An overview of IFRS Steve Rabin MBA CPA

An overview of IFRS Steve Rabin MBA CPA CVA CFF CITP (408) 887 -6433 srabin@taxservice 2 u. com www. taxservice 2 u. com

This document and any attachments are intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services. If you are not the intended recipient please delete all copies and notify the sender. Please contact us if you have questions. (c) Copyright 2011 Steve Rabin CPA 2

Contents • History, Structure, Authorities • Reasons to switch to IFRS • SME rules

History of IFRS 1973 IASC Started 2000 IOSCO accepts IASC core standards 2002 EU requires IAS for pub co’s by 05 2003 IAS changed to IFRS 2005 EU, Australia, Hong Kong and S. Africa all require IFRS • 2005+ SEC contemplates convergence around 2016 (1) • • • (c) Copyright 2011 Steve Rabin CPA 4

• 2007 USA SEC allows IFRS w/o reconciliation • 2008 AICPA amends Rules 202 &203 allowing IASB (London) IFRS for private companies • 2009 new FASB Accounting Standards Codification (ASC) simplifies eventual convergence • 2009 -2010 USA Colleges integrate IFRS • 2011 IFRS content added to CPA exam • 2011 ~90 countries have conformed with IASB IFRS. • 2011 ~120 countries permit or require IFRS (2) • 2011 Over 40% of Fortune use IFRS (3) (c) Copyright 2011 Steve Rabin CPA 5

Who sets IFRS Standards? (c) Copyright 2011 Steve Rabin CPA 6

Authorities under GAAP vs IFRS for public AND ALMOST ALWAYS ALSO FOR PRIVATE co's!

Reasons to convert to IFRS now Principles based = more flexibility Simpler standards <500 page standards for SMEs Avoid issuing financial statements (f/s) under both GAAP and IFRS • IFRS required by regulators/customers • Head start for possible mandatory adoption in USA • • (c) Copyright 2011 Steve Rabin CPA 8

Reasons to wait • Loan covenants, clients or regulators require GAAP f/s • More judgment required under IFRS • Often more footnotes under IFRS • GAAP precedents reduce benefits of principles based acctg. • Lack of training and trained staff (c) Copyright 2011 Steve Rabin CPA 9

More reasons to wait • IFRS still in transition • Cost of conversion (. 13% revenue (6); "400% cost of SOX" (7)) • Conversion of 2 prior years required • IT systems impact • Tax impact (esp. LIFO conformity) (c) Copyright 2011 Steve Rabin CPA 10

Private Entity (“SME”) rules • SME classification is based on "nature" of organization not size Must be private company with no "public accountability" • SME rules are a smaller, simpler, standard, under 500 pages total • Changes at most every 3 years (c) Copyright 2011 Steve Rabin CPA 11

Private Entity (“SME”) rules • SME classification is based on "nature" of organization not size Must be private company with no "public accountability" • SME rules are a smaller, simpler, standard, under 500 pages total • Changes at most every 3 years (c) Copyright 2011 Steve Rabin CPA 12

Differences, GAAP vs. IFRS (c) Copyright 2011 Steve Rabin CPA 13

Differences, GAAP vs. IFRS (c) Copyright 2011 Steve Rabin CPA 14

Differences, GAAP vs. IFRS (c) Copyright 2011 Steve Rabin CPA 15

Differences, GAAP vs. IFRS (c) Copyright 2011 Steve Rabin CPA 16

Differences, GAAP vs. IFRS (c) Copyright 2011 Steve Rabin CPA 17

Conversion plan outline (6) • Obtain management and audit committee approval and support • Review IFRS 1, First-time Adoption of IFRS. • Identify key individuals. • Add staff if needed (1 -7 individuals at large companies) • Update Accounting Policies and Procedures (APP) • IFRS Training • IT changes (c) Copyright 2011 Steve Rabin CPA 18

Conversion plan outline cont. • Derecognize unallowed items; e. g. deferred revenues, deferred sales leaseback gains • Recognize new assets and liabilities • Reclassify assets liabilities, equity (financial instruments, investments, DTA/DTL) • Remeasure (AROs, impairments, DTAs, SBC) (c) Copyright 2011 Steve Rabin CPA 19

Conversion plan outline cont. • Footnotes - Reconciliations of IFRS numbers to US GAAP • Explanation of adjustments, including impairments • Disclose new policies • New disclosures under IFRS (c) Copyright 2011 Steve Rabin CPA 20

Possible IFRS auditor issues • If a company has previously been filing GAAP financials, auditors may require consistency with GAAP • In the absence of clear IFRS authority, auditors may require the company to follow GAAP • Some auditors still lack familiarity with IFRS (c) Copyright 2011 Steve Rabin CPA 21

General auditor issues • Who delegates to whom? • Auditor staff turnover; lack of experienced seniors • Auditor possibly unwilling to exercise professional judgment, especially as to materiality (c) Copyright 2011 Steve Rabin CPA 22