|By Blair Vago, CPA
International Financial Reporting Standards
(IFRS) are now
required or permitted for financial reporting by over 100 countries
worldwide. They are increasingly
becoming accepted as the global
accounting language. The European Union
made IFRS mandatory for member countries in 2005. The
Germany, Italy and France all require
publish financials in IFRS currently. Brazil will be adopting IFRS in 2010
& Canada, India
have made IFRS adoption mandatory in 2011.
will adopt in 2012. China
permits reporting in IFRS or Hong Kong FRS.
About half of Chinese companies currently report in IFRS. Though Japan has not yet indicated
of IFRS adoption, they are currently working to bring Japan GAAP to
with IFRS by 2011.
stock exchanges have historically provided the best valuation for
companies. This was due in part to the
regulatory oversight and rules provided by the SEC and Sarbanes Oxley. However, the cost of compliance for companies
(in the form of audits etc.) has been very high. This
is one of the reasons alternate
international stock exchanges and IFRS are becoming increasingly
utilized. The U.S.
is used to being in a position
of strength in its insistence on U.S. GAAP.
Now it appears the global community is moving in a
direction. The U.S.
left behind in competing for access to global capital if it remains the
hold-out against adoption of IFRS. Given the current wide-spread
adoption of IFRS a U.S.
opt out would have wide spread negative consequences.
The reason for the worldwide acceptance of
IFRS is that they
are not as rules-based as U.S.
generally accepted accounting principles and therefore not as
use. U.S. GAAP contains the equivalent
of 25,000 pages of instructions versus 2,000 for IFRS.
Regulators and investors agree that the
universal acceptance of one accounting language will facilitate cross
investment and the flow of capital. The
benefits of the switch to IFRS will largely accrue to sophisticated
Hospitality REITs that are reviewing the
statements of various worldwide hotel asset portfolios with an eye
potential investment employ CPAs (and their international equivalents)
recommendations. A significant number of
these professionals would prefer the switch to a less cumbersome set of
than U.S. GAAP.
hospitality companies with foreign subsidiaries that prepare financial
statements in local country GAAPs which then have to be translated to
will realize savings from a switch to IFRS.
The cost of maintaining staff that perform this accounting
translation work can be reduced with the switch to one worldwide GAAP. These savings can then be passed on to
In 2008, the U.S. Securities and Exchange
released a proposal that indicated interest in the adoption of IFRS for
companies. The proposal listed certain
improvements in IFRS and the IASB (the governing body of IFRS) that, if
achieved, could lead to U.S.
adoption of IFRS beginning in 2014. A
great deal of momentum behind the U.S.
adoption of IFRS was created by the last U.S. administration’s SEC
The Obama administration appointed Mary
Schapiro as the new
SEC Chairman earlier this year. Ms.
Schapiro’s first comments to the public about IFRS indicated that the
adoption of IFRS would be slowed. She
said she felt no requirement to continue with the U.S.
adoption of IFRS as called for
in previous SEC proposals. As a result,
many large U.S.
corporations who had begun to prepare for the transition to IFRS put
plans on hold. The new administration’s
policy was met by criticism by the worldwide proponents of IFRS
David Tweedie, the Chairman of the IASB who stated that unless the U.S.
commitment to adoption of IFRS, the convergence efforts underway to
differences between US GAAP and IFRS would be difficult to continue.
In August 2009, Chairman Schapiro named
James Kroeker the
Chief Accountant of the SEC. He had held
the role on an interim basis since January.
In September 2009, Kroeker, in addressing the AICPA in Washington,
stated that the financial crisis
that erupted in 2008 highlighted the importance of global solutions to
issues even on the accounting front. SEC
Chairman Schapiro anticipates that the agency will act on the decision
IFRS this fall (Dow Jones Newswires 9/18/09). Kroeker told reporters
speech to the AICPA that consideration of IFRS “will
certainly be a staff priority”. This
indicates to some observers that the SEC
is cautiously moving toward acceptance of IFRS.
is clear that in the past GAAP served well in the
creation and deployment of a standard set of rules governing the
deployment of all financial statements. It is also now very clear that
newer IFRS will simplify and create a world wide accepted standard
greatly facilitate the flow of international capital and provide
practioners and regulators with a clearer picture of the financial
all publicly held companies.
Blair Vago is a member of Cayuga
Hospitality Advisors and an
experienced IFRS practitioner with 20+ years as a hospitality industry
Controller/CFO. He began his career with
Hilton Hotels Corporation and Marriott and more recently has worked
companies and entrepreneurs to assist them in preparing for initial
offerings and in facilitating mergers and acquisitions. He holds
a Master’s degree from Cornell University’s
School of Hotel Administration, a Certificate in
Investment Banking from UCLA and is a licensed CPA. Blair is the Group
for Cayuga’s CFO
Reprinted with permission from
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