Resources Global Professionals Finance & Accounting Blog

The IASB issued a new standard on July 9, 2009 - "IFRS for Small and Medium-sized Entities (SMEs)". The standard is a fully contained set of accounting principles intended for companies who do not have public accountability. (Effectively, those with no debt or equity traded in a public market, or do not hold any assets in a fiduciary capacity for a broad group of outsiders). In May 2008, the AICPA acknowledged the IASB as a standard setter. We have heard the constant refrain from private entities that US GAAP is far too complex for them - and does not serve the needs of their users. Further, US GAAP is funded through a fee that public companies pay to fund FASB and the PCAOB. Therefore, private entities have justifiably felt like they got the short end of the stick. The IASB recognized this dynamic years ago. When I was on the advisory committee to the IASB (SAC), a project was added to the agenda to address accounting and reporting for non-public entities. It culminated with the standard issued yesterday. The standard provides for reduced reporting and disclosure, simplified accounting, etc. To put this into context, US GAAP had approx 25,000 pages of literature (recently via the FASB codification, this has been reduced to about 17,000 pages!), full IFRS has about 2,500 pages, and IFRS for SMEs is about 230 pages.

This may be very appealing to US private entities that prepare audited financial statements. If their users agree to accept financial statements prepared in accordance with "IFRS for SMEs". Their audited opinion would note the use of IFRS for SMEs as the basis of presentation.

Additionally, subsidiaries of entities that currently use full IFRS may be able to report under the reduced standard as long as they don't have separate publicly traded debt or equity or hold any assets in a fiduciary capacity. If your interested in finding out how this might impact your company. Contact your local Resources Global Client Service Director.

The SEC issued its proposed roadmap for the movement to IFRS in the US in Nov. 2008. Comments were due April 20, 2009. So, when might we see a final rule? The SEC is currently reviewing the several hundred comment letters they received. We will likely see some roundtables held this summer by the Commission. At the last G20 meeting (April 2, 2009), the G20 countries issued a 9 page declaration. One of the items on the declaration was a commitment for the G20 countries to move to one set of global accounting standards (BTW - the US is the only country in the G20 that hasn't adopted IFRS or announced a formal plan to adopt IFRS). The G20 countries also committed to review their progress on the declaration at the next G20 meeting. Additionally, in the regulatory reform proposal that the Obama administration announced on June 17 - a commitment to move to one set of global accounting standards was reiterated. Therefore, my sense is that the SEC will be compelled to issue a final roadmap in advance of the next G20 meeting (currently scheduled for October, 2009). I think it will be difficult for Obama to show up at that meeting without any progress having been made since April. What will the final roadmap say? It is anybody's guess - but many commenters on the proposal indicated that the current uncertainty as to whether the SEC will mandate IFRS that exists until 2011 - is a huge disincentive to voluntarily adopting IFRS early. Together with the fact that the SEC contemplates as part of the "milestones" in making that "go,no go" decision in 2011, they will review the filings of the companies that chose to voluntarily adopt early, it is almost negligent under the current proposal to consider the early adoption option. You are guaranteed SEC scrutiny AND you need to have a plan to go back to US GAAP in case the SEC makes that "no go" decision.
I am hoping that the SEC just sets a date already - but I wouldn't hold my breath.

Well, the long-awaited plan is in. Sadly, it doesn't take advantage of the once in a lifetime opportunity to really reform our regulatory environment. It appears to just add more regulations without changing the existing structure (which has been around since the 1930s!). Politics appears to have taken over the process - the administration didn't want to lose allies in Congress by eliminating/combining agencies that have powerful congressional committees overseeing them.