Accounting
Global accounting harmonisation |
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| Accounting | |
| Written by Dave Marlow, Training Consultant, CTG (part of ILX Group plc) | |
| Monday, 21 December 2009 | |
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Bridging the Ga(A)p: What accountants need to know about global accounting harmonisation. Late in 2008 the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) affirmed their commitment to a globally applicable set of high quality accounting standards and laid out a timetable for completing the harmonisation process. Dave Marlow, Training Consultant at CTG - a division of ILX Group plc, highlights some of the issues that still need to be addressed and what accountants should be doing to prepare for the coming changes. According to their timetable, all major harmonisation projects should be completed by 2011, with adoption of the new global accounting standards planned for 2014. Given the proximity of those dates, accountants would be forgiven for believing that any significant differences between IFRS and US GAAP have already been addressed. Moreover, both the IASB and the FASB have introduced many improvements to their respective accounting standards in recent years. Accountants might assume that harmonisation was taken into consideration when these new standards were formulated, so any remaining differences are marginal – but is this actually the case? PricewaterhouseCoopers (PwC) publishes a regular report on the latest differences between IFRS and US GAAP - the current edition of which runs to a staggering 220 pages. Even more worryingly, this does not cover all the remaining differences - only those that PwC “considers most significant and/or most common”. But is this a true reflection of the task still at hand? How many, whilst technically being a difference (the guidance is indeed different), would result in the same accounting treatment for 99% of all transactions and arrangements? In reviewing the PwC report, it becomes apparent that the vast majority of the differences noted are exactly that; technical incongruities that would rarely actually have any impact. However, other important issues do still need to be addressed. Mind the gaps!To achieve harmonisation, the IASB and the FASB will need to introduce further changes to accounting standards, addressing significant differences in areas such as: 1. Business combinations: Significant changes to both IFRS (with IFRS 3 revised) and US GAAP have resulted in the elimination of most significant differences, but the option of measuring non-controlling interest (NCI) at the value of the share of the identifiable net assets is not available under US GAAP. NCI under US GAAP is always measured at full fair value. 2. Financial instruments: There are still many differences between IFRS and US GAAP in accounting for financial instruments, but the imminent arrival of IFRS 9 (Financial Instruments) should remove many of the most significant disparities. IFRS 9 is intended to greatly simplify accounting for financial instruments, but the practical implications of its application remain to be seen. 3. Property, plant and equipment (PPE): There is currently no option under US GAAP to hold PPE at fair value, unlike the treatment permitted under IFRS. There are no immediate plans to rectify this difference, but in practice it only has an impact within those industries that regularly revalue PPE under IFRS. 4. Debt vs Equity: As a result of a wider definition of debt under IFRS, more instruments are classified as debt under IFRS than US GAAP. Also, the requirement to split convertible instruments into both a debt and an equity component only applies under IFRS standards. These and other related differences are due to be eradicated as part of the harmonisation project leading up to 2011. 5. Leasing arrangements: The remaining differences in lease accounting under US GAAP and IFRS are minimal. Rather, the key issue is whether or not the current guidance is appropriate at all, in either jurisdiction. The recent IASB discussion paper (“Leases, Preliminary Views”, March 2009) proposed the elimination of off balance sheet operating lease accounting, and in the future we can expect all leasing arrangements to result in asset and liability recognition by the lessee. Get ready and be prepared A great deal of work still needs to be done and harmonisation may not be achieved within the suggested timeframe, but sooner or later there will be a new global set of accounting rules. So what can accountants do now to ease the transition process in the future? • Keep up to date with the latest developments • Conduct an impact assessment to identify the changes that will affect your organisation • Recognise the areas where you are compliant already and ensure those standards are applied correctly • Identify whether the changes will require an update to your finance systems, and if so plan and budget for that upgrade • Conduct a skills assessment to identify whether the accounting team can fulfill the new requirements, and pinpoint the recruitment and training solutions that might help to address any gaps. The harmonisation of accounting standards should have a positive impact on the mobility of accountants across the global workplace and simplify reporting for multinational organisations. For further information visit www.ilxgroup.com/finance Dave Marlow has a wealth of experience training city professionals in all areas of accounting and financial analysis. Dave qualified as a chartered accountant with PricewaterhouseCoopers. CTG provides bespoke financial training to global financial institutions, corporates and professional services firms. For further information visit www.ilxgroup.com/finance
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