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From US GAAP to IFRS – Treasurers Beware

by Sebastian di Paola, Partner and Michiel Mannaerts, Senior Manager, PricewaterhouseCoopers SA, Switzerland

Introduction

As most readers will be aware, the accounting rules for financial instruments under IFRS originated from their US GAAP equivalent, FAS 133. This first version of IAS 39 nonetheless contained a number of significant differences compared to FAS 133, creating difficulties for foreign private issuers (FPI) which reported under both IFRS and US GAAP. Some of these differences have been eliminated over time; however, new differences have gradually been created through changes to both standards, and through evolving interpretation.

Some context from the US: a year after the November 2007 SEC vote to accept IFRS financial statements submitted by FPI’s without a US GAAP reconciliation, the SEC published a “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with IFRS by US Issuers”. This Roadmap sets forth several milestones that, if achieved, could lead to the required use of IFRS by US issuers in 2014. As part of the roadmap, the SEC is proposing amendments to rules & regulations which, if adopted, would allow a limited number of US issuers to file IFRS financial statements for fiscal years ending on or after 15 December 2009.

Treasurers need to pay attention to the impact of any potential accounting standards conversion on their treasury activities, as longer dated hedges, being put in place now, may be affected.

This development clearly has significant implications for US treasurers. Alongside this process, a number of companies in Europe currently using US GAAP are also considering converting to IFRS. Treasurers need to pay close attention to the impact of any potential accounting standards conversion on their treasury activities, as longer-dated hedges, being put in place now, may be affected. Companies should not assume that accounting for financial instruments under IFRS is the same as US GAAP, as significant differences exist. It is also simplistic to summarise IFRS as more principles-based and hence more lenient than US GAAP, or vice versa. In some areas IFRS offers more flexibility and hence new opportunities, whereas in other areas IFRS is comparatively more complex.