In an interview posted by the Journal of Accountancy, the chairman of the International Accounting Standards Board (IASB) sent a clear message to the U.S. that failure to adopt International Financial Reporting Standards (IFRS) my result in losing any influence over global financial rules. IASB Chairman Sir David Tweedie indicated that the U.S. had significant influence on the creation of accounting rules, despite not using the rules domestically. He believes that the U.S. influence on standard setting could diminish if the U.S. chooses not to adopt the global set of rules.

The U.S. continues to evaluate whether or not to adopt the global set of accounting standards and as of yet has not made a decision. The SEC is still reviewing the impact on both international and domestic markets while the Financial Accounting Standards Board is attempting to find agreement between the global standards and U.S. GAAP (Generally Accepted Accounting Principles).

A leading board member for the International Accounting Standards Board recently indicated that there is much uncertainty as to whether the US will adopt global accounting rules, which could jeopardize the IASB as a whole.

During the recent IASB trustee meeting, Padio Schioppa stated, “The aspiration of having global standards depends very much on the adoption of global standards by the United States and this is highly uncertain and may still give us a big disappointment in a year or so from now.”

The Financial Accounting Standards Board (FASB) is working to sync their accounting rules with those set forth by the IASB.  However, the two groups are struggling to come to an agreement on some of the key concepts their differing financial reporting guidelines.

Additionally, the SEC is considering the impact of adopting international standards and many US corporations object to the change due to the high cost of adopting a new set of standards and procedures.

For more information on International Financial Reporting Standards or other international accounting matters, contact Tom Breedlove.

Mandatory Phase-In Set in Motion

The SEC recently proposed a “roadmap” for phasing in mandatory International Financial Reporting Standards (IFRS) by U.S. public companies. The initial proposed mandate for this transition is scheduled to begin for certain filers for years ending on or after December 15, 2014. Does this mean the end of US GAAP, and what effect will this have on private companies?

No one at this point knows the answers to these critical questions. One thing is for certain: the transition from US GAAP to IFRS will be very costly and will require a tremendous amount of expertise in both areas, regardless of whether the company is a multinational publicly traded conglomerate or a privately held business.

Assuming that IFRS does in fact become GAAP for public companies in the future, it is logical that the same requirements, or a hybrid of the requirements, will follow for private companies. If so, every family-owned enterprise in America could potentially be affected by this transition.

Is this push for global uniform accounting standards going to be worth it considering the estimated time and costs involved to change, especially for family-owned enterprises? Only time will tell.

Tom Breedlove is the firm’s expert in International Financial Reporting Standards. This year Tom completed continuing professional education on this subject both abroad in Berlin, Germany and here in the United States. If you need any further details regarding IFRS, please contact Tom directly.

In an effort to prevent banks from booking a profit and confusing investors after a ratings downgrade, the International Accounting Standards Board has proposed changing the way banks measure liabilities.  Currently, a ratings downgrade pushes down the value of a liability priced at the going rate and the amount of the fall in value can be recorded as profit.

After extensive consultation, the IASB drafted a proposal to change the way this is done. The proposal is part of their overall revamping of fair value or mark to market rule which they hope to finalize and put into effect by the end of the year.

The International Accounting Standards Board (IASB) amended IAS 12, Income Taxes, and what it referred to as “narrow amendments” to IFRS 1, First-time Adoption of International Financial Reporting Standards.

IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The IASB indicated that it can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property. The IASB believes that this amendment provides a practical solution by introducing a presumption that recovery of the carrying amount will normally be through sale.

As a result of the amendments, SIC-21, Income Taxes—Recovery of Revalued Non-Depreciable Assets, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC-21, which is withdrawn.

HLB International, one of the fastest-growing international accountancy networks, has increased its presence in Scandinavia and moved into Norway, with the addition of two new firms in the country. The move substantially enhances HLBI’s ability to respond to the needs of companies in the region that typically have a cross-Scandinavia presence.

Joining the HLBI network are Kjelstrup & Wiggen AS (KW), an Oslo-based accounting partnership, and Stavanger Revisjon AS, an accounting partnership based in the mid-west region of Norway and ranked among the mid-sized firms in Stavanger - the “oil capital” of Norway.

Rob Tautges, chief executive of HLBI, said: “A substantial amount of companies in Scandinavia have operations in each of the individual countries – Norway, Denmark, Sweden and Finland – and consequently being able to provide a strong cross-Scandinavian offering is very important. We are delighted that such high-quality firms have joined the HLBI network and we look forward to delivering a top-level international service to our clients.”

Vidar Haugen, KW’s international contact partner, commented: “KW is delighted to be joining the fast-growing network of HLBI and to give the network a presence in Norway. The admission process for KW to become an HLBI member bears witness to a network that emphasizes quality and service.”

The Norwegian market has many small family owned companies, a few big international companies and a strong public sector, which employs 27% of the working population. Its main exports are concentrated around oil, fish and high end engineering. Norway has been spared from the financial crises due to a strong public sector and surplus on state financials (mainly oil driven), and has an unemployment rate of 3.5%.

“We joined HLBI because of its strong representation in markets connected to ours. Access to the HLBI network will enable us to enhance value for our clients,” said Terje Sætrevik, partner at Stavanger Revisjon AS, who adds that the firm is facing a busy transactions environment, including an increase in international M&A work and a step-up in corporate activity among subsidiaries of foreign companies in the Scandinavian region.

HLBI is also in the process of expanding its presence in Sweden, a move which will complete its strategy of providing Scandinavian companies with a high quality and comprehensive service in all four countries.

While U.S. companies have followed the guidelines of U.S. Generally Accepted Accounting Principles (GAAP) for years, there is a shift toward future transition of International Financial Reporting Standards (IFRS) as a single set of global accounting standards. Until recently, foreign companies who used IFRS were required by the SEC to reconcile their reports to GAAP in order to be listed on the U.S. exchanges.

In November 2007, the SEC announced that IFRS statements will be accepted from foreign registrants for 2007 and later years. The SEC is also considering whether U.S. companies should be allowed to use IFRS in lieu of GAAP. Would this mean the end of U.S. GAAP?

The SEC is working to eliminate the current reconciliation requirement and continues to explore the option of allowing U.S. companies to report financial results using international standards. 
In recent years, much attention has been given to the idea of defining one set of standards, thereby eliminating differences between these two reporting standards. This would cut costs greatly for the foreign companies, who in effect have to keep two sets of books. The long-term goal would be a single set of standards, but in the meantime there are still some inherent issues with having two sets of standards. If foreign companies are allowed to use IFRS, then many have suggested that U.S. firms should also have that option. Given that option, then GAAP and IFRS would have to exist side by side in the U.S. In order for this to work, the SEC would have to recognize IASB as an authoritative body for setting accounting standards, which could cause conflict with the Sarbanes-Oxley Act.

The goal of getting to a global set of accounting standards is achievable, yet the timeframe is difficult to predict. The single set of standards would simplify the world of accounting, but it will take a process to achieve it. In the next few issues, we will be taking a closer look at this so-called “convergence” of U.S. GAAP and IFRS and its status.

Richard B. Taylor

In an effort to prevent banks from booking a profit and confusing investors after a ratings downgrade, the International Accounting Standards Board has proposed changing the way banks measure liabilities.  Currently, a ratings downgrade pushes down the value of a liability priced at the going rate and the amount of the fall in value can be recorded as profit.

After extensive consultation, the IASB drafted a proposal to change the way this is done. The proposal is part of their overall revamping of fair value or mark to market rule which they hope to finalize and put into effect by the end of the year.

Established in November 2009 by Studio Associato de Vecchi, HLB Consultants Italia provides tax, accounting and consulting services. Through its members, HLB Consultants Italia is able to provide fully qualified professional services in northern, central and southern Italy.

For more information contact Tom Breedlove.