Key Moves to Reshape Global Financial Reporting

So how did the process get started to reshape the global financial road map, and who are the key players?

In 2002, the U.S. Financial Accounting Standards Board (or FASB, which issues GAAP rules) and the London-based International Accounting Standards Board (or IASB, which issues the IFRS) entered into the Norwalk Agreement, which lays out a plan to undertake efforts to converge the U.S. GAAP and the IFRS. The primary difference between the two is that the IFRS are more focused on objectives and principles and less reliant on detailed rules than the GAAP.

After much discussion and negotiation, the European Commission began its project on the equivalence of national GAAP and the IFRS and issued a draft report in 2005. The U.S. Securities and Exchange Commission (SEC) followed with its development of the "IFRS Road Map" in 2005.

In 2006, the FASB and IASB reaffirmed their commitment to converge the two reporting systems and updated the Norwalk Agreement based on findings in the 2005 reports. In 2007, the SEC eliminated the requirement for foreign companies that use IFRS to reconcile to the GAAP. The first major step in accepting IFRS in financial reports circulated to U.S. investors.

In 2007, in another major step to accept IFRS reporting requirements by U.S. companies, the SEC issued a "concept release" on the topic of allowing U.S. companies a choice between filing their reports based on IFRS or GAAP requirements. A concept release opens up the question and seeks comments. The SEC has not yet permitted U.S. companies to use IFRS reporting requirements for SEC reports, but it did move a step closer in May 2008 when it released a "proposing release" on the matter. The proposing release proposes the change and asks for comments.

SEC Chairman Christopher Cox is leading the effort to permit the use of IFRS and spoke favorably about this option in a speech to the International Organization of Securities Commissions in Paris in May 2008. If the organization adopts the proposing release, U.S. companies will be able to use IFRS for SEC reporting purposes by 2011.

The U.S. will be one of the last countries to jump on this bandwagon. Israel adopted IFRS in 2008. Chile and Korea plan to adopt IFRS in 2009. Brazil is set to adopt IFRS in 2010 and Canada in 2011. So if the U.S. does jump on the bandwagon in 2011, global corporations will be able to adopt IFRS for almost all their reporting.

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