At the time of writing, the IASB’s work plan reflects that work on a number of these
projects will continue into 2019 and beyond.
The IASB conducted its most recent agenda consultation in August 2015, the outcome of
which set the technical priorities until 2021. The work plan has been revised in response to
feedback received during the agenda consultation. The IASB has adopted the theme ‘Better
Communication in Financial Reporting’ and much of the work will focus on making the
financial information more relevant and improving the communication of that information.
3.2
IFRS/US GAAP convergence
‘Convergence’ is a term used to describe the coming together of national systems of
financial reporting and IFRS. As discussed below, between 2002 and 2013, the IASB and
FASB had various projects to both improve IFRS and US GAAP, respectively, and to
achieve their convergence. In addition, the US Securities and Exchange Commission
(SEC) have taken some steps towards the acceptance of IFRS in the US. In 2007, the
SEC began permitting foreign private issuers to file IFRS financial statements without
reconciliation to US GAAP. In 2008, the SEC set out a proposed roadmap outlining the
milestones and conditions that, if met, could lead to the use of IFRS in the US by
domestic registrants. In 2011, the SEC staff issued a work plan to explore the
incorporation of IFRS into the US financial reporting system. The SEC staff has since
published its final report on the IFRS work plan that raised significant concerns about
the further incorporation of IFRS in the US capital markets.
In 2013, the convergence process between the IASB and the FASB largely came to an
end. One of the messages the IASB staff received from respondents outside of the US to
the 2011 agenda consultation was for the IASB to consider whether convergence should
continue to be a priority. Ultimately, developing ‘a single set of high-quality,
understandable, enforceable and globally accepted financial reporting standards’58 has
largely superseded convergence as a significant driver of the IASB’s agenda setting
process. In fact, the Handbook, which was revised in 2013, removed convergence from
the list of factors that are influential in setting the agenda.
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Progress was made during the decade or so of focused convergence activities, however,
during which differences in accounting were minimised in many areas, notably share-
based payments, segment reporting, business combinations, consolidated financial
statements, fair value measurement, joint arrangements, investment entities and
revenue (with the issuance of largely converged standards). Although projects on leases,
insurance and financial instruments started out as joint projects, the IASB and the FASB
ultimately reached different decisions on each of them and none will be considered
converged standards. No new convergence projects are planned.
In a speech in March 2014 dealing with the IASB’s response to the global financial crisis,
Hans Hoogervorst, IASB Chair, said the following: ‘This inability to deliver compatible
outcomes with the FASB clearly demonstrates the inherent instability of convergence as a
means to achieve a single set of global accounting standards. For this reason, our Trustees
wisely concluded that convergence can never be a substitute for adoption of IFRS.’59
In December 2016, Wesley Bricker, the SEC Chief Accountant, on the question of
possible further use of IFRS for domestic issuers, expressed the view that, for at least
the foreseeable future, the FASB’s independent standard setting process and US GAAP
would continue to best serve the needs of investors and other users who rely on
financial reporting by US issuers. That said, he strongly encouraged the FASB and IASB
to continue to work together to eliminate differences between their standards where
such efforts would strengthen the standards and be in the best interests of investors in
the US public capital markets, as well as in other markets. He further commented that
both the FASB and the IASB would benefit from continued collaboration as both boards
continue to eliminate differences as a means of achieving progress towards the objective
of high-quality accounting standards in the US and globally.60
We continue to support the objective of a single set of high-quality global accounting
standards that are consistently applied. We acknowledge the significant challenges in
achieving this aspirational goal. The past 10 years or so have presented many challenges.
However, our reservations about the practicality do not negate the need to continue to
work toward the goal of a single set of high-quality accounting standards globally. We
believe the capital markets, investors and other users of financial information would
benefit from continued progress toward the ultimate goal.
4
THE ADOPTION OF IFRS AROUND THE WORLD
4.1 Worldwide
adoption
Since 2001, there has been a tremendous increase in the adoption of IFRS around the
world. The precise way in which this has happened has varied among jurisdictions. This
section sets out a brief description of how a number of key jurisdictions in each
continent have approached the adoption. Some have adopted full IFRS, i.e. IFRS as
issued by the IASB. Other jurisdictions have converged, or have a plan to converge, their
standards with IFRS.
An entity is required to apply IFRS 1 – First-time Adoption of International Financial
Reporting Standards – when it first asserts compliance with IFRS. The IASB has, therefore,
established unambiguously the principle that full application of its standards and related
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1
interpretations is necessary for an entity to be able to assert that its financial statements
comply with IFRS (as issued by the IASB). Consequently, it is necessary for countries that
align their national standards with IFRS to require the application of IFRS 1 so that entities
reporting under those standards can assert compliance with IFRS. In addition, an entity
that applies IFRS as amended by a local authority cannot assert compliance with IFRS.
The following table summarises IFRS adoption (generally for consolidated financial
statements) in countries with domestic market capitalisation exceeding US$500 billion
as at 30 June 2018. For further details on selected countries/regions, see 4.2 to 4.6
below. In addition, the IFRS Foundation is developing profiles of application of IFRS.
At the time of writing, profiles for 150 jurisdictions have been completed and are
available on the IASB’s website.
Country
IFRS Status
IFRS Permitted
Australia
Required for all publicly accountable entities and any entity preparing general purpose
financial statements that elects not to apply the framework under the Reduced Disclosure
Regime (RDR). Non-publicly accountable entities are required to apply IFRS recognition
and measurement requirements with simplified disclosures of the RDR.
Brazil
Required for regulated public companies, with exemptions for banks and real estate
companies; other companies must follow con
verged national standards.
Canada
Required for publicly accountable entities.
Permitted for all other entities.
Mainland China
Substantially converged national standards.
European Union IFRS as adopted by the EU (EU IFRS – see 4.2.1 EU member states may permit
below) required for consolidated financial or require the application of EU
statements of all listed companies and some unlisted IFRS by unlisted companies and
companies. Exemption for non-EU companies in separate financial statements.
applying for listing on an EU regulated market that
apply certain GAAPs determined by the European
Commission to be equivalent to EU IFRS.
France
See European Union.
EU IFRS permitted for the con-
solidated financial statements of
non-listed entities.
Germany
See European Union.
EU IFRS permitted for the con-
solidated financial statements of
non-listed entities.
Hong Kong
HKFRS (converged with IFRS) is required for all Permitted for listed companies
Hong Kong incorporated companies (listed and incorporated overseas.
non-listed).
India
IFRS converged Indian Accounting Standards (Ind Until Ind AS was introduced,
AS), with some mandatory and numerous optional listed companies with subsidiaries
departures from IFRS, to apply in phases from were permitted to apply IFRS in
financial years beginning on or after 1 April 2016.
consolidated financial statements.
This option is no longer available.
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Italy
See European Union.
EU IFRS permitted in the statutory
EU IFRS is required in the separate financial separate and consolidated financial
statements of companies on the Italian regulated statements of all other non-listed
stock exchange except insurance companies.
entities and non-regulated
enterprises (except SMEs).
Scope of EU IFRS extended to certain financial
institutions.
Japan
Considering mandatory adoption.
Permitted for most companies that
are listed or planning to be listed
on a domestic stock exchange.
Korea
IFRS as adopted by Korea (K-IFRS) is required for K-IFRS permitted for non-listed
all listed entities, unlisted financial institutions and entities.
state-owned entities.
Russia
Required for banks, insurance entities, non-state pension funds, clearing institutions,
certain investment management entities, listed companies and for some state unitary
enterprises and state-owned public joint-stock companies. Substantially converged
national standards applicable to stand-alone financial statements.
Saudi Arabia
IFRS (as adopted by the local regulators – mainly Non-listed entities have the
with some additional disclosure requirements) is option to adopt either full IFRS
required for banks, insurance companies and or IFRS for SMEs. Self-regulated
listed entities.
entities can choose, but are not
required, to adopt IFRS.
Singapore
Singapore incorporated entities listed on the Singapore incorporated entities are
Singapore Exchange are required to file financial permitted to file IFRS financial
statements prepared in accordance with statements with approval.
converged national standards equivalent to IFRS
(Singapore Financial Reporting Standards
(International) – SFRS(I)). Foreign entities that
are listed on the Singapore Exchange are required
to file financial statements prepared in accordance
with SFRS(I), IFRS or US GAAP.
South Africa
Required for all listed companies. From December 2012, non-listed companies
generally use either IFRS or IFRS for SMEs.
Spain
See European Union.
EU IFRS permitted for non-
listed groups for consolidated
financial statements; no
reversion to local GAAP once
an entity has applied EU IFRS.
Switzerland
Issuers of equity securities that are incorporated in IFRS permitted in consolidated
Switzerland and listed under the International Standard statutory financial statements of
on the SIX Swiss Exchange (SIX) must apply either non-listed entities.
IFRS or US GAAP. Other listed entities incorporated
in Switzerland must apply IFRS, US GAAP or Swiss
GAAP-FER. Entities not incorporated in Switzerland
must apply IFRS, US GAAP or a national GAAP
deemed by the SIX to be equivalent.
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Country
IFRS Status
IFRS Permitted
Taiwan
Standards and interpretations endorsed by the local IFRS permitted for foreign
regulators apply for financial statements beginning issuers, with reconciliation to
on or after 1 January 2017. The effective dates for ‘Taiwan-IFRS’.
standards and interpretations for Taiwan IFRS are
mostly aligned with global effective dates;
however, early adoption is generally not permitted.
Thailand
Domestic companies in Thailand have to adopt Thai IFRS permitted for foreign
Accounting Standards. Thai Accounting Standards companies.
are substantially converged with IFRS standards,
though the financial instruments standards (IAS 32,
IFRS 7 and IFRS 9) that are part of IFRS standards
have not yet been adopted. Normally, the effective
date of Thai Accounting Standards which are
translated from IFRS will be effective 1 year later
than the effective date of the respective IFRS.
United
See European Union. In addition, EU IFRS is EU IFRS permitted for all
Kingdom
mandatory when a company admitted to the UK companies, except in the
Alternative Investment Market (AIM) is charities sector; restrictions on
incorporated in the European Economic Area reversion to local GAAP once an
(EEA) unless such company is not a parent.
entity has adopted EU IFRS.
United States
Substantial convergence of selected standards.
Permitted for foreign private
issuers preparing financial
statements in accordance with
IFRS as issued by the IASB.
4.2 Europe
4.2.1 EU
In July 2002, the European Parliament adopted Regulation No. 1606/2002 (the
Regulation), which required publicly traded EU incorporated companies61 to prepare,
by 2005 at the latest, their consolidated financial statements under IFRS ‘adopted’ (as
discussed further below) for application within the EU.
Although an EU regulation has direct effect on companies, without the need for national
legislation, the Regulation provides an option for EU member states to permit or require
the application of adopted IFRS in the preparation of annual unconsolidated financial
statements and to permit or require the application of adopted IFRS by unlisted
companies. This means that EU member states can re
quire the uniform application of
adopted IFRS by important sectors, such as banking or insurance, regardless of whether
or not companies are listed. An analysis of the implementation of the Regulation published
in 2012 shows that nearly all EU member states use the option to permit the application
of adopted IFRS in the consolidated accounts of some or all types of unlisted companies.
More than half of the EU member states also permit the application of adopted IFRS in
the annual financial statements of some or all types of unlisted companies.62
The Regulation established the basic rules for the creation of an endorsement mechanism
for the adoption of IFRS, the timetable for implementation and a review clause to permit
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an assessment of the overall approach proposed. The European Commission took the view
that an endorsement mechanism was needed to provide the necessary public oversight.
The European Commission considered also that it was not appropriate, politically or
legally, to delegate accounting standard-setting unconditionally and irrevocably to a
private organisation over which the European Commission had no influence. In addition,
the endorsement mechanism is responsible for examining whether the standards adopted
by the IASB satisfy relevant EU public policy criteria.
The role of the endorsement mechanism is not to reformulate or replace IFRS, but to
oversee the adoption of new standards and interpretations, intervening only when they
contain material deficiencies or have failed to cater for features specific to the EU
economic or legal environments. The central task of this mechanism is to confirm that
IFRS provides a suitable basis for financial reporting by listed EU companies. The
mechanism is based on a two-tier structure, combining a regulatory level with an expert
level, to assist the European Commission in its endorsement role.
The recitals to the Regulation state that the endorsement mechanism should act
expeditiously and also be a means to deliberate, reflect and exchange information on
international accounting standards among the main parties concerned, in particular national
accounting standard setters, supervisors in the fields of securities, banking and insurance,
central banks including the European Central Bank (ECB), the accounting profession and
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