By Rose Marie L. Bukics, CPA
No event in the recent past has been more significant for the movement toward one global reporting standard than an SEC vote this past June. The unanimous vote effectively endorsed - subject to a 75-day comment period - the use of global financial standards by foreign companies listed on U.S. stock exchanges by eliminating the current requirement for such companies to file a 20-F, reconciling International Financial Reporting Standards (IFRSs) to U.S. GAAP.
This SEC proposal, in addition to other recent watershed events (see table two below), highlights the speed at which events are propelling the financial world to one set of global reporting standards.
What does this mean for accounting educators? It means we have to begin planning now to construct courses where global financial accounting and reporting standards are recognized as the one standard model. A good starting point is to understand how and where the global standards fit into our current curricular structure of accounting courses.
To date, accounting educators and textbook authors relied on two different approaches to the teaching of international standards. The first is to teach international standards as a stand-alone course, focusing solely on the teaching of International Accounting Standards (IASs) and IFRSs currently in effect. The second approach is a comparative one, where the starting point is U.S. GAAP as the standard, with an examination of how international standards are different. The second approach served a very valuable purpose by highlighting the differences between the standards, many of which would appear in the 20-F required by the SEC.
This comparative approach was timely and appropriate given the growing focus on financial information prepared using international standards versus U.S. GAAP. In fact, the identification and explanation of such differences was in the interest of, and actively supported, the movement towards harmonizing the standards.
Time to Consider Change
Review of the 41 IASs (note that IAS 3 through 6 have been superseded) and eight IFRSs issued thus far, as well as the IASB Framework for the Preparation and Presentation of Financial Statements, indicates that the accounting courses most affected will be at the intermediate level, followed by advanced and financial. For example, four IFRSs (2, 5, 7, and 8), 23 IASs, as well as the IAS framework address topics typically taught in a two-semester intermediate course. Table one below is a summary of where international accounting standards would fit in this course by general topic.
The advanced accounting course would be affected by five standards: IFRS 3, business combinations; IAS 20, government assistance; IAS 27, consolidated financial statements; and IAS 28 and 31, investments in other companies.
Conclusion
If the current trend toward international convergence continues, accounting educators need to begin to assess how their current courses will change when international standards take the place of U.S. GAAP and become the worldwide standard.
Table One
Topic / Relevant IAS, IFRS
Financial statement preparation/presentation / IASB Framework, IAS 1, 14, 27, 34
Accounting principles/policies / IAS 1, 8
Income statement/EPS/accounting changes / IFRS 5, 8; IAS 8, 14, 33
Balance sheet / IFRS 5, 7; IAS 2, 10, 16, 17, 19, 23, 32, 36-40
Cash flow / IAS 7
Revenue/expense recognition / IFRS 2; IAS 18, 19
Taxes, leases, and pensions / IAS 12, 17, 19
Asset acquisition / IFRS 2; IAS 28, 38
Related-party transactions / IAS 24
Table Two
A Brief History of Convergence
1998: International Accounting Standards Committee (IASC) completed the Core Standards Project, requested by the International Organization of Securities Commissions (IOSCO).
2000: IOSCO recommends allowing multinational enterprises to use the standards issued under the IASB.
2002: European Union (EU) requires IAS and International Financial Reporting Standards (IFRSs) to be used for all publicly held company financial reports, beginning in 2005.
2002: Norwalk agreement, signed by IASB and FASB, indicates an agreement on the concept of converging standards (this was subsequently updated in 2006).
2005: SEC indicates its intent to eliminate the reconciliation requirement for foreign filers by 2009, but its June 2007 proposal seemingly indicates the movement toward international standards is increasing in speed. SEC has also indicated its intent to consider allowing U.S. companies to select IFRS as well.
Rose Marie L. Bukics, CPA, is the Thomas Roy and Lura Forrest Jones Professor of Economics and Business at Lafayette College in Easton, and is a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at bukicsr@lafayette.edu.
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