The More I Learn IFRS the More Afraid I Become Of Its Implementation in the U.S.
I'm not going to claim to be an expert on IASs (or even FASs for that matter) but I've had the fortune of diving into IFRS material lately in preparation for international accounting and auditing standards hitting the CPA exam in 2011 and I have to say: I am fucking afraid.
Re:Balance's Jim Peterson, upon hearing of my fear, tried to calm my nerves by declaring IFRS in the U.S. is not something I should expect to see in my lifetime. Maybe he overestimates my fabulous chain-smoking, vodka-chugging, junk-food-scarfing lifestyle and assumes I've only got a good ten years left in me but I think he's wrong. Sure, the SEC timeline isn't happening and I wouldn't put money on convergence in 2014 as they would like us to believe (I believe, Mary Schapiro!) but it is happening whether we like it or not. If IFRS in the U.S. isn't a reality, some version of convergence is and we're already seeing it in things like new FASB lease rules. Get used to it. If we won't adopt international accounting standards outright, we'll modify our own to the point where your average accountant won't be able to tell the difference. Why else would we eliminate the operating lease? Sure it's a reasonable change but what's the motivation behind it? Why tinker with leases now?
What frightens me is not the globalization aspect itself (scary all on its own of course) but the principles idea that is IFRS. Whereas GAAP comes with encyclopedia-sized rules for just about every transaction you can dream up, IFRS leaves the interpretation open to the accountants.
IAS 1 requires two statements of financial position (or balance sheet to those of you who are still using GAAP), two statements of comprehensive income, two statements of cash-flows, two years of changes in equity and accounting policies and notes. In the event of a restatement or retrospective change in accounting (which is barely allowed in IFRS), three years of statements of financial position and notes.
The statement of financial position is interesting to me because unlike our current balance sheet, it can pretty much contain whatever the hell its authors want.
Only the following items are absolutely required:
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h) and (i))
(e) investments accounted for using the equity method;
(f) biological assets
(h) trade and other receivables
(i) cash and cash equivalents
(j) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’
(k) trade and other payables
(m) financial liabilities (excluding amounts shown under (k) and (l))
(n) liabilities and assets for current tax, as defined in IAS 12 ‘Income Taxes’
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups classified as held for sale in accordance with IFRS 5
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
There is no "perfect" statement of financial position and really there's no set-in-stone formula for its presentation though assets and liabilities is the most popular presentation. Again, if Operating/Financing/Investing is a more appropriate presentation for the entity - as determined not by the IASB but whomever creates the statements - then it is allowed.
Do you understand what we are asking?
Our accountants are - mostly - not prepared for this kind of financial reporting free-for-all. We like the idea of being told how to do what and my concern here is that we are wholly unequipped at this point to handle a system of accounting standards that allows for so much interpretation. How do you teach judgment?!
James Kroeker may insist the P in GAAP stands for principles but we all know that's just a stupid term that has nothing to do with the actual implementation of said "principles" (be real, they are rules and rules only, guidance be damned).