While the likely adoption International Financial Reporting Standards (IFRS) is a hot topic for accountants, many privately-held small and medium-sized business owners may not be aware of the potential changes on the horizon for financial reporting. The general consensus is that in the coming years, the U.S. will move to adopt IFRS in place of Generally Accepted Accounting Principles (GAAP) as the governing standards for financial reporting, although no official date for conversion has been set yet.
As discussed in the September 2009 issues of the Journal of Accountancy, IFRS for Small and Medium-Sized Entities (SME’s) was released in July 2009 after five years of development. SMEs are defined as businesses that publish general-purpose financial statements for external users and do not have public accountability. IFRS for SMEs is much more condensed than the full version of IFRS and does not address many of the areas that do not apply for privately-held companies, such as segment reporting or earnings per share.
What does this new standard mean for small to medium-sized business owners and operators?
Some of the most significant differences between IFRS for SME’s and U.S. GAAP are:
– Simplified disclosures for pensions, leases, financial instruments, and other areas.
– Prohibition of the last-in, first-out (LIFO) method of inventory valuation.
– Amortization of goodwill and indefinite-lived intangibles over a period of ten years or less.
– Simplification of the temporary difference approach to income tax accounting.
– Greater use of historical cost in accounting for financial assets and liabilities.
While the actual transition from U.S. GAAP to IFRS has yet to occur, privately-held small and medium-sized business owners should know that the next set of financial reporting standards that they may have to follow have been tailored to fit their needs and the needs of the users of their financial statements.
Looking for Cleveland or Akron CPAs, business or financial advisors? Contact Skoda Minotti at 440-449-6800.