With the Securities and Exchange Commission’s (SEC) decision on the possible incorporation of International Financial Reporting Standards (IFRS) into the U.S. system still outstanding, many are wondering about the implications for their work and organizations.
Gregg L. Nelson, vice president of accounting policy and financial reporting for IBM Corporation, shares his thoughts on this important matter. He also explains how accounting and finance professionals might benefit from attending the 18th Annual NYSSA International Financial Reporting Conference & Workshops from Jan. 8-10, 2013 in New York City.
Gregg is one of a number of prestigious speakers who will be sharing their expertise at this important conference, which is presented by IASeminars and the New York Society of Security Analysts (NYSSA). Other conference speakers include senior representatives from the International Accounting Standards Board (IASB), Financial Accounting Standards Board (FASB), SEC, Public Company Accounting Oversight Board (PCAOB), etc.
1. Why is it important for U.S. based professionals to attend a conference about international financial reporting issues?
Since IFRS is already utilized in well over 100 countries, including all of Europe plus Canada, it is likely that U.S. companies with foreign legal entities/subsidiaries are already using those standards for local reporting and/or local taxation in some jurisdictions. The use of IFRS for statutory purposes across several countries may therefore provide U.S. companies with an opportunity to streamline their statutory reporting processes, by avoiding the need for multiple and differing sets of financial statements.
Second, the use of IFRS by statutory entities will have implications for the U.S. consolidated entity. Using IFRS for local reporting and taxation is likely to have an impact on the local tax burden and, as a result, on the cash flow of its non-U.S. entities, which when taken as a whole will impact the consolidated results. Further, companies that are assessing mergers, acquisitions or divestitures internationally should be knowledgeable about the reporting requirements and basis of reporting for the potential target or buyer in order to make accurate assessments of the implications of the proposed transaction. Finally, vendors, suppliers and/or customers that operate internationally could have an IFRS-based angle that might influence how business is conducted. Understanding these implications will allow for improved interaction between the parties in their transactions.
A third important factor relates to comparability of financial information for investors. In 2007, the SEC voted to eliminate the requirement for foreign private issuers to reconcile their IFRS results to U.S. GAAP in order to fully access the U.S. capital markets. As a result, investors will wish to be knowledgeable about the differences in IFRS and U.S. GAAP reporting when comparing international registrants to domestic registrants for the purpose of investment decisions.
On the standard setting front, the IASB and FASB are working diligently towards convergence on several critical accounting standards—including Revenue, Leasing and Financial Instruments. These deliberations and outcomes (i.e. exposure drafts and standards) provide insight into the approaches and methodologies that the two Boards use and also the implications that these key projects may have on other standards within the respective accounting literature.
At the NYSSA conference in New York on Jan. 10 participants will have the opportunity to hear about all of these important issues directly from the chairmen of the IASB and the FASB, as well as from senior representatives of the SEC, PCAOB and the international investment and corporate communities.
2. What is your position on the possible future U.S. adoption of IFRS, and why?
IBM supports the development and use of a single set of high-quality globally accepted accounting standards that will enhance the efficiency of the capital markets around the world, improve the quality of information reported by entities in many different jurisdictions and reduce the cost of compliance with multiple reporting frameworks. We recognize that more than 100 countries already base their local accounting principles wholly or largely on IFRS, and therefore support the work of the IASB as an organization that is well-positioned to achieve this aim.
A single set of accounting standards to be used around the world would provide a significant recurring cost benefit to many multi-national companies such as IBM, mainly through economies of scale for statutory reporting and audits. In addition, the use of IFRS by a company’s international subsidiaries and legal entities provides the opportunity to improve financial and business controls, reduce the effort to prepare international tax reconciliations, and facilitate access to international financial markets that were previously seen as uneconomical. We believe that these factors will ultimately deliver shareholder value to the company’s investors.
IBM is supportive of ongoing efforts by the IASB and FASB toward achieving converged standards on critical accounting principles as per their Memorandum of Understanding. We believe this initiative is important to achieve the objective of a single set of globally accepted accounting standards.
3. What additional information would financial analysts and other stakeholders want to receive from listed corporations and can it be provided?
We know that analysts are interested in receiving quality information from corporations about key drivers, trends and developments in the business and also about current and future cash flows. This information is more likely to appear in the published management discussion (MD&A) than in the audited financial statements.
We feel that corporate disclosure should focus more on the key information that analysts seek. As an example, instead of a roll-forward of deferred revenue, it might make sense to look more closely at how much revenue was recognized from deferred income in a given period and the expected recognition timing of the deferred revenue balance at the reporting date.
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