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Unit 2: Auditing Standards and IFRS

the needs of each nation’s capital markets. Those standards that were found to work well in the Notes
legal, cultural, political and economic context of each nation became the “generally accepted
accounting principles,” or GAAP, for that particular jurisdiction. Naturally, different norms in
each nation led to different GAAPs in each nation.
The growing dynamic of globalization presented a challenge to these “legacy systems.” Global
protocols for the internet, electronic payments, software systems and cargo shipping demonstrated
the potential value of uniform global systems. A discussion began among market participants
over whether the global capital markets would similarly benefit by having a single set of high-
quality accounting standards that could be applied around the world.

In order to create a uniform global system for financial reporting, the IASB was formed to serve
as the global accounting standard-setting body. In 2001, the IASB promulgated the first iteration
of IFRS, offering the possibility of a single set of high-quality accounting standards that could be
used by all nations.

2.4.2 The Challenges and Opportunities of IFRS

Since 2001, IFRS has become accepted or been adopted for public reporting purposes in over 100
countries, including the 27 member-states of the European Union. Others scheduled to follow in
the next few years include Argentina, Brazil, Canada, Chile, India, Korea, Singapore and Mexico.
In addition, in June 2009, Japan approved a roadmap for the adoption of IFRS which includes an
election for Japanese companies to begin voluntarily using IFRS immediately. As more and
more countries adopt IFRS, a robust conversation has begun about whether the United States
should take this step or otherwise participate in a process that leads to the acceptance of more
uniform global accounting standards for use in the U.S.
As part of that effort, since 2002, the IASB and the FASB, which sets accounting standards in the
United States, have been engaged in a process aimed at “converging” IFRS and US GAAP. The
goal is that over time the differences between IFRS and US GAAP could steadily be diminished
and eventually the two sets of standards would be essentially, if not completely, identical.
While progress has been made to reduce the differences between IFRS and US GAAP, the speed
at which that progress has been made has been substantially slower than originally anticipated.
In addition, there are some who believe that convergence is unlikely to get to the point where
the two sets of standards are truly identical. This view has led some to call for the United States
to adopt IFRS outright to replace US GAAP.

Example: In that vein, the U.S. Securities and Exchange Commission (SEC) in November
2008 proposed a “Roadmap for the Potential Use of Financial Statements Prepared in Accordance
with IFRS by U.S. Issuers” (the Proposed Roadmap) and solicited public reaction.
The Proposed Roadmap laid out a process and a set of milestones which, if met, could lead to
certain larger public companies in the United States being required to begin issuing their financial
reports in accordance with IFRS by the year 2014, with smaller public companies adopting IFRS
in 2015 and 2016.

Notes More recently, some market participants have raised the possibility of transitioning
entirely from US GAAP to IFRS for public company financial reporting in the United
States.

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