Financial Accounting

1. Financial Accounting • The Perfect Storm Fall 2013 Professor Bill O’Brien Financial Accounting-Fall 2013

2. The Perfect Storm • IFRS Adoption: SEC • Convergence: FASB • Private Company GAAP: FASB & AICPA • All companies will be affected Financial Accounting-Fall 2013

3. Why a Single Set of Standards • A level playing field • Common rules for a global economy • Consistent high quality standards • Efficiency and effectiveness • Improved understanding • Cost effective approach Financial Accounting-Fall 2013

4. History of Prior Attempts The problem: A worldwide Tower of Accounting Babel The solution?: The U.S. way or the highway Harmonization Convergence Adoption of IFRS Financial Accounting-Fall 2013

5. U.S. GAAP—the Only Way Before Enron and WorldCom: U.S. GAAP is the highest quality financial reporting in the world After Enron and WorldCom: Let’s talk Financial Accounting-Fall 2013

6. Harmonization A perceived win-win Countries keep their own standards Differences are minimized Close doesn’t count Inconsistencies remained Comparability problems continued Financial Accounting-Fall 2013

7. Convergence The best of the best Define “best” Local standards remain Pronouncements are jointly produced but separately issued Minor differences continue Define “minor” difference Currently, “in trouble” Financial Accounting-Fall 2013

8. International Actg. Adoption • International Accounting Standards Board (IASB) • IAS mandatory in European Union-1/1/05 • IASB-FASB Convergence Project • Completion target of 2011 • SEC IFRS Adoption Roadmap • IFRS in the U.S. by 2014 • Decision in 2011 • Do you think convergence of standards is good or bad for financial statement users? Financial Accounting-Fall 2013

9. Recall this Concept: What Exactly is Convergence? • Global options • Single standard mentality-US GAAP • Harmonization: minimal differences • Convergence: best of the best • Stated goal: • Single set of high quality, understandable & enforceable global accounting standards • Transparency and comparability • Normal standard setting process • Different wording; different effectivity dates Financial Accounting-Fall 2013

10. Private Company GAAP • Blue Ribbon Panel recommendations • Rejected IFRS for SMEs • Carve out model • 3-5 year review • Either separate PCASB or PCSIC • FAF results on 5/22-23 • Opted for PCC-Private Company Council reporting to FASB • FASB will endorse but not approve PCC actions Financial Accounting-Fall 2013

11. NFP Accounting • Non-profit advisory committee • Changes in disclosure • Changes in language of MD&S • Mandatory metrics in footnotes Financial Accounting-Fall 2013

12. IFRS Adoption Update SEC Feb. 24, 2010 Update: No early adoption 2011 final vote (Missed!) Periodic progress reports starting in 10/10 Substantial role for FASB post adoption Strong regulation and enforcement needed Envision 2015 as the commencement date Financial Accounting-Fall 2013

13. IFRS Adoption Update, continued Key Issues Noted: Development of sufficient and consistent standards Independent standard setter Investor, user and preparer education Impact on other non-reporting laws Impact on business issues Financial Accounting-Fall 2013

14. IFRS Adoption—Current Status 12/5/11…need a few more months 1/5/12…Shapiro: “blending”; “middle of a hurricane” 4/30/12…still waiting Endorsement model Commitment to incorporation Don’t expect anything until after the election Very political issue Financial Accounting-Fall 2013

15. Current Convergence Projects The Norwalk Agreement – 2002 FASB – IASB commitment to mutual development of standards On-going recommitments to conclusion 2006 and 2008 Conceptual Framework Project The foundation of financial accounting theory and financial statement format Financial Accounting-Fall 2013

16. 5 complete: Bus. combinations Consolidations Derecognition of liabilities Fair value OCI Future Plans: 2013-2014: Revenue recognition Leases Fin. Instruments Insurance contracts Deferred: F/S presentation Post employment benefits Status of 11 Convergence Projects (as of 9/3) Financial Accounting-Fall 2013

17. “Draft” Exposure draft – July 1, 2010 Team reassigned On the backburner F/S Reformatting Update Financial Accounting-Fall 2013

18. Other Players; Prior Work-I • International Accounting Standards Committee (IASC) • Voluntary funding; part-time members • Non-binding standards-IAS • More focus on accommodation than rigors • Becomes IASB (Board) in 2001 • U.S. has strong influence; therefore, credibility • International Accounting Standards Board (IASB)-London • 12 F/T members; 2 P/T members (academics); now 15 • Funding via the IASC Foundation • Sets IFRS • International Financial Reporting Interpretations Committee (IFRIC)-interprets IFRS & provides guidance • Perhaps a similar role for FASB, post adoption? Financial Accounting-Fall 2013

19. Other Players; Prior Work-II • International Org. of Sec. Commissions (IOSCO) • Global org. of sec. regulators • Supported stronger IASC and single ww standard • European Union • Directives written into local law • 4th and 7th directives • Form and content • Consolidation • Adopted IFRS on 1/1/05 • International Federation of Accountants (IFAC) • Global auditing standards • AICPA is member of IFAC Financial Accounting-Fall 2013

20. Rules v. Principles • Major mindset change • IFRS-2,500 pages • FAS-25,000 pages • Thinking outside the box • Emphasizes the importance of the conceptual framework Financial Accounting-Fall 2013