IFRS Position Paper International convergence CIMA Position Paper | July 2006
CIMA supports global standards i.e. IFRS and the development of principle-based accounting standards. The changeover to IFRS was expected to take a major resource investment by companies and it has not disappointed in that respect. After all, this is not just a change in standards, but in business culture; a whole new accounting language, with different terms and ways of dealing with the same transaction. There are now about 100 countries across the world that either require or allow the use of IAS for financial statements. The notable exception is the US and those countries that have adopted US GAAP. To put this in context, out of a worldwide market capitalisation totalling over US$ 36 trillions at the end of 2005:
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US$11 trillions correspond to markets where IFRS are either required or permitted
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US$ 17 trillions to markets where US GAAP is the rule
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the balance is predominantly governed by Japanese GAAP.
The aim of the IASB is to establish a single set of globallyaccepted standards. A single global comprehensive set of accounting standards is a conceptual ideal that would:
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help to ensure the comparability of financial statements
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simplify audit of international groups
allow companies to enjoy a lower cost of capital as a result of their financial statements being more readily under stood improve cross-border investment and hence world
economic growth
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lower barriers to the free-movement of accountants in business across jurisdictions. To achieve this then the Board clearly needs to consider US GAAP convergence. Building upon the Norwalk Agreement, IASB and FASB are moving forward together using a number of joint working parties to consider new / amended accounting standards. The due process of the IASB requires
that new developments are open for consultation with interested parties having the opportunity to air their views. CIMA generally responds to IASB consultations and members can contribute to our responses via our consultation website. In terms of market capitalisation the EU is one of the major users of IAS and as such the European Commission (EC) is particularly interested in the pace of convergence between US GAAP and IAS. 8,000 public companies in the EU will report their first full year’s trading using IAS during 2006 and the EC is keen to ensure consistent application of IAS. Consistency will not be helped by significant changes to IAS especially so soon after initial implementation in Europe. As such there is a natural tension between the desire of IASB and FASB to move forward with convergence and the EC who would like to bed down the current suite of standards throughout Europe. Despite this wish for stability the EC also needs to take into account the approximately 400 EU companies which are listed in both the EU and on a US stock market. The accounts of these companies are prepared using IAS and currently they need to file a reconciliation of their results to US GAAP. It has been estimated that this reconciliation work (including audit assurance) can cost the largest companies up to €10,000,000.