IFRS – in the US Market Michael P. Cangemi CPA, CISA President, Cangemi Company, LLC Former CEO Etienne Aigner & FEI Management, IT, Financial Governance Management, IT, Financial Governance 1 Cangemi Company, LLC Cangemi Company, LLC
Jan 19, 2016
IFRS – in the US Market
Michael P. Cangemi CPA, CISAPresident, Cangemi Company, LLCFormer CEO Etienne Aigner & FEI
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Business Career
Merrill Lynch/Blair&Co – High School&College Ernst & Young – CPA – Dir IT Audit Phelps Dodge – CAE – VP - CIO Professional work – IS Control Journal (87-07)
& Books - Managing the Audit (Wiley) BDO Seidman Ptr. IT Audit – IA Services CFO to CEO Etienne Aigner, Inc. CEO Financial Executives Intl Advisory Boards – Approva Corp; FASAC;
IASB; COSO; Pace University
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Why IFRS in the US
One word – Globalization !
Expansion of Global Capital Markets
Growth of Emerging Markets BRICs
(Brazil-Russia-India-China)
Creation of the EU
Growth of Capital Markets
Market Capitalization1970 - $841 Billion2002 - $17 Trillion 2007 -$59.8 Trillion
Related Issues:Significant Rise in Individual investors Expanding need for Companies to Raise
Capital
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World Market Capitalization
2007 2003
USA $18.7 T 31.3% USA $13.5 T 44.3%
Japan 4.7 8.0% Japan 3.1 10.4%
China 3.3 5.6% China .5 1.7%
Hong Kong 2.6 4.3% Hong Kong .7 2.3%
World $60 Trillion World $30.5 Trillion
(see article handout)
Shift in Capital Formation
2000 nine out of every ten dollars raised by foreign companies at NYSE
2005 nine out of every ten dollars raised by foreign companies at London or Luxembourg Exchange
Capital is Capital; company gets the $$US Expanded Regulation – SOX – Costs
and benefits
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Back to ? -Why IFRS in the US
Expansion of Global Capital MarketsGrowth of Emerging Markets BRICs
Continued:Creation of EU – they picked IFRSLack of respect for US – GAAPBenefits of a Common LanguageOne word - IE: Globalization
Steps Leading to SEC Road Map
Globalization of BusinessNorwalk Agreement - Sept 2002MOU – Feb 2006 – converge stds.Joint project to converge respective
Conceptual Frameworks
Goal -- one quality set of accounting standards used worldwide
Steps Leading to SEC Road Map
IFRS used or planned in over 100 countries – China; Japan to converge
Required in all EU countries in 2005Various implementations levels below
consolidated parent levelApproximately 40% of Global 500 use
IFRS (per D&T survey)
IFRS & US GAAP continue to converge
Steps Leading to SEC Road Map
November 2007 SEC - Elimination of Reconciliation to US GAAP for Foreign Filers
If they use IFRS – as adopted by IASB
Basically at this point the US accepts
IASB - IFRS !!!!!!
Update on SEC Roadmap to IFRS
Approved to issue for comment 8-27-08SEC Chairman Christopher Cox,
converge the “language of business and finance” and improve investor confidence in global markets through improved comparability and efficiencies.
IFRS as issued by the IASB is being judged as that high-quality
SEC - Key Success Factors
The standards must be crafted in the interest of investors;
The standards-setting process must be transparent;
The standards-setter must be independent; The standards-setter must be accountable;
and All stakeholders must participate in the
standards-setting process
SEC – Key Dates
Mandatory adoption of IFRS in 2014 and considers staged from 14 to16 based on company size
Considerations early adoption; optional basis for a limited group; for periods ending after 12/15/09
In 2011, sec will evaluate progress on the milestones and make a decision: to move ahead with the mandatory requirement to adopt IFRS in a future year (2014 or a subsequent time) or not at all.
Additional discussion points of note
IASB/FASB work plan for accounting convergence, will provide for converged and identical standards from the IASB and FASB in seven key subject areas (including revenue recognition) by 2011 (execution of this plan is critical in moving convergence forward)
LIFO Accounting: Staff indicated that the IRS is developing options for how to manage - IFRS does not permit LIFO accounting.
Need for a mindset change and the use of professional judgment in moving from U.S. GAAP to IFRS.
Principles Vs Rules Based
Per D&T 75% favor “principle based”Some say IFRS is just in early stages –
but – what I have seen: IASB allows more judgment – less emerging
issues rulingsHas a passion for principlesJust says no to rulings – says make up your
mind and disclose your issues & rational
Benefits of IFRS
Efficiency – one company would have one set of accounting standards – better internal reporting
Does not change with M & AFlexibility to raise capital where desiredImproved worldwide cash managementStreamlined efficient worldwide reportingBetter access to data for audit - CA
Benefits of IFRS -
IASB has appreciation for more diverse set of companies – and languages
ED - IFRS for Small & Medium-sized Entities (SME’s) – now called IFRS for Private Companies – ie: little GAAP - very well received!!!
Africa adopted the ED as GAAP! Proves the need
Challenges for IASB - IFRS
Funding – need stable sourceUS need to learn or Experience GapSovereignty & Enforcement Issues –
who is the regulator - IOSCO Credit Crisis testing these issues
Tax issues i.e.: no LIFOTechnology Infrastructure changesContracts- compensation agreements
Other - Financial Statements
FASB and IASB Discussion Paper on financial statement presentation Oct 15 2008
principle-based format that proposes tointroduce cohesiveness and disaggregation Cohesiveness would ensure that a reader can
follow the flow of information through the different statements of an entity
disaggregation would ensure that items that respond differently to economic events are shownseparately.
Recent Financial Market Crises
1980s Saving & Loan Bailout1987 Market drop and rapid recovery1998 Long-Term Capital failure & fallout9-11-2001 – terrorist attacks2001-02 - accounting scandals and
bankruptcy's2007-08 sub-prime induced dislocation
What is a Market?
Anything People want to Buy and Sell. Bubble Market – when trading is impacted by emotion rather than
reason. Frauds – when business managers think they are OWNERS!
Financial Scandals are not a new phenomena
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Discovery of America – New Land Schemes
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Madness of Crowds
The Tulip Bulbs Bubble 1600’s – emotional market ??
South Seas & Mississippi Companies – UK investors bet on America
1800-1900 Rail Roads Bubble1990’s Internet Bubble 2000’s corporate frauds leads to SOX!
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Expansion of Governance & Regulation
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Sub-Prime Malfeasance
A mortgage was a safe loanAdjustable rate mortgagesNo money down, interest onlyPackaged Mortgage Backed BondsPackages of Mort-Backed Bonds into
Collateralized Debt Obligations (CDO)House prices declined = crash!!!
Remember lots of Bad Guys
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Fair Value Accounting
Not the problem – actually the solution? (LCM) FASB-IASB issued guidance in reaction
BIGGER ISSUES is sovereignty and regulatory oversight of accounting; now
SEC to review Fair Value Accounting (90days) SEC agreed to allow issuers to delay write
downs on "perpetual preferred securities" that are showing paper losses.
Globalization on the move!
October 13th British Prime Minister Gordon Brown (who was previously U.K.’s Chancellors of the Exchequer) noted the importance of four key principles of market confidence: Transparency re: Disclosure of key information globally
through the adoption of internationally agreed-upon accounting standards.
Integrity: Focus on conflicts of interest, and base remuneration systems on long-term measures
Responsibility of Boards re: Effective management of risk Sound Banking Practice re: Solvency and Liquidity
PM Brown then called for a new financial architecture with more coordination amongst national regulators to better reflect the globalization of our financial markets.
Closing Thoughts
SEC – next stepsCompanies fall into types – based on #
of IRFS subsBegin your process nowEstablish responsibility- project teamBegin with companies in countries that
adopted IFRS
Questions? Comments?
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Cangemi Company LLC
Senior Advisor & Board MemberConsulting –Financial & Governance Media -Managing the Audit Function;
speaking; teaching Book available at Amazon, Wiley and
other book [email protected]
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