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International Financial Reporting Standards Considerations for the Consumer Products Industry

By now you’ve likely heard the increasing warning signals about the inevitable movement toward International Financial Reporting Standards (IFRS) as a single set of globally accepted accounting standards. While this was intended to provide consistency in financial reporting standards and increased globalization of companies, it also has resulted in significant efforts outside of financial reporting, in areas such as information technology and human resources, and therefore, requires the attention of corporate executives and leaders throughout the organization. Additionally, it may also provide a strategic opportunity for positive organizational change for those who understand the benefits of a reasoned and deliberate conversion process. Of course, like any significant business decision, determining the timing and pace of conversion to IFRS requires an understanding of the potential costs and benefits. It is important to make an informed choice based on a thorough analysis.

Recent events suggest that reporting under IFRS will be allowed or required for most public companies in the U.S. and around the globe within the next few years. On November 14, 2008, the SEC issued its long-awaited proposed IFRS “roadmap” outlining milestones that, if achieved, could lead to mandatory transition to IFRS starting in fiscal years ending on or after December 15, 2014. The roadmap also contains proposed rule changes that would give certain U.S. issuers the early option to use IFRS in financial statements for fiscal years ending on or after December 15, 2009. The SEC believes that “the use of a single, widely accepted set of high-quality accounting standards would benefit both the global capital markets and U.S. investors by providing a common basis for investors, issuers and others to evaluate investment opportunities and prospects in different jurisdictions.” The roadmap also notes that IFRS has the potential “to best provide the common platform on which companies can report and investors can compare financial information.” The SEC is seeking comments on numerous questions raised in the proposed roadmap. The comment period is expected to run until mid-to-late February 2009.

The proposed roadmap outlines seven milestones. Milestones 1–4 discuss issues that need to be addressed before mandatory adoption of IFRS:

  • 1.

    Improvements in accounting standards.

  • 2.

    Accountability and funding of the International Accounting Standards Committee Foundation.

  • 3.

    Improvement in the ability to use interactive data for IFRS reporting.

  • 4.

    Education and training on IFRS in the United States.

Milestones 5–7 discuss the transition plan for the mandatory use of IFRS:

  • 5.

    Limited early use by eligible entities: This milestone would give certain U.S. issuers the option of using IFRS for fiscal years ending on or after December 15, 2009.

  • 6.

    Anticipated timing of future rule making by the SEC: On the basis of the progress made on milestones 1–4 and experience gained from milestone 5, the SEC will determine in 2011 whether to require mandatory adoption of IFRS for all U.S. issuers. Potentially, the option to use IFRS could also be expanded to other issuers before 2014.

  • 7.

    Implementation of mandatory use: The roadmap raises many questions, including whether the transition to IFRS should be phased in. According to the roadmap, large accelerated filers would be required to file IFRS financial statements for fiscal years ending on or after December 15, 2014, then accelerated filers in 2015, and nonaccelerated filers in 2016.

Under the proposed roadmap, U.S. issuers that meet both of the following criteria would be eligible to use IFRS earlier in financial statements for fiscal years ending on or after December 15, 2009:

  • The U.S. issuer is globally among the 20 largest listed companies worldwide in its industry, as measured by market capitalization.

  • IFRS, as issued by the International Accounting Standards Board (IASB), is used as the basis for financial reporting more often than any other

basis of accounting by the 20 largest listed companies worldwide in the U.S. issuer’s industry, as measured by market capitalization.

An issuer that meets these criteria and chooses to use IFRS (an “IFRS issuer”) must prepare its financial statements in accordance with IFRS as issued by the IASB. Issuers electing to file IFRS financial statements with the SEC would be required first to do so in an annual report and would not be able to file IFRS financial statements with the SEC for the first time in a quarterly report, registration statement, or proxy or information statement.

Investment companies; employee stock purchase, savings, and similar plans; and smaller reporting companies, as defined by the SEC, are excluded from the definition of an “IFRS issuer” in the proposed roadmap and therefore would not be eligible to early adopt IFRS. For more information on the SEC’s action, visit www.deloitte.com/us/ifrs.

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.


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