International financial reporting standards for U.S. companies: tax implications of an accelerating global trend.

• Author: Andrews, Nathan

The movement toward International Financial Reporting Standards (IFRSs) as a single set of globally accepted accounting standards is quickly gathering momentum. IFRSs are rapidly gaining acceptance around the world, spurring U.S. companies to assess the potential implications of adopting the standard.

Among recent developments that have heightened interest among U.S. companies are the following:

* On August 27, 2008, the Securities and Exchange Commission (SEC) introduced a proposed IFRS "roadmap" and specific rule changes that would permit the use of IFRSs for certain U.S. issuers. The proposed roadmap acknowledges that IFRSs have the potential to become the global set of high-quality accounting standards and formally proposes a timetable and appropriate milestones that need to be achieved for mandatory transition to IFRSs starting for fiscal years ending on or after December 15, 2014. The rule changes would give a limited number of U.S. issuers the option to use IFRSs in their financial statements filed on Form 10-K for fiscal years ending on or after December 15, 2009.

* The SEC approved a final rule in November 2007 that eliminated the requirement for foreign private issuers using IFRSs to reconcile to U.S. Generally Accepted Accounting Principles (U.S. GAAP); the rule was effective for periods ending after November 15, 2007.

* The International Accounting Standards Board (IASB) plans to release an exposure draft of International Accounting Standards No. 12, Income Taxes, (IAS 12).

* The Financial Accounting Standards Board (FASB) will solicit input from U.S. constituents on its convergence strategy by issuing an Invitation to Comment containing the IASB's revised version of IAS 12, Income Taxes. Depending on the comments it receives, the FASB may decide to adopt this revised standard as well as other IFRSs.

The bottom line is this: By 2011, almost every major country around the world, including the United States, may have adopted IFRSs as either an option or the required standard for financial reporting.

The impetus to convert to IFRSs in the United States will not be coming solely from the regulatory accounting bodies that govern financial reporting. It will also be driven by global markets and the desire of investors for one standard of financial accounting principles to achieve consistency in financial reporting around the world. Early preparation and planning are keys to a successful transition.

Get Ready for Major Change in Accounting for Income Taxes

Although IAS 12 and FAS 109 have much in common, significant differences currently exist between the two standards. Many of these differences are expected to be eliminated with the issuance of the IAS 12 exposure draft.

Expected revisions to IAS 12

* Balance sheet classification of deferred tax assets and liabilities as current or noncurrent

* Enacted (U.S. tax jurisdictions) or substantially enacted (all other tax jurisdictions) tax rates

* Elimination of backward tracing

* Valuation allowance to reduce deferred tax assets to amount more likely than not to be realized

* Use of distributed or undistributed rate applicable to...