Last year, the G20 leaders agreed that standard setters should focus on making substantial progress by the end of 2009 toward a global set of accounting standards. At the time, many applauded this intent as it was believed that widespread adoption of International Financial Reporting Standards (IFRS) is the best way to achieve comparable financial statements. In the global market place, the competition for investors' dollars is waged without borders and stakeholders must have the ability to evaluate opportunities on a level playing field. Well over 100 countries have already adopted full (or some version of) IFRS as their Generally Accepted Accounting Principles (GAAP). However, key regions such as India, China, Japan and United States have all taken steps recently to IFRS adoption, albeit on an extended timeline and with a few provisos.
It was way back in November 2008 that the U.S. Securities and Exchange Commission (SEC) published a roadmap for the convergence of Financial Accounting Standards (FAS) under U.S. GAAP and IFRS, targeting 2014. Initially, new SEC chairman Mary Schapiro seemed to back away from this commitment; however, in her comments later in 2009, she appeared to reemphasize the idea of a global set of accounting standards. Clearly her boss’s goals on regulatory reform and the view of the G20 helped shape a change of thinking for Schapiro. In turn, the SEC released a Strategic Plan to 2015, which included a goal of supporting a single set of accounting standards. While this falls somewhat short of a commitment for mandatory IFRS adoption for U.S. companies, it does illustrate that the SEC must be seen as pursuing convergence with some kind of roadmap for adoption. Meanwhile, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been meeting with urgency to try and resolve differences in the accounting standards.
Moving east, there was some concern last year regarding India’s commitment to IFRS when the Indian government backed down on enforcing currency translation rules on Indian corporations holding large U.S. debt. The fact that the ruling was a few months prior to the Indian election was not lost on many. However, with the government now well entrenched, India has announced a plan to adopt IFRS as Indian Financial Reporting Standards effective 1 April 2011 for all listed and ‘large’ private companies. Other medium-sized companies will follow in 2013 and smaller organisations in 2014.
In China, the Chinese Accounting Standards for Business Enterprises (ASBE) already encompasses many of the principles of IFRS. The Ministry of Finance published a roadmap late last year that will complete ASBE convergence to IFRS by 2011. All medium to large organisations will be required to use this revised set of standards by 2012. Naturally, many of the largest organisations in China already have adopted IFRS, particularly those which are listed on the Hong Kong Stock Exchange.
Finally, Japan is probably the only other country besides the U.S. that feels their existing set of financial standards are equivalent, if not at times superior, to IFRS. However, at the end of last year, the Financial Services Authority (FSA) of Japan announced that certain listed companies could use IFRS instead of Japanese GAAP for financial years ending on or after 31 March 2010. In addition, just last week the deputy head of the FSA provided a roadmap to IFRS, the final decision of which will be made in 2012 with allowance of 3-4 years lead time prior to mandatory adoption. While this represents somewhat less than a ‘commitment’ to IFRS, it does represent the most significant step we have seen in Japan on convergence so far.