What is the Audit Committee’s Role with Respect to Implementation of IFRS?

The International Accounting Standards Board (IASB) has developed International Financial Reporting Standards (IFRS) to address the variability in reporting standards between countries. While over 120 countries now require or permit IFRS, the U.S. remains the one major economy that has not yet committed to adoption of IFRS. Most U.S.-based organizations are taking a wait and see approach to IFRS implementation. The FASB and IASB are currently working on over a dozen different projects designed to bring convergence to the standards that govern accounting for such items as leases and financial instruments. In addition, there are proposals to develop IFRS for Small and Medium Size Enterprises (SMEs) which are currently referred to as IFRS for SMEs. Within the adoption and implementation of IFRS or IFRS for SMEs, the role of the audit committee will remain one of risk management and oversight. As such, while management is responsible for the preparation of IFRS or IFRS for SMEs financial statements, the audit committee is expected to be knowledgeable in determining: how implementation of IFRS or IFRS for SMEs will impact an organization’s controls over risks; sufficiency of the level of management expertise; adequacy of plans to integrate the organization’s business practices as well as its systems (e.g., IT, taxation, legal, contracts, etc.); how estimates and judgments are being made by management related to accounting policy choices in the initial adoption of IFRS or IFRS for SMEs; and how effects/results of IFRS or IFRS for SMEs reporting should be communicated to shareholders and analysts in ensuring integrity of financial reporting.

As indicated previously, there are significant differences between existing U.S. GAAP and IFRS or IFRS for SMEs, many of which may be wholly or partially eliminated prior to U.S. organizations adopting IFRS or IFRS for SMEs and some of which will not. It is, thus, not too early for organization management along with its governing bodies to begin getting up to speed with not only the IFRS or IFRS for SMEs standards, but the way in which the IASB works and its objectives.

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