International Financial Reporting Standards

Of Growing Importance for U.S. Companies

Assurance Services
 there is no longer a
choice
Three factors may influence your need to order to compare their operating and finan-
consider IFRS. First, many organizations will cial results with European and Asian rivals.
be obligated to report using IFRS due to a This may be particularly true for entities
country’s requirements. Below are just some operating in the manufacturing, banking,
of the possible scenarios where IFRS would insurance, automotive, and pharmaceutical
be required. industries.
• U.S. subsidiaries of companies operating IFRS will have a marked impact on all of
in jurisdictions where IFRS is the accept- these entities, and should be evaluated with-
ed standard need to follow the same out delay.
accounting standards as their corporate
parents. Third, the International Accounting Stan-
dards Board and the Financial Accounting
• U.S. joint ventures with a venture partner Standards Board in the United States are
operating in countries requiring IFRS also jointly advancing a converged set of stan-
need to follow the same accounting stan- dards. Under a recent agreement, both bod-
dards as their venture partner. ies will propose changes to their respective
standards that reflect common solutions to
• U.S. multinationals seeking to enter new specific differences. The first step is to elimi-
markets and expand operations to a for- nate a number of differences in the short
eign country may need to report using term, by selecting current practice either
IFRS in order to obtain an operating under existing IFRS or U.S. GAAP. The long-
license or raise capital. term objective is for both organizations to
work together to reduce or eliminate remain-
Second, some companies will want to con- ing disparities on an ongoing basis, through
sider supplementing their current U.S. a series of joint projects and in coordination
GAAP reporting with financial information of future work programs. In addition, both
prepared on an IFRS basis. This is particular- organizations have agreed to work together
ly true for U.S. companies with foreign com- through their respective interpretive bodies
petition who may want to supplement their in converging interpretation and application
reporting with information based on IFRS in issues.

IFRS is Inevitable
Deloitte & Touche Partner D.J. Gannon discusses the growing importance of IFRS in the Unit-
ed States:“Right now, there are close to 1,400 non-U.S. companies with shares listed in the
United States. Only about 50 are currently using IFRS, and they have to reconcile their finan-
cials with U.S. GAAP. This number could climb to between 500 and 600 as European compa-
nies convert from their home country standards to IFRS.
“In the next few years, U.S. GAAP may resemble IFRS so closely that the SEC could accept
IFRS-based filings by foreign private issuers in place of U.S. GAAP. This might even set the
stage for the SEC to give U.S. companies the option of using IFRS.”
the need for global
consistency
A few years ago, International Financial Reporting Standards
(IFRS) were a distant possibility. Today, the reality is far dif-
ferent. We are in a dramatic shift that is fast making IFRS the
most widely accepted accounting model in the world.

As the business environment becomes increasingly global

and companies routinely list on stock exchanges in many
countries, the need for consistent worldwide reporting stan-
dards intensifies. IFRS, formerly known as International
Accounting Standards, clearly addresses this issue; its goal is
to create comparable, reliable, and transparent financial state-
ments that will facilitate greater cross-border capital raising
and trade.

While converting to IFRS is a complex process, these stan-

dards have important and positive implications for organiza-
tions and individuals that adopt them:

1. For companies: reduced cost of capital and the ease of

using one consistent reporting standard from subsidiaries
in many different countries.

2. For investors: better information for decision making,

leading to broader investment opportunities.

s For national regulatory bodies: better information for

market participants in a disclosure-based system.

Without question, the time has come for IFRS. Companies in

the United States are being affected by the standards now: the
forces driving IFRS call for prompt action. Deloitte & Touche
can help you determine your company’s specific needs and
assist you in making the transition to IFRS.
 Use of International Financial Reporting Standards
Europe/Central Asia Americas Asia-Pacific Africa/
Middle East
Armenia Lithuania Bahamas Australia Egypt
Austria Luxembourg Barbados Brunei Jordan
Bangladesh Macedonia Costa Rica Nepal Kenya
Belgium Malta Dominican Republic Singapore Kuwait
Bulgaria Netherlands Ecuador Taiwan Malawi
Croatia Norway Guyana Mauritius
Requires IFRS

Cyprus Poland Haiti Oman

Czech Republic Portugal Honduras Tunesia
Denmark Romania Jamaica
Estonia Russia Panama
Finland Slovakia Papua New Guinea
France Slovenia Peru
Georgia Spain Trinidad & Tobago
Germany Sweden
Greece Switzerland
Hungary Tajikistan
Ireland Ukraine
Italy United Kingdom
Kyrgystan
Latvia

Moldova Argentina New Zealand Iran

Uzbekistan Brazil China/Hong Kong Israel
Canada India Pakistan
Converging
with IFRS

Cayman Islands Indonesia South Africa

Chile Japan Zimbabwe
Guatemala South Korea
Mexico Malaysia
Uruguay Philippines
Venezuela Thailand
United States

The European Union has led the way in making IFRS compulsory. In May 2002, the
European Parliament ruled that the consolidated financial statements of substantially all
companies domiciled in the EU with public shares listed on an EU stock exchange must
follow IFRS beginning January 1, 2005.
This decision affects more than 7,000 companies that currently use their home country’s
GAAP, and is accelerating the transition to IFRS by corporations on six continents.
 the time has come for
your next step
IFRS signifies a new era of financial reporting that will
eventually touch thousands of U.S. companies. Its
impact on U.S. GAAP will deepen as it becomes the
prevailing global accounting standard. Ultimately, a
new global standard will emerge that represents criti-
cal aspects both of IFRS and U.S. GAAP.

The broader a company’s international activities, the

greater the effect of IFRS. Some companies will need
to adopt IFRS now to meet international financial
reporting and lending requirements. Others will
recognize the need to supplement current U.S. GAAP
reporting with IFRS commentary to allow more accu-
rate comparison to foreign competitors.

Either way, Deloitte & Touche can help determine your

company’s specific needs and assist you in making the
transition to IFRS.

To learn more, visit the IAS Plus Web site at

www.iasplus.com.
 Deloitte & Touche, one of the nation’s leading
professional services firms, provides assurance
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information, please visit Deloitte & Touche’s
Web site at www.deloitte.com/us.

April 2003

#3069

©2003 Deloitte & Touche LLP.

Deloitte & Touche refers to
Deloitte & Touche LLP
and related entities