An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation

International Financial Reporting Standards (IFRS) have been adopted by most of the G20 countries. Given the broad worldwide acceptance of IFRS and significance of attaining comparability to facilitate free flow of capital, the US standard setter, the Financial Accounting Standards Board (FASB) made a commitment to jointly work with the International Accounting Standards Board (IASB) to explore the possibilities of convergence of US Generally Accepted Accounting Principles (GAAP) with IFRS. In 2007, the US Securities and Exchange Commission (SEC) eliminated the requirement that foreign companies listed on the US stock exchanges reconcile their IFRS‐based financial statements with the US GAAP. In the same year the US SEC issued a concept release to the public requesting comments on a proposal to allow US issuers to prepare financial statements in accordance with IFRS. Following these initiatives by the FASB and SEC, the aim of the present study is to investigate the implications of a potential full adoption of IFRS by the US. The present study details the challenges and benefits of adoption and outlines the steps required for a successful outcome of this process.     

Profit Measurement and UK Accounting Standards: A Case of Increasing Disharmony in Relation to US GAAP and IASs

UK accounting practice differs from International Accounting Standards (IASs) particularly with regard to amortisation of goodwill, provision for deferred taxation and the accounting treatment of pension costs. Under the core standards programme of the IASC the IASs have emerged closer to US practice. This paper evaluates the profit of those UK companies reporting to the Securities and Exchange Commission (SEC) in 1988 and 1994, spanning a period which saw the establishment of the ASB and the implementation of the IASC's comparability project. An increasing gap was found between the reported profit under UK accounting principles and that restated under US GAAP. The difference lay most frequently in accounting for goodwill, provision for deferred tax, and the accounting treatment of pension costs, with accounting for goodwill showing a particularly significant impact in 1994. Notwithstanding the introduction of FRS 10, an overall impression of increasing disharmony could continue to cause reconciliations to be required of UK companies seeking full listing on a US stock exchange, with consequent disadvantage relative to companies in other European countries seeking international capital in the US.     

IFRS in the United States – Developments and Current Status

International Financial Reporting Standards (IFRS) are now required or permitted for use by companies in more than 100 countries, including the majority of the G20 members. However, domestic public companies domiciled in the United States (US) continue to be required to file financial statements with the Securities and Exchange Commission (SEC) in accordance with US Generally Accepted Accounting Principles (US GAAP), and are prohibited from preparing them based on IFRS. This article describes the developments of IFRS‐related activities and initiatives in the US over the period 2007–2012, and provides an overview of the current status regarding potentially incorporating IFRS into the US financial reporting system based on recently issued reports by the SEC.     

IFRS in the United States: If,When and How

This paper provides an overview of the convergence efforts of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board. It begins with their 2002 Memorandum of Understanding and traces developments up to the December 2011 announcement by the IASB Chair that convergence has come to a close, and it is now time to incorporate IFRS into the US financial reporting system. The paper then assesses approaches being considered by the SEC for incorporating IFRS into the US financial reporting model. The conclusion calls on the SEC to ‘make a decision’ and set a date for US adoption of IFRS. Otherwise, the SEC effectively will have abandoned its goal of a single set of high quality global accounting standards.     

Critical accounting policy and estimate disclosures: Company response to the evolving SEC guidance

In late 2001, soon after numerous financial reporting failures including the much publicized demise of Enron, the SEC began a series of initiatives to improve critical accounting policy (CAP) and critical accounting estimate disclosures included within the MD&A section of Form 10-K. The first announcement, in the form of cautionary guidance, was issued in December 2001. This was followed by a Proposed Rule in 2002, and additional disclosure guidance near the end of 2003. Combined, the guidance required companies to provide information that would help investors understand the impact of estimates, accounting policies and external factors on financial results. Through 2007, the SEC continued to provide guidance as to the content of CAP disclosures in the MD&A.In this study, we assess the extent to which companies responded to the initial CAP guidance, and determine the extent to which company disclosures changed with additional SEC guidance by analyzing CAP disclosures included in the 2001 and 2003 10-K filings for 112 of the Mid-Cap 400 companies. Our findings indicate that most, but not all, sampled companies included 2001 CAP disclosures consistent with the cautionary advice. We find that the disclosure content increased from 2001 to 2003, and that the disclosure quality also increased. However, some items remained underdisclosed in 2003, indicating that even after a 2-year period in which the SEC continued to provide additional guidance and reviewed company CAP disclosures, companies were not fully disclosing content identified as important by the SEC, particularly when the guidance was included in the Proposed Rule.     

Toward an understanding of year-over-year changes in municipal management discussion and analysis disclosures

SynopsisUsing a unique setting in which the standard setter (the Governmental Accounting Standards Board) provides guidance on the content of Management Discussion and Analysis (MD&A) disclosures, we investigate the determinants of content changes in municipal government MD&A. We do so in terms of economic changes, turnover, and regulatory characteristics. We use a sample of 1142 municipal MD&A disclosures from fiscal year 2011 to 2015 to calculate a difference score based on the degree to which municipal MD&As change from the previous year. Our empirical analysis highlights that MD&A content changes vary directly with changes in the unemployment rate, fund balance from governmental funds, and auditor turnover. Furthermore, we find evidence that MD&A content changes might be more likely in states without formal GAAP mandates, possibly implying that municipal managers increase transparency by complementing reported financial information with additional qualitative commentary in narrative disclosures when states do not centralize fiscal control over municipalities. Overall, our analysis provides insight on the use of qualitative disclosure by municipal managers, and highlights a need for enhanced commentary on certain items (such as debt and capital expenditures) in order to create greater credibility with and accountability to citizens and other financial statement users. This research is especially timely as GASB re-examines the disclosure mandates of GASB 34.     

IFRS Developments in the USA and EU,and Some Implications for Australia

There have been several developments recently, both in the United States (US) and the European Union (EU), which will have consequences in Australia. The two major developments in the US are the decision by the Securities and Exchange Commission (SEC) to drop the reconciliation requirement for foreign registrants that adopt International Financial Reporting Standards (IFRS) and the serious consideration that the SEC is currently giving to allow US publicly traded companies to adopt IFRS. The developments in the EU involve its ever‐lengthening endorsement process and the increasing pressure being brought on the International Accounting Standards Board (IASB) and its oversight body, the International Accounting Standards Committee Foundation (IASCF) trustees, to alter their composition and the character of their operations. At the same time, there has been the FASB's appeal to the EU to accept IFRS without any endorsement process. The developments in the US have been lauded by the IASB and in Europe. They represent an impressive vote of confidence in the IASB and in the efforts being made by national standard setters and securities market regulators around the world. The US has already taken a long stride towards joining the more than 110 countries and other jurisdictions that have committed themselves to allow or require the use of IFRS for some or all reporting entities.     

Market Perception of Goodwill: Some Empirical Evidence

Accounting and reporting for goodwill has been on the agenda of the Financial Accounting Standards Board, the International Accounting Standards Committee, the UK's Accounting Standards Board, and the US Congress. Goodwill has also been the subject of Securities Exchange Commission rulings directed at specific companies. The attention directed towards goodwill would suggest that it is a material asset for a large number of firms. This article analyses the market perception of goodwill as an asset in the determination of the firm's valuation. Also explored is whether the market values goodwill to the same degree as it values other assets. The results of this study found that the market perceives goodwill as an asset and incorporates the information in the valuation of a firm. The findings of this study could be of importance to those involved in and affected by standard-setting deliberations involving goodwill.     

Corporate Disclosure of Material Information: The Evolution—and the Need to Evolve Again

This article by the former chairman of the FASB and the founder and executive director of the new Sustainability Accounting Standards Board (SASB) presents the rationale for and mission of the SASB. As the authors point out, both the Securities and Exchange Commission, which was created in 1934, and the Financial Accounting Standards Board, set up in 1973, emerged during times of low investor confidence to restore trust in the capital markets. And the institutional changes brought about by the creation of both the SEC and the FASB succeeded in eliciting new information for investors and in raising the standards by which such information was reported. But as the authors go on to argue, we now live in a different world, one in which the management of environmental, social, and governance issues is increasingly viewed as critical to the long‐run value creation of companies. And because today's corporate reporting fails to account in a systematic way for material non‐financial issues, it's time once again for the capital markets to evolve. The SASB aims to meet this need by creating sustainability accounting standards for use by public companies in disclosing a minimum set of material sustainability impacts for companies in over 80 different industries. As part of a natural evolution in disclosure, the SASB aims to achieve the same goal the SEC and FASB started with: to protect investors and the public.     

The Financial Value Of Cultural, Heritage And Scientific Collections: An Accounting Fiction

That museum and like collections have cultural, heritage, scientific and educational values is widely appreciated. However, accounting standard setters in Australia and New Zealand have recently advocated that public arts institutions bring their collections to account as assets for financial reporting purposes. There are no similar requirements in the US, European Union (including the UK) and Canada; nor has the International Accounting Standards Board made such a recommendation. From surveys of current accounting practices, it is apparent that, by and large, arts institutions in the English-speaking world do not report their collections for financial reporting purposes. This paper demonstrates that it is not technically proper to recognise cultural, heritage and scientific collections as assets for financial reporting purposes.     

Consolidation in the public sector: a cross-country comparison

This article analyses consolidated annual accounts in the public sector in six countries (Sweden, the UK, the USA, Canada, New Zealand and Australia) highlighting the differences and similarities in approaches. The authors also examine international trends and take an in-depth look at the International Public Sector Accounting Standards Board (IPSASB).     

An Evaluation of the Decision Usefulness of Cash Flow Statements by Australian Reporting Entities

In June 1991, the Australian Accounting Standards Board issued AASB 1026, Statement of Cash Flows. Since replacing the funds flow statement, the new accounting standard has become a compulsory part of Australian corporate financial reporting. In contrast to cash flow developments in the US and UK. the emergence of AASB 1026 has been preceded by almost no significant research attention by Australian academics. This study surveyed the attitudes to cash flow statements of 210 public companies listed on the Australian stock exchange. Findings revealed that there was particularly strong support for the essential provisions of AASB 1026 and the underlying principles of cash flow reporting. The results indicated that the cash flow statement is important for a wide variety of internal and external decision contexts, and appealed to a wide range of users. Furthermore, compared with previous research (e.g. McEnroe, 1989), the present survey demonstrated that operating profit was not considered by a large number of Australian companies to be a superior measure of business performance to operating cash flow.     

商誉减值准则的变迁及启示:国际视野与中国实践

近年来,我国商誉减值乱象频发,很多上市公司因计提巨额商誉减值导致出现巨额亏损,引发了众多学者对商誉计量的高度关注。由于经济发展存在较大差异,不同国家的商誉准则也有很大区别。国际会计准则委员会、美国会计准则委员会及中国财政部会计准则委员会对有关商誉后续处理方法的准则规定存在很大不同,而大多数学者仅选取其中两者进行对比分析。纵观三者来看,我国商誉准则的变化受国际及美国会计准则委员会的综合影响较大,值得通过对比和分析来获得启示,为我国未来商誉准则的发展提供参考。     

Sustainability assurance provider participation in standard setting

This paper examines the participation of accounting firms in the development of sustainability standards by the Securities and Exchange Commission (SEC) and the Sustainability Accounting Standards Board (SASB). This study shows that the Big Four accounting firms have an active role in both the submission of comment letters on sustainability to the SEC and participation in the industry working groups (IWG) for the SASB. The SASB participation reveals that individuals located within the US and at international affiliates are participating at earlier career stages. In addition, this paper leverages LinkedIn data, identifying the career path of the individuals subsequent to their participation with the IWG, to determine how large accounting firms are retaining the skills and knowledge necessary for this field. Since the Big Four firms are market leaders in sustainability assurance, the finding that Big Four firms can retain individuals with financial assurance backgrounds differently than individuals with other backgrounds speaks to the unique skill set that financial assurance develops. This suggests that the career opportunities for interested financial assurance individuals within the sustainability sphere remain robust within the Big Four environment.     

Convergence with International Financial Reporting Standards: The Case of Indonesia

Accounting professional bodies and governments in over 70 countries have supported the efforts made through the Indian Accounting Standards Board (IASB) in setting global accounting standards by adopting International Financial Reporting Standards (IFRSs) for local financial reporting purposes. However, this has not happened in over 30 other countries due to various reasons. The US standard setters, for example, have decided to eliminate the differences between IFRSs and US Generally Accepted Accounting Principles (US GAAP) first as part of their convergence project with the IASB. Also, some emerging nations have not supported IFRSs due to other reasons. In Indonesia, for example, IFRSs are not permitted for domestic listed companies. The purpose of this paper is to provide an understanding of the possible reasons for non-adoption of IFRSs in Indonesia by highlighting some of the important factors that are likely to influence the accounting environment in that country, taking an ecological perspective.     

Financialisation and the Conceptual Framework

The ongoing neoliberalisation of global economies has been well documented. Neoliberalism requires a commitment to a broad set of ideas about how political economies should operate, and these ideas underpin the transformations of practice in the process of neoliberalisation—both at a technical and conceptual level. Transactions within a neoliberal economy need to be accounted for in a way that accords with this broader set of ideas. Specifically, the growth of accumulation through financial markets has seen a concurrent growth in accounts that both reflects and reproduces finance at its centre. These accounts are more than just reports; they condition our expectations and support the production of further accounts, which in turn reinforce the dominant political economy. Despite the connection between neoliberalism, financialisation and the practice of accounting, the role of accounting in the process of neoliberalisation has received only limited attention. In order to contribute to a deeper understanding of these processes and to the role that accounting plays within them, this paper re-examines the Conceptual Framework (CF) to show how it forms an important part of the architecture of neoliberalism, providing coherence and legitimacy to its key ideas. The current CF project was jointly conducted by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), and is positioned within the broader literature on neoliberalism and financialisation. This paper shows how changes in terminology, shifts in notions of income and the popularity of market valuations (fair value accounting) work to normalise the speculative characteristics of financial markets. Through this newly configured globalised CF, the regulatory architecture of accounting may work to sustain the centrality of finance in a post-GFC economy, despite its many deficiencies.     

Operating and synthetic leases: Exploiting financial benefits in the post-Enron era

Applying constructive lease capitalization to operating leases of firms in the 2003 S&P 500 index, we demonstrate that currently companies can hide billions of liabilities, enhance retained earnings, income, and ratios by reporting leases as operating. With the rekindled interests of the International Accounting Standards Board and Financial Accounting Standards Board on lease reporting, our study provides valuable and timely information for their decisions.Results indicate that by reporting operating leases, firms avoided on average $582 million of liabilities (11% of total liabilities) and $450 million of assets (4% of total assets) for our 366 sample firms. Partitioning sample into negative and positive income impact subgroups provides additional insight into firm's motivation for using operating leases. Under lease capitalization the top quartile positive subgroup experienced an 18% increase in income while the top quartile negative subgroup had an 11% decline in income. There was also a significant negative impact on liquidity, leverage and performance ratios.     

The Information Contained in Reconciliations to Earnings Based on US Accounting Principles By Non-US Companies

To improve comparability of financial statements across countries, the US Securities and Exchange Commission (SEC) requires non-US registrants to either issue financial statements based on US Generally Accepted Accounting Principles (GAAP) or provide in their footnotes a reconciliation of their foreign accounts to their US GAAP counterparts. The New York Stock Exchange has requested the elimination of this requirement on the basis that it serves as a barrier to non-US companies that desire to enter the US market. The SEC maintains that the reconciliations provide important information to investors when assessing the value of a company's stock. This study investigates the information content claim made by the SEC. An event study methodology is utilised that measures the stock price reaction within a short window surrounding the SEC filing date of the firm's 20-F (analogous to the 10-K for US firms). A significantly positive correlation is documented between the stock price reaction and the change in the aggregate reconciliation. This result implies that US GAAP disclosures provide information to the market when the 20-F arrives at the SEC.     

Over-Complexity in Accounting Standards and the Emerging Duopoly of US GAAP AND IFRS

US accounting regulation has been criticised for maintaining an over-complex "rules-based" approach, cited as the partial cause of significant failures in corporate governance. US regulators state that they are now on a pathway to a more "principles-based" approach, but the International Accounting Standards Board (IASB) claims superiority in this approach already. The recent efforts of the US Financial Accounting Standards Board (FASB) and IASB are examined to see if either claim is clearly supportable. As these authorities appear to be in the process of creating a world accounting standard-setting duopoly, unresolved problems involving over-complexity are likely to be transported to other countries, including Australia.     

An investigation of SEC “Speech GAAP”

This study investigates the financial reporting regulation effects of the Securities and Exchange Commission (SEC) staff comments made during the American Institute of Certified Public Accountants (AICPA) Annual Current SEC & Public Company Oversight Board (PCAOB) Developments Conference in Washington, D.C. (SEC Conference). At this conference, the SEC staff communicates its preferences about areas where it believes companies are misapplying GAAP (Generally Accepted Accounting Principles). We call this communication SEC Speech GAAP. One outcome of the SEC Conference may be that companies re-evaluate their previous financial reporting by restating their financial statements. We find, first, that firms with restatement issues similar to those covered at the SEC Conference experience a decrease in the association between earnings and future cash flows after the restatement. Second, we find little market reaction to the disclosure of restatements related to SEC Conference issues, but the disclosure of non-conference related restatement issues has a significantly negative affect on investors’ valuation decisions. Our findings suggest that SEC Speech GAAP is associated with financial statements that are less informative to investors and investors find the valuation consequences of restatements prompted by SEC Speech GAAP to be less important than the valuation consequences for restatements prompted for other reasons.