In the U.S. GAAP is the standard for financial reporting. However, the International Financial Reporting Standards (IFRS) are either required or optional in approximately 113 countries, with several countries currently in the process of converting to a requirement to utilize IFRS. In some cases companies whose stock is publicly traded utilize IFRS, while non-public entities do not. The European Union has adopted virtually all IFRSs with minor modifications. The list of non-E.U. countries that require or allow use of IFRS by some or all entities includes Australia, Egypt, Israel, Russia, and Switzerland.
In the U.S., the SEC has approved a plan requiring the use of IFRS in place of GAAP by SEC-registered public companies by 2014, and permitting the use of IFRS by some companies beginning in 2010.
Canada has adopted a plan requiring the use of IFRS by all publicly accountable entities starting with fiscal years beginning on or after January 1, 2011. Among the other countries that will soon begin utilizing IFRS are some other large nations, such as Brazil.
According to estimates provided in a December 2008 report issued by the SEC, the market capitalization of exchange listed companies in the E.U., Australia, and Israel account for approximately 26 percent of total global market capitalization. Once Canada and Brazil are added, that figure will grow to 31 percent.
So, if publicly traded companies convert to IFRS, what about not-for-profit organizations? At this point, it appears that the most likely routes that may be taken for non-public entities in the U.S. are:
1. IFRS becomes GAAP in the U.S., meaning that both public and other entities must use it, with perhaps some slight variations for non-public entities (i.e. the IFRS for Private Entities standard). U.S. GAAP as a separate set of principles would go away. Other comprehensive bases of accounting, such as cash and tax basis, would continue as the only alternatives to IFRS.
2. Some customization of either IFRS or IFRS for Private Entities is made to tailor it to U.S. reporting needs
3. A separate U.S. GAAP remains, but in a modified form. U.S. GAAP would continue as a separate set of standards that would be used by private entities.
4. The current version of U.S. GAAP would be carried forward, subject to periodic change, as a separate set of standards for private entities.
It should be an interesting next few years, as the process of determining which set of accounting are to be followed continues to develop. In the meantime, the International Convergence process will continue to iron out most (hopefully) of the biggest differences between U.S. GAAP and IFRS.