IFRS developments:  New standards, revenue & leasing hickups, and slow global convergence

Grant Thornton International’s IFRS Interpretations Group (IIG) met in London on 13-15 July 2011 to consider various International Financial Reporting Standards developments. Grant Thornton Australia’s National Head of Professional Standards Keith Reilly is a member of the IIG which comprises the national heads of technical IFRS services for the 11 largest Grant Thornton member firms. The areas of interest to Australia covered at this meeting, given that our Australia Accounting Standards Board automatically adopts IFRS, are:

New Consolidations (IFRS 10), Joint Ventures (IFRS 11), Disclosures (IFRS 12) and (Fair Value Measurements (IFRS 13)
A brief summary of these new standards was contained in the May 2011 edition of Summit and Technical Alerts on these topics are also on the Grant Thornton Website.

At first glance these new standards which apply only for accounting periods commencing 1 January 2013 (typical 30 June 2014 balancers) appear to be more in the way of clarification than adding or changing any requirements. However, a more detailed examination suggests that in some cases they will have some significant impacts.

IFRS 10 has new control tests particularly around the use of the ‘de facto control’ and ‘potential voting rights’ which significantly extend the control criteria. A telling point is that the US pulled out of this joint project because of philosophical objections to de-facto control and potential voting rights. IFRS 10 is seen by some to clarify the requirements of the existing IAS 27 (AASB 127) consolidations standard by adding ambiguity with the use of examples to the broader control definition in IAS 27.

IFRS 13, also at first glance, just seems to be as described:  consolidating existing requirements into one standard. However the requirement to use the ‘highest and best use’ particularly in the most advantageous market where there is no principal market can result in some novel balance sheet values.

The IIG will be assessing the practical implications of the 4 new standards and issuing guidance to our clients so that they are clear about the impact of these new standards for them well before the application date of December 2013 or June 2014.

Revenues and Leases slowdowns
The IASB announced in mid-June that it would re-expose the Revenues proposed standard given the significant changes that had been made following submissions received on the August 2010 Exposure Draft (ED).This is likely to occur sometime in the second half of 2011. The Leasing ED also attracted significant comment (nearly 800 submissions) and will be re-exposed in coming months. It is unlikely that final standards on either revenues or leasing will be applicable much before 2016.  This will bring a sigh of relief to those faced with making major changes to their current accounting policies and systems.

US Convergence to IFRS – 1 set of global accounting standards a long way off!
For those who have been hoping for one set of global accounting standards, the US position is quite depressing. Whilst there has been some slippage by the SEC on its decision about whether to adopt IFRS, the outcome is expected by early 2012. The feeling is that the SEC supports a phased approach with the objective that ‘eventual’ compliance with US GAAP will ensure IFRS compliance.

The FASB will start to issue IFRSs as US standards (US GAAP) once the SEC makes an IFRS decision. A suggested IFRS adoption timeframe of five to seven years is expected. This may be overly optimistic, as adoption will be on a standard by standard endorsement. The FASB will retain the right to endorse, modify, or create a US solution, or more probably just delay endorsement if it is not happy with the IASB position.
In summary it will take a long time to have full IFRS in the US but with a commitment to do one day whenever, is the political reality.

If you would like to discuss this issue, please contact me or your usual Grant Thornton advisor or the author of this article.

Keith Reilly
National Head of Professional Standards
T  +61 2 8297 2400
E  keith.reilly@au.gt.com