IFRS Audits | Standards & Compliance

What is IFRS? International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. The IASB is an independent accounting standards body based in London.

Objective of IFRS:

  • Convergence to a single set of high quality accounting standards
  • Improve international financial reporting
  • Facilitate capital information throughout the world
  • Ease the financial reporting for large multinational corporations.

Timeline of Events

IFRS timeline

Over 100 countries allow the use of IFRS, which includes some 80 countries requiring IFRS for all domestic listed companies.


The IFRS for SMEs is a self-contained standard tailored for the needs and capabilities of smaller businesses. Many of the principles in full IFRSs for recognizing and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced. To further reduce the reporting burden for SMEs revisions to the IFRS will be limited to once every three years.

The IFRS for SMEs responds to strong international demand from both developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRSs. In particular, the IFRS for SMEs will:

  • Provide improved comparability for users of accounts
  • Enhance the overall confidence in the accounts of SMEs, and
  • Reduce the significant costs involved of maintain standards on a national basis.

The IFRS for SMEs will also provide a platform for growing businesses that are preparing to enter capital markets where application of full IFRS is required.

The IFRS for SMEs is separate from full IFRSs and is therefore available for any jurisdiction to adopt whether or not it has adopted the full IFRs. It is also for each jurisdiction to determine which entities should use the standard.

How does IFRS differ from US GAAP?

IFRS is more principles-based while US generally accepted accounting principles (GAAP) is rules-based (it is comprised of many forms of authoritative pronouncements and industry-specific requirements). The Financial Accounting Standards Board (FASB) is currently working on a large-scale codification project to integrate existing US GAAP into a single authoritative source. Newer FASB Statements demonstrate a convergence of US GAAP and IFRS (i.e. FASB Statement No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51").

There are many differences between IFRS and GAAP. For example:

  • IFRS does not permit use of Last In, First Out (LIFO) as an acceptable inventory costing method.
  • IFRS has different probability thresholds and measurement objectives for contingencies.
  • IFRS guidance regarding revenue recognition is less extensive than GAAP and contains relatively little industry-specific instruction.

What should your company be doing now?

The conversion to IFRS can be compared to the adoption of the Sarbanes-Oxley Act of 2002 (SOX). Both require:

  • Education on the topic,
  • Adoption of a methodology and time line
  • Assistance from non-financial departments and
  • Potentially significant costs

In comparison to SOX and other corporate governance guidelines, which initially focused on the impact to public entities, there was an indirect influence on private companies. The users of the financial statements will likely determine whether or not IFRS is adopted for financial reporting purposes. However, should a private company seek financing sources outside of the US, the requirement to report financial information under IFRS would have an earlier adoption date. The time when the conversion to IFRS would apply to private companies is yet to be determined.

The convergence to financial reporting under IFRS would allow US companies to be on equal playing field with their foreign counterparts. We suggest that you consider the following key elements to IFRS adoption:

Educate your implementation team
Ongoing training will be necessary across your entire organization. You should strive to understand the key differences between US GAAP and IFRS and how those impact your accounting policies and financial reporting. Additionally, Board and audit committee members may need additional education and insight on IFRS so they can continue to function properly in their oversight roles.

Adopt a methodology
Conversion to IFRS is best approached using a methodology encompassing the best practices of project management. Full support of the board and senior management will be critical.

Understand your conversion timeline
Currently, a large accelerated filer would be required to first report under IFRS in its Dec. 31, 2014. Based on reporting requirements, this would equate to an IFRS "date of adoption" of Jan. 1, 2012. The understanding of the key differences between US GAAP and IFRS learned in your education will play a vital role in determining the timeframe necessary for a thorough conversion.

Seek assistance from non-financial departments
First and foremost, consider the impact on your financial reporting systems. System modifications may be necessary to your treasury, payroll, general ledger, systems. Including IT in your conversion team is highly recommended. Other affected business processes may include internal reporting, employee and executive compensation plans, and investor relations.

Learn from conversion experiences of European and other US firms of foreign parents
European companies had only about two years to convert to IFRS. Some consequences included treating the change as a basic accounting and reporting exercise and failure to effectively plan with adequate project management. Some companies suffered from their decisions by spending several post-conversion years dealing with resulting business and operational issues and incurring excess costs.

What can Rehmann do for you?

At Rehmann, we are prepared to assist you will all phases of the IFRS conversion process - education, develop a methodology, understand your conversion timeline and learning from the experience of others.

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