A change from U.S. GAAP to IFRS is desirable.

A change from U.S. GAAP to IFRS is desirable. Adrienne Lott Rashid Koja Brett Wainger Rene VanWalsem

www.youtube.com/watch?v=LagdwuwGNsE

Intro Pro-ifrs Team Position: A change from US GAAP to IFRS IS desirable. Ultimate Goal: • A single, consolidated set of the best global accounting standards • IFRS merely end result

Perspective on Convergence “The emphasis on high-quality means that if an IASB standard or a FASB standard is deemed to be the better one, then convergence will be to the superior standard. If neither standard is of sufficient quality, the boards would then work together jointly to develop a new standard.” Gary Illiano, Partner in Charge of Accounting and Auditing in Grant Thornton, LLP’s New York National Office.

Timeline • 1981– SEC Release No. 33-6360 (November 20, 1981) • 1988 – SEC Policy Statement • 1994 - FASB and IASC co-op on common EPS standard • 2002 – Norwalk Agreement

Timeline • 2004 - European Commission “Equivalence” Project • 2007 - SEC accepts IFRS Financial Statements • 2008 - Release of Roadmap • 2009 - Dr. Spiceland teaches IFRS in ACCT 7120

Pro-arguments • Enhanced comparability for U.S. investors • Increased access to international capital markets • Eradication of dual sets of books • Eliminates “race to the bottom” • Enhanced implementation of XBRL (extensible business reporting language) • Principles-based accounting is superior to rules-based accounting

Enhanced comparability • Accuracy • Efficiency • Significance • XRBL

Enhanced comparability • Accuracy Current assets Current ratio = ----------------------- Current liabilities • Discontinued operations • Inventories • Lower of Cost and Market • Asset Retirement Obligations (ARO)

Enhanced comparability • Efficiency “. . . Savings of some magnitude for us . . .” Philip Ameen, CPA VP and Comptroller General Electric Company

Enhanced comparability • Significance

Enhanced comparability “IFRS is now used for public reporting purposes in over 100 countries, ranging from Australia to the United Kingdom. Others countries are expected to follow in the next few years, including Israel (2008), Chile (2009), Korea (2009), Brazil (2010), and Canada (2011).” Deloitte “IFRS is well on its way to becoming the global language the rest of the world uses. The US has to get with it.” Senator Charles Schumer, NY Vice-Chairman of the Joint Economic Committee

Enhanced comparability • Usability of XBRL data • Creating common taxonomy for XBRL

“More comparable reporting across firms from different countries facilitates cross-border investment and the integration of capital markets. Recent evidence supports this notion…” FASB Chairman John J. Brennan FAF Chairman, Robert H. Herz

Increased access to international capital markets • Simplified evaluation by foreign investors * equity markets * debt markets • Capital market efficiency creates expanded cross-border capital flows “Important potential benefits of high-quality and more comparable corporate reporting practices are greater market liquidity, a lower cost of capital and a better allocation of capital.” Hail, Leuz & Wysocki [FASB commissioned study]

Eradication of dual sets of books • Subsidiary / Parent accounting methods • Streamlined/centralized accounting operations – “shared services” approach • Reduced training, software costs • Increased consistency / reduced errors / reduced penalties and fines

Eliminates “race to the bottom” • FASB Relaxation of fair value requirements • IASB pressured to follow suit • Predictable result: Race to the bottom “We need to arrive at a level playing field on this matter” Christine Lagarde, French Finance Minister

Eliminates “race to the bottom” ”The presence of real or perceived differences between these standards enable the pursuit of accounting arbitrage that, if unchecked, could result in a “race to the bottom” in financial reporting.” FASB Chairman John J. Brennan FAF Chairman, Robert H. Herz

Implementation of XBRL(extensible business reporting language) • XBRL and financial reporting • IFRS XBRL tags updated annually • Global standards maximize XBRL usefulness “XBRL facilitates principle-based accounting because it reduces the need to worry about where the item is reported, but only that it is.” AICPA

Principles-based accounting is superior to rules-based accounting Previous arguments are ancillary Big question: Does the end result provide the USA with a solid accounting framework?

Principles-based accounting is superior to rules-based accounting Substance over form • Judicial doctrine in US legal system • Widely used in US GAAP as is. * Accrual vs. Cash based * Percentage-of-completion * Deferred sales (magazine subscriptions) * Deferred tax expense

Principles-based accounting is superior to rules-based accounting Substance over form • Other areas in US GAAP might benefit from fewer bright lines. * Leasing * Insurance contracts * Pension expense

Final Statement from (arguably) the best accounting firm today ”We believe that the existing body of IFRS has proven to be of high quality, is developed through a robust standard-setting process and is thus being used for reporting by foreign private issuers in the US without reconciliation to US GAAP.” Ernst & Young, LLP 4 March 2009

A change from U.S. GAAP to IFRS is desirable.