and other users of financial information
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
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3 Why Global Standards are Needed
• Accounting standards evolved nationally
• Globalisation hindered by national comparisons
4 Benefits to Capital Markets
• Credibility of local market to foreign investors
• Greater cross-border investment
• Efficient capital allocation
• Comparability across political boundaries
• Facilitates global education and training
5 Benefit to companies
• Lower cost of capital
• Integrated IT systems
• Easier consolidation
• “One set of books”
• Assist in raising capital overseas
• Understand financial statements of overseas suppliers, customers, subsidiaries
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Independent and accountable governance
Financial Accounting Standards Board
International Accounting Standards Board
(4/15 US)
Independent standard-setter
Overseen by Trustees
IASC Foundation Trustees (5/22 US)
Public accountability to securities regulators
FAF Trustees
Securities and Exchange Commission (SEC)
Monitoring Board (inc. SEC Chair)
Domestic model Global model
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Similar governance to the FASB
7 IFRS Around the World
Total
IFRSs permitted 25
IFRSs required 91 (for all domestic companies)
IFRS required 6 (for some domestic companies)
122
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Source of information (adapted from): www.iasplus.com
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Countries seeking convergence with the IASB or pursuing adoption of IFRSsCountries that require or permit IFRSs
More than 100 countries require or permit the use of International Financial Reporting Standards (IFRSs), or are converging with the IASB’s standards.
Countries seeking convergence with the IASB or pursuing adoption of IFRSsCountries that require or permit IFRSs
More than 100 countries require or permit the use of International Financial Reporting Standards (IFRSs), or are converging with the IASB’s standards.
THE MOMENTUM TOWARDS GLOBAL ADOPTION OF IFRSs
The World is Getting Smaller
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© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
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US investors, companies depend on cross-border capital flows
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1994 2000 2001 2007 2008
Trill
ions
of U
S D
olla
rs
Year
Growing cross-border holdings of US companies and investors
Foreign Holdings of US Equities
US Holdings of Foreign Equities Source: US treasury
10
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
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At the same time, US markets are diminishing in relative size
52%
35%
6%
4%
15%
30%
29% 28%
13,826,485 (52%) 11,737,646
(35%)
1,025,942 (4%) 2,158,633 (6%)
3,968,483 (15%)
9,959,311 (30%)
7,775,273 (29%)
9,443,561 (28%)
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
End 2001 End 2008
Mill
ion
of U
S D
olla
rs
The Globalization of Capital Markets: Domestic Market Capitalization
Source: World Federation of Exchanges
Europe, Africa, and the Middle East
Asia-Pacific
Americas, excluding US
United States
11 Fortune Global 500 (July 2009)
© 2009 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
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Fortune G500 Based on announced plans
Which GAAP? 2009 2013 Japan 2015?
IFRSs and word-for-word IFRS equivalents 190 245 310
US GAAP 155 155 140
National GAAPs 155 100 50
Total 500 500 500
IFRS – FASB Convergence Process
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
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2001 – 04 Reaction to investor desire for improved, global standards following Asian crisis and US financial scandals
IASB is established; enters Norwalk Agreement with FASB
2005 – 07 Growing IFRS adoption by major economies; continued US support and recognition of IFRSs as being high-quality standards
MoU accelerating convergence SEC removes reconciliation requirement
2008 - 09 Financial crisis; G20 pressure for convergence leading to adoption; focus on remaining major joint projects
Updates to MoU with 2011 targets and SEC roadmap
2010 - 2011 MoU timetable adjusted to ensure critical issues are completed.
Further SEC update to roadmap Modified convergence strategy prioritizes major projects for June 2011 completion
13 FASB/IASB Agreement - 2002
• Remove differences
• Align Agendas
• Interpretation
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15
16 Conceptual Framework Issues
• The objectives of financial reporting
• Qualitative characteristics
• Definitions of assets and liabilities
• Recognition
• Measurement
• Presentation
17 Roadmap - 2006
1. Short term
- remove major differences 2. Medium term - new joint standards where significant
improvement required
18 G20 Summit – 25 September 2009
• Redouble efforts to: – achieve a single set of high quality, global accounting
standards within the context of their independent standard setting process
– complete convergence project by June 2011.
• IASB’s institutional framework should further enhance the involvement of various stakeholders.
• G20 acknowledge that there could be differences between capital requirements and accounting rules:
– to ensure comparability, the details of the leverage ratio will be harmonized internationally, fully adjusting for differences in accounting.
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19 Major MoU Projects – 2010 Standard
• Derecognition
• Consolidations
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Major MoU Projects – Q1 2011 Standards
• Fair Value Measurement
• Pensions
21 Pensions
£m Deficit 10 Less 10% of liabilities 4 6
Spread over 10 year working life Deficit per accounts - £600,000
22
Major MoU Progress – Q2 2011 Standards
• Revenue Recognition
• Leases
• Financial Instruments
23 Leases - 2008
• Total Annual leasing volume $644bn
• N. America 21% • Europe 49% • Asia 19%
• Rest of world 11%
24 Financial Instruments
• Classification and Measurement – Assets – Liabilities
• Impairment
• Hedging
25 Changing Standard Setting
• 1. Deadlines – quality paramount
• 2. More time taken does not mean better standards
• 3. World and standard setting changed since crisis – Proactive engagement – Globally consistent answers – New ways of working
• 4. Support for post-implementation reviews
26 Possible Agenda Issues • Old Standards • - Agriculture • - Share based payments • - Income Taxes • - Pensions • - Associates • - Government Grants • - Intangibles • - Foreign currency translation • - Performance reporting • - Disclosure Framework
27 Possible Agenda Issues (Cont.)
• Post-implementation Review
• - Segments
• - Business Combinations
• Other
• - Extractive Industries
• - Common Control
28 Current Debates
• 1. Transparency v Financial Stability
• 2. Ideology – Fair value v historical cost – IFRS v US GAAP – Performance presentation
• 3. IFRS – international or regional?
• 4. ADOPT don’t ADAPT
• 5. Principles v rules
29 Principle based standards
Can we do it?
30 Principle-based standards
31 A principle based standard
• No exceptions
• Core principles (objectives)
• No inconsistencies
• Tied to conceptual framework
• Judgement
• Minimum guidance
32 Rule-based Standards
• If don’t act with integrity
• If attack reasonable judgement in court
• If ask for voluminous interpretations
• If raw economic facts are unacceptable
• If regulators want one answer
33 Other Projects
• Insurance
• SMEs
• Management Commentary
• Emission Rights
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The IFRS for SMEs (Private Entities)
Good Financial Reporting Made Simple. • Just 230 pages (full IFRSs > 3,000) • Simplified IFRSs, but built on an IFRS
foundation • Completely stand-alone • Internationally recognised • Final standard was issued July 2009 • Any entity is eligible to use except
publicly traded and financial institutions
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The IFRS for SMEs (Private Entities)
• To date, 61 jurisdictions have adopted or announced a plan to adopt
• Why would a private entity want to adopt?
– Improved access to capital – Improved comparability – Improved quality of reporting as compared to
existing national GAAP for SMEs – Less of a burden where full IFRSs or full
national GAAP are now required
36 The future 36
2010 IFRS in +120 countries and US convergence programme
2012 IFRS in +150 countries and US broadly converged
Vision A single set of high quality global accounting standards
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