Over the years, the use of IFRS has increased throughout the world. More than 100 countries now require or allow the use of IFRS, and many other countries are replacing their national standards with IFRS. The European Union (EU), for example, under a regulation adopted in 2002, required companies incorporated in its member states and whose securities are listed on an EU regulated market, to report their consolidated financial statements using IFRS beginning with the 2005 financial year. It has been estimated that these requirements affected approximately 7,000 companies in the EU. In addition to financial statement issuers in the 27 EU member states, these IFRS requirements apply in the three European Economic Area countries of Iceland, Lichtenstein and Norway.
Other countries, including Australia and New Zealand have similar requirements mandating the use of IFRS by public companies. More countries have plans to adopt IFRS as their national accounting standards in the future. For example, diverse countries such as China and Canada have announced their plans to adopt IFRS from 2008 and 2011 respectively. By 2011, the number of countries requiring or permitting IFRS is expected to reach 150. The IASB co-operates with national accounting standards to achieve convergence in accounting standards around the world.
The U.S. SEC and the FASB have long advocated reducing disparity between the accounting and disclosure practices of the U.S. and other countries as a means to facilitate cross-border capital flow while ensuring adequate disclosure for the protection of investors and the promotion of fair, orderly and efficient markets. The FASB and the IASB signed a memorandum of understanding in 2002 that reflects the desire of the two boards for tangible progress on convergence of their respective standards. Both the boards are working on specific long-term and short-term projects towards convergence. Due to the convergence efforts of the IASB and the FASB, over the last five years, several conceptual and application differences between IFRS and U.S. GAAP have been eliminated.
The convergence of global accounting standards to IFRS gained further momentum when, in August 2007, the SEC permitted foreign companies that access capital in the U.S. capital markets and are listed on U.S. stock exchanges to file financial statements using IFRS without a reconciliation to U.S. GAAP. This permission is available with immediate effect for financial statements for calendar 2007. Additionally, the SEC issued a Concept Release that seeks inputs on whether domestic U.S. companies should be given a similar choice to adopt IFRS. In addition to the fundamental question of whether domestic U.S. companies should be given a choice to follow IFRS, the Concept Release sought inputs on several related matters. The SEC also organized Roundtable discussions in December 2007, to further discuss these matters. Panelists at these Roundtables generally agreed that the SEC should establish a timetable ending in a specific date at which U.S. public companies would be required to file IFRS financial statements, and strongly supported the goal of globally-accepted, high-quality IFRS.
These developments mark an important turning point in global financial reporting and standard-setting and are an important step to the ultimate objective of several standard-setters, to have a single globally accepted financial reporting system, which most likely would be IFRS.
