The IFRS or International Financial Reporting Standards are set by the IASB (International Accounting Standard Board) and are becoming global standards for how companies prepare financial statements. Not all companies will be subject to the change; however, most public companies around the world have committed to adopting the standards by a certain date. So far, 90 countries around the world have fully committed to IFRS, with Canada and Korea adopting these standards in 2011, Mexico in 2012, and Japan deciding on usage by 2012. The Securities Exchange Commission is considering using IFRS in the United States as the accounting standards instead of GAAP and should make a decision some time this year. On February 24, 2011, the SEC said that if the United States changes its accounting standards to IFRS, it would do so no earlier than 2015. The SEC is working with FASB (theFinancial Accounting Standards Board) on this initiative, with guidance from the AICPA. Currently U.S. public companies are required to report their financial statements using GAAP; however, large multinationals with foreign subsidiaries and U.S. subsidiaries of foreign-owned companies are using IFRS.
The advantage of establishing global accounting standards is that one format would be used for financial statements. This would make it easier for public companies to compete abroad, raise capital, win global contracts, and provide financial details. Some differences between IFRS and GAAP are that IFRS require less extensive detail, as in the case of revenue recognition, and do not permit the LIFO method (last in, last out). IFRS also use a single step method for write-downs, as compared to a two-step in GAAP.
Converting to IFRS is a huge undertaking in many ways.
Information systems and internal tax reporting tools would need to change to match the way information is reported. The accounting major should take the time to learn about this initiative. As early as 2011, the CPA Exam will include topics on IFRS. It is no wonder that all the accounting trade journals and publications are issuing articles about this anticipated change!