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IFRS Tips

International Financial Reporting Standards (IFRS) are coming!

The SEC has approved a rule change that allows foreign private securities issuers to use IFRS, without reconciliation to U.S. GAAP effective in 2008. In June of 2007, the Commission issued a concept release suggesting that U.S. firms may soon be permitted or required to file using IFRS. Accounting educators must get up to speed very, very quickly on IFRS to prepare their students for a new world of accounting.

As your partner in education and innovation, South-Western’s authors provide their insight into how to introduce IFRS to students.



INTRODUCTORY FINANCIAL ACCOUNTING

Belverd Needles, DePaul University
Marian Powers, Northwestern University


“International financial reporting standards (IFRS) are here: The SEC now accepts IFRS as issued by IASB from foreign company registrants. Further, the AICPA says that IFRS are high quality accounting standards under the ethics code and may be used currently by non-registered private companies in lieu of US GAAP.  Currently, the SEC has announced a roadmap to decide in 2011 whether registered public companies are permitted or will be required to use IFRS as a substitute for U.S. GAAP as early as 2014. One clear conclusion from these developments is that for at least a period of time knowledge of both U.S. GAAP and IFRS will be required. Thus IFRS is not a subject that can be reserved for upper level courses. IFRS must be integrated into the curriculum starting with the beginning accounting course. What do you as an accounting instructor need to know about IFRS? And what should you tell your students?


“First, your students must be aware of IFRS, but IFRS should not displace traditional GAAP at this time. The basics of IFRS should be integrated at appropriate points in the course and not relegated to a separate chapter. For example, in covering Chapter 1, students should be informed that there are now two accepted standard-setting bodies, the FASB and the IASB. Further, students should know they will encounter IFRS in the future. Knowledge of the history, status, benefits, and disadvantages of IFRS is important. At appropriate points in the course, plan to mention the major areas where IFRS differs from GAAP.”


Financial Accounting, 10e by Belverd Needles and Marian Powers includes expected effects of IFRS in brief discussions throughout the text.

Gary Porter, Senior Lecturer University of Minnesota


“Above all else, introductory students should be reminded of the global nature of business, including foreign operations, foreign markets for capital, and competitors outside the U.S. From this backdrop instructors need to make a case for a single set of accounting standards, while emphasizing the point that U.S. GAAP is not used universally; that instead over 100 countries now rely on the IFRS of the IASB. Throughout the course students should be alerted to existing significant differences between U.S. GAAP and IFRS. Given the introductory nature of the course, only those differences related to fundamental areas of accounting, such as inventory valuation and accounting for PP&E, should be discussed.”


Financial Accounting: The Impact on Decision Makers, 6e Update by Gary Porter and Curtis Norton will be released for January 2009 classes, and will include an appendix on IFRS.


Using Financial Accounting Information: The Alternative to Debits and Credits, 6e by Gary Porter and Curtis Norton will contain an appendix summarizing the status of IFRS and the effect of international financial reporting standards on key topics in the text, along with a compilation of the IFRS coverage integrated into the chapters.

Jefferson Jones, Auburn University


“With the rapid acceptance of International Financial Reporting Standards (IFRS), we feel that the first accounting course provides an excellent opportunity to introduce students to what IFRS are and why IFRS will be important in the future. By addressing students’ frequently asked questions, we allow students to see the importance of IFRS in today’s global economy as well as the many opportunities that IFRS presents. While we provide students with the Cornerstones that are necessary for success in financial accounting, we also highlight any key differences in these Cornerstones with regard to IFRS in an easy-to-understand tabular presentation. Students will be able to easily see that a strong foundation in the Cornerstones of Financial Accounting will provide them with a strong foundation for success in accounting.”


Cornerstones of Financial Accounting by Jay Rich, Jefferson Jones, Maryanne Mowen, and Don Hansen contains an IFRS Appendix and brief discussions throughout the text.



Jon Duchac, Wake Forest University


“I'm doing a couple of things in class, mostly aimed at getting students to understand what IFRS is and how a change from GAAP to IFRS will affect what they are learning in accounting this semester. First, I introduce students to IFRS in Chapter 1. This is just to make them aware of the difference between IFRS and GAAP. I also emphasize that IFRS will probably be the reporting standard in coming years, and that the financial statements they see after they graduate will increasingly be based on IFRS. Second, at the end of every chapter I have students identify those transactions that will be affected by IFRS. I only do this for the chapters after the accounting cycle. In some chapters, there are no differences, and that is part of exercise. This chapter-by-chapter comparison allows them to see that the impact of IFRS is limited to a handful of transactions. Finally, I finish up by taking a few minutes in Chapter 17 (Financial Statement Analysis) to review all of the items that are impacted by IFRS that we have identified during the semester. Here, I rely on the material that students have already collected from the end of individual chapters.”


Financial and Managerial Accounting, 10e, Corporate Financial Accounting, 10e, and Managerial Accounting, 10e by Carl Warren, James Reeve, and Jon Duchac, include a new end-of-text appendix that provides expanded coverage of IFRS and includes an exhibit that outlines relevant differences between US GAAP and IFRS.


Financial Accounting: An Introduction to Concepts, Methods, and Uses, 13e by Clyde Stickney, Roman Weil, Katherine Schipper, and Jennifer Francis speaks with new authority with expanded use of real-world company data from both U. S. GAAP financial statements and IFRS financial statements in chapter examples and end-of-chapter exercises and problems. CLICK HERE to learn more about how these authors are addressing these changes in the current edition of their text.



INTERMEDIATE ACCOUNTING


Loren Nikolai, University of Missouri, Columbia
John Bazley, University of Denver
Jefferson Jones, Auburn University


“We plan to address IFRS in our intermediate accounting courses in several different ways. First, we will familiarize students with the issues that the SEC must address if, or when, it requires U.S. companies to use IFRS in their financial statements filed with the SEC. Second, we will discuss the joint convergence project of the FASB and IASB. Third, we will show the tentative joint FASB/IASB ‘conceptual framework’ that is likely to be the underpinning for future GAAP. Fourth, we will introduce students to the differences between financial statements (income statement and balance sheet) prepared under IFRS versus U.S. GAAP. Fifth, in each relevant chapter, we will address the differences between IFRS and U.S. GAAP for the topics in the chapter. Finally, in order to develop students’ judgment required in the application of IFRS, we will assign homework that either requires a narrative response to these differences or else requires students to prepare parts of selected exercises/problems under both U.S. GAAP and IFRS.”


Intermediate Accounting, 11e by Loren Nikolai, John Bazley and Jefferson Jones includes an appendix in Chapter 1 on convergence of GAAP and IFRS and an appendix in Chapter 2 on the tentative FASB and IASB conceptual framework. In addition, relevant discussions, examples of financial statements prepared under IFRS and end-of-chapter material that test IFRS are all included throughout the textbook.



Earl Stice and James Stice, Brigham Young University


“On August 27, 2008, the U.S. Securities and Exchange Commission (SEC) that has accounting rule-making responsibility for public companies in the U.S. proposed a roadmap for the potential mandatory adoption of International Financial Reporting Standards (IFRS) by public companies in the U.S. (as opposed to the current GAAP issued by the Financial Accounting Standards Board (FASB)) and (2) proposed a rule that would allow the optional use of IFRS by certain large public companies. The proposed roadmap targets potential mandatory adoption of IFRS in the U.S. beginning in 2014, but identifies several milestones that would need to be achieved prior to the mandatory use of IRFS. The proposed rule would allow certain large companies to use IFRS as early as 2009. Under the proposal, the SEC would reconvene in 2011 to decide whether the milestones have been achieved, whether a mandatory IFRS conversion date should be set for all public companies.


“Because it appears that IFRS will be required in the future and because the FASB and International Accounting Standards Board (IASB) that issues IFRS, we will be providing periodic updates regarding developments in international accounting standards and activities by accounting regulators that affect the timing and adoption of these standards.”


Intermediate Accounting, 17e by Earl Stice and James Stice will include a new chapter on harmonization and globalization.

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