By Paul Pacter
Paul Pacter, PhD, CPA (inactive), is a former member of the IASB and currently manages the IFRS Foundation's study of IFRS use around the world. From 1973 to 2010 he was a staff member of the FASB, the IASC and the IASB. He is also a member of the CPA Journal Editorial Board. This is adapted from an article by Pacter, which first appeared in the CPA Journal in July 2015.
The goal: A single set of global accounting standards
IFRS is developed by the International Accounting Standards Board (IASB), which operates under the oversight of the IFRS Foundation. The goal of the IASB and the IFRS Foundation is to develop a single set of global financial reporting standards that bring transparency, accountability and efficiency to financial markets around the world. Those standards serve the public interest by fostering trust, growth, and long-term financial stability in the global economy.
This goal was reaffirmed by the IFRS Foundation Trustees in their 2012 strategy report. The Trustees acknowledged that pathways to IFRS adoption may differ across jurisdictions, and some may find it necessary to converge their national standards with IFRS as an interim step before outright adoption. But the goal is adoption. Regardless of the process, companies should be able to unconditionally assert compliance with IFRS as issued by the IASB.
In late 2012, the Trustees of the IFRS Foundation began a project to assess progress towards the goal of a single set of global accounting standards. An important part of that project is to identify which jurisdictions have adopted IFRS, and exactly how they have done so:
- is IFRS required or permitted?
- is it for public companies only or also for all or some private companies?
- is it for consolidated financial statements only or also for individual company financial statements?
- what is the process for adoption?
A second and equally important objective of the project is to assess the validity of frequent assertions that IFRS jurisdictions make many modifications in adopting IFRS locally, resulting in numerous "flavours" of IFRS around the world. Such modifications would be inconsistent with the goal of a single set of global accounting standards and harm comparability. Are those assertions reality or myth?
Profiles for 140 jurisdictions
Profiles on the use of IFRS have been completed for 140 jurisdictions from all regions of the world. The IFRS profiles may be found on our jurisdiction profiles page.
The table below provides a list of the 140 jurisdictions for which profiles have been developed. The 116 jurisdictions that require IFRS for all or most publicly accountable entities (listed companies and financial institutions) are highlighted in blue.
All jurisdiction profiles and their status
- The 116 jurisdictions in blue require IFRS for all or most domestic publicly accountable entities (listed companies and financial institutions).
- Jurisdictions that permit or require IFRS for at least some domestic publicly accountable entities are in grey.
- Jurisdictions that do not require or permit IFRS for any domestic publicly accountable entities are in white.
|Antigua and Barbuda
||St Kitts and Nevis
||St Vincent and the Grenadines
|Bosnia and Herzegovina
||Trinidad & Tobago
||United Arab Emirates
Nearly all (93%) of the jurisdictions have publicly expressed support for a single set of high-quality global accounting standards. And the relevant authority in nearly all (94%) of the jurisdictions has made a public statement supporting IFRS as the single set of global accounting standards. Even in those few countries that have not publicly supported IFRS, IFRS is commonly used by publicly accountable entities in half of the jurisdictions.
Of the 24 jurisdictions that do not require IFRS for all or most domestic publicly accountable entities in their capital markets, 14 already permit or require IFRS for at least some domestic publicly accountable entities. Only 10 jurisdictions currently do not require or permit IFRS for any domestic publicly accountable entities. One of those (Thailand) is in the process of adopting IFRS in full, and another (Indonesia) is in the process of converging its national standards substantially (but not entirely) with IFRS.
The remaining eight that use national or regional standards are Bolivia, China, Egypt, Guinea-Bissau, Macao, Niger, the United States and Vietnam. (The IFRS Foundation has been told that the Vietnamese government has begun consideration of IFRS adoption.)
Those jurisdictions classified as requiring IFRS for all or most domestic publicly accountable entities include all of the European Union (EU) member states. Much publicity has been given to a modification made by the EU to IAS 39 Financial Instruments: Recognition and Measurement. That modification affects fewer than 20 banks out of the 8,000 IFRS companies whose securities trade on a regulated market in Europe. In other words, 99.8% of the listed companies in the EU use IFRS as issued by the IASB.
The 116 also include three jurisdictions that have adopted a recent, but not the latest, bound volume of IFRS: Macedonia (2009); Myanmar (2010); and Venezuela (2008). Those jurisdictions are working to update their adoption to the current version.
The 116 jurisdictions that require IFRS for all or most domestic publicly accountable entities include seven that have no stock exchange but that require IFRS for all financial institutions (Afghanistan, Angola, Belize, Brunei, Kosovo, Lesotho and Yemen). Of the 109 jurisdictions that do have stock exchanges, six do not require IFRS for listed financial institutions (Argentina, El Salvador, Israel, Mexico, Peru and Uruguay), although they do require IFRS for other listed companies. All of the others require IFRS for all listed companies.
A majority (60%) of the 116 jurisdictions that require IFRS for all or most domestic publicly traded companies also require IFRS for some domestic companies whose securities are not publicly traded—generally financial institutions and large unlisted companies. More than 90% of the 116 jurisdictions that require IFRS for all or most domestic publicly traded companies also require or permit IFRS for all or most non-publicly traded companies.
The table below analyses the use of IFRS in the 140 profiled jurisdictions by region of the world.
IFRS adoption by region:
||No. of jurisdictions
||Require IFRS for all or most domestic publicly accountable entities
||As a percentage of jurisdictions in the region
||Permit/require IFRS for some (but not all or most) domestic publicly accountable entities
||Neither require nor permit IFRS for any domestic publicly accountable entities
|Percentage of total
Assertions of "many local flavours" are wrong
The 140 jurisdictions have made very few modifications to IFRS, and the few that have been made are generally regarded as temporary steps in adoption. For example, the EU itself describes its IAS 39 modification as "temporary" and it affects very few companies. Modifications or deferrals that were made related mostly to IASB agenda projects that are now completed, including loan loss provisioning, use of the equity method to account for subsidiaries in separate company financial statements, bearer agricultural assets and rate regulation.
Jurisdictions have already begun eliminating those modifications and deferrals. A few jurisdictions had deferred the effective dates of some Standards (IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IFRIC 15 Agreements for the Construction of Real Estate), though many of those deferrals have now ended. A few other relatively minor modifications have been made:
- Pakistan has not adopted IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRIC 12 Service Concession Arrangements and IFRIC 15. For banks, Pakistan has not adopted IAS 39, IAS 40 Investment Property, and IFRS 7 Financial Instruments: Disclosures.
- Sri Lanka made some modifications to IAS 34 Interim Financial Reporting, IAS 40 and IFRS 7. Sri Lanka has adopted IFRIC 15, but the effective date is deferred.
In 84 jurisdictions, the auditor's report (or basis of presentation note) refers to conformity with IFRS. In another 33 jurisdictions, the auditor's report refers to conformity with IFRS as adopted by the EU (including the 31 EU/EEA member states, the EU itself and Albania, a potential accession country). As explained above, nearly all of the companies in those jurisdictions are also in full compliance with IFRS as issued by the IASB. In the 23 remaining jurisdictions, the auditor's report refers to conformity with national standards.
The IASB issued the International Financial Reporting Standard for Small- and Medium-sized Entities (IFRS for SMEs) in July 2009. Millions of small companies are using it. It has already been adopted in 73 of the 140 profiled jurisdictions and is under consideration in 14 more. The IFRS Foundation is also aware of another 10 jurisdictions for which profiles are not yet posted but that have adopted the IFRS for SMEs.
A word about the United States
In the years since the formation of the IASB in 2001, interest in requiring or permitting IFRS for domestic listed companies in the United States has blown hot and cold. The period from 2001 to 2008 might generally be characterised as a period of growing interest in IFRS in the United States:
- 2000—The SEC issues a concept release on IFRS.
- 2002—Five former SEC Chairs publicly support IFRS for domestic US companies.
- 2002—The FASB and the IASB undertake convergence projects.
- 2007—The SEC publishes a convergence road map plus another concept release.
- 2007—The SEC eliminates the requirement for foreign securities issuers using IFRS to reconcile to US GAAP.
- 2008—The FASB and the FAF support IFRS in a submission to the SEC: "Investors would be better served if all US public companies used accounting standards promulgated by a single global standard setter as the basis for preparing their financial reports... We, the SEC, and other affected parties should work together to develop a transition plan or 'blueprint' for moving US public companies to IFRS."
- 2008—The SEC issued a new road map towards requiring IFRS.
But the period from 2009 onward might be characterised as a period of declining interest in IFRS in the United States:
- 2009—The new SEC Chair expresses reservations to Congress.
- 2009—The FASB and the FAF's response to the second SEC road map is "wait and study".
- 2011—The SEC staff reports on IFRS's shortcomings.
- 2012—The SEC publishes a final staff report without providing a recommendation on IFRS adoption.
- 2014—The former SEC Chair, Cox, expresses limited appetite for IFRS in the United States.
Meanwhile, IFRS already has a big presence in the United States. American investors have vast holdings of foreign securities, most of which report under IFRS. As of December 2013, US investors held $6.5 trillion of foreign corporate equity securities and $2.7 trillion of foreign corporate debt securities. On the flip side, as of June 2014 foreign investors held $6.4 trillion of US corporate equity securities and $9.2 trillion of US corporate debt securities.
More than 500 foreign companies registered with the SEC provide US investors with IFRS financial statements without any reconciliation to US GAAP. American bankers see IFRS financial statements every day in loan applications of foreign companies, US subsidiaries of foreign companies and foreign subsidiaries of US companies. Similarly, US auditors are engaged to audit many of these same companies.
These figures strongly suggest a need for common accounting standards in the United States and the rest of the world.
The United States' border neighbours have already adopted IFRS. Canada has required IFRS for nearly all 4,000 public companies since 2011. A July 2013 study by FEI Canada found that the transition costs from old Canadian GAAP to IFRS were "moderate" (www.feicanada.org). And in Mexico, securities regulators adopted IFRS for all 480 listed companies other than banks effective in 2012. Early application was allowed starting in 2007.
The Pocket Guide
In April 2015, the IFRS Foundation published the second edition of IFRS as global standards: a pocket guide. This 204-page full-colour guide is primarily a summary of the use of IFRS in individual jurisdictions—a condensed version of the full jurisdiction profiles available on the IFRS website. In addition, the guide summarises:
- what IFRS is;
- why countries and other jurisdictions, and companies in those jurisdictions, would want to adopt IFRS (ie, the perceived benefits);
- the history of IFRS;
- how IFRS is developed;
- the requirements of each current Standard; and
- links to resources.
A PDF of the updated 2016 guide may be downloaded from here.
Consistent application and implementation of IFRS
The IFRS Foundation has adopted a set of strategic objectives for 2015 and 2016, set out in its most recent Annual Report (see the annual report section). Not surprisingly, continued development of a single set of high-quality, globally enforceable accounting standards and pursuit of global adoption of those standards are two key objectives.
Equally important, though perhaps less obvious, is the IFRS Foundation's objective of supporting consistent application and implementation of IFRS. The objective acknowledges a need, on the IASB's part, to ensure a timely and responsive interpretation process when implementation issues arise in practice. The objective also acknowledges a need to provide implementation support to IFRS adopters. To achieve those objectives, the IFRS Foundation and the IASB have already put in place several concrete steps:
- a memorandum of understanding was signed between the IFRS Foundation and the International Organization of Securities Commissions (IOSCO), providing for enhanced cooperation to assist IOSCO member securities commissions with their lFRS implementation and enforcement activities;
- a similar arrangement has been put in place with the European Securities and Markets Authority (ESMA), the pan-European securities regulator;
- Transition Resource Groups (TRG) have been formed for IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers to help identify and resolve implementation problems on a timely basis;
- Post-implementation Reviews are now a standard feature for all major projects; and
- the IFRS Foundation's 2015 Review of Structure and Effectiveness is seeking feedback on possible further steps to encourage consistency in the application and implementation of IFRS globally.
Not just a goal, but a reality
The United States was one of nine countries that shared the vision of a single set of global accounting standards by signing a joint agreement to create the International Accounting Standards Committee in 1973. Today, the IFRS Foundation's study of 140 jurisdictions shows that the vision has become a reality. Of the 140 jurisdictions, 116 require IFRS for all or most listed companies and financial institutions, and another 14 require or permit IFRS for at least some companies.
It is not an exaggeration to characterise the progress towards adoption of a single set of accounting standards throughout the world as extraordinary, successful, and highly beneficial to the global economy.