Importance of being financially bilingual

Most of the world’s more significant capital markets now require IFRS, or some form thereof, for financial statements of public-interest entities. For specific country data, see our publication IFRS adoption by country


The remaining major capital markets without an IFRS mandate are:
Most of the world’s more significant capital markets now require IFRS, or some form thereof, for financial statements of public-interest entities. For specific country data, see our publication IFRS adoption by country (http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-status- country.jhtml), and for additional information, see the IASB’s jurisdictional profiles (http://www.ifrs.org/Use-around-the-world/Pages/Jurisdiction-profiles.aspx). The remaining major capital markets without an IFRS mandate are:

• The US, with no current plans to change for domestic registrants (full IFRS allowed for non-US filers);
• Japan, where voluntary adoption is allowed, but no mandatory transition date has been established;
• India, which this year began its multi-year rollout of Indian accounting standards for domestic companies that are based on and significantly converged with IFRS (full IFRS allowed for non-Indian companies whose securities trade in a public market); and
• China, which has indicated that it intends to fully converge at some undefined future date. Continued global adoption affects US businesses, as additional countries permit or require IFRS for statutory reporting purposes and public filings. IFRS requirements elsewhere in the world also impact US companies through cross-border, merger and acquisition (M&A) activity, and the IFRS reporting demands of non-US stakeholders. Accordingly, it is clear from a preparer perspective that being financially bilingual in the US is increasingly important. From an investor perspective, the need to understand IFRS is arguably even greater. US investors keep looking overseas for investment opportunities.

Recent estimates suggest that over $6 trillion of US capital is invested in foreign securities. The US markets also remain open to non-US companies that prepare their financial statements using IFRS. There are currently approximately 500 non-US filers with market capitalization in the multiple of trillions of US dollars that use IFRS without reconciliation to US GAAP. T

IFRS affects US businesses in multiple ways

While use of IFRS in the US by public companies will not be required in the foreseeable future, IFRS remains or is becoming increasingly relevant to many US businesses. Companies will be affected by IFRS at different times and to a different degree, depending on factors such as size, industry, geographic makeup, M&A activity, and global expansion plans. The following discussion expands on these impacts.

Mergers and acquisitions and capital-raising

The volume of global M&A transactions continues to remain at historically high levels. As more companies look outside their borders for potential buyers, targets, and capital, knowledge and understanding of IFRS becomes increasingly important. Despite the Boards’ recent standard-setting coordination, significant differences in both bottom-line impact and disclosure requirements remain. Understanding these differences and their impact on key deal metrics, as well as on both short- and long-term financial reporting requirements, will lead to a more informed decision-making process and help minimize late surprises that could significantly impact deal value or timing.

Non-US stakeholders

As our marketplace becomes increasing global, more US companies have non-US stakeholders. These stakeholders may require IFRS financial information, audited

Importance of being financially bilingual

IFRS financial statements, and budgets and management information prepared under IFRS.

Non-US subsidiaries

Many countries currently require or permit IFRS for statutory financial reporting purposes, while other countries have incorporated IFRS into their local accounting framework used for statutory reporting. As a result, multinational companies should, at a minimum, monitor the IFRS activity of their non-US subsidiaries. Complex transactions, new IFRS standards, and changes in accounting policies may have an impact on an organization beyond that of a specific subsidiary.

The PWC study argues in the long-term vision of a single set of consistently applied, high-quality, globally-accepted accounting standards. However, acceptance of an outright move to international standards is off the table, at least for now. In the meantime, the FASB and IASB should continue to focus on improving the quality of their standards while, if possible, reducing differences between IFRS and US GAAP.