Organizations with a global presence have increasingly considered converting to the International Financial Reporting Standards (IFRS). Entities currently under U.S. Generally Accepted Accounting Policies (U.S. GAAP) should note that IFRS and U.S. GAAP have more similarities than differences and are grounded in the same basic principles. IFRS is generally viewed as policies that apply in a more general principles-based approach, while U.S. GAAP applies a more rules-based approach. This article is the first in a series covering considerations for conversion from U.S. GAAP to IFRS. IFRS has grown to become a standard across the globe and is currently accepted in 144 countries. Reporting under IFRS is also permitted to any foreign registrant that files with the U.S. Securities and Exchange Commission.
Organizations should first consider the needs of the end users of the financial statements. This could include management, ownership group, potential business partners, prospective buyers and banking relationships. Organizations should consider if IFRS could provide better access to financing. Also, entities should consider the impact to their current and future financial covenants. Discussions with current and potential lending providers should occur early in the process to get their input. In addition, it is important to perform pro-forma covenant calculations to determine the impact and consider if the current covenant thresholds are appropriate.
Organizational structure is also important to consider. Is the organization currently operating in multiple countries with their own separate local GAAP accounting rules and regulations? Many countries will accept IFRS financials and accounting method. Converting to one single standard could result in significant time savings, as it eliminates entries to bring the local financials into the consolidated standard while providing the organization with conformity in its accounting policies. It is important to note, however, that all consolidated entities under IFRS must follow uniform accounting policy elections and methodology. It is also vital to gain by-in from every accounting team within the global organization to ensure a smooth transition to IFRS.
The information technology team should also be consulted early in the process. An assessment should be performed to determine if the current infrastructure is capable of the conversion or if additional investments are needed.
Schneider Downs provides assurance and advisory services for international entities and organizations following IFRS. For more information concerning international business matters and their impact to your organization, please visit the Schneider Downs Our Thoughts On blog or email us at [email protected].
