Don’t panic - firms ready for IFRS

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Don’t panic - firms ready for IFRS

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David Tweedie

Many Korean firms have been struggling as they prepare to adopt the International Financial Reporting Standards, which all listed companies are required to use by 2011. Just 14 companies adopted the standards last year, and around 30, including Samsung Electronics and LG Electronics, are expected to start in 2010.

Yet David Tweedie, chairman of the International Accounting Standards Board, which developed the IFRS, believes Korea is doing “exceptionally well” preparing for the deadline. Tweedie visited Korea to participate in a National Standard Setters meeting held at the Westin Chosun Hotel in central Seoul this week.

The Englishman, who earned his Ph.D. from The University of Edinburgh in 1969, has led the IASB since 2001. Prior to that, he served as the first full-time chairman of the British Accounting Standards Board from 1990 until 2000.

Q. How do you think Korea is doing with its preparations for IFRS adoption?

A. I think if Korea is doing exceptionally well. I think the fact that Korea has adapted or is going to adapt [the IFRS] really persuaded India and Japan. So I think you have been very influential and you attacked it very professionally.

Still, companies and investors here are afraid of side effects from the new accounting standards. What would you suggest they do?

Every country experiences the same problem. In Europe, it was quite different in the sense that, in Korea, your standards are based on the needs of investors. That was the same as the U.S., the same as Australia and the same as the United Kingdom. That was not the case in France, where there was mainly tax-driven accounting, and in Germany, where it’s creditor protection. So they were coming from an entirely different philosophy. You won’t have to change the philosophy.

One of the things that we’ve found that helps companies is to remove any surprises as the date of adoption comes near. And that involves looking at the accounting policies that might lead to changes from Korean standards to IFRS, and explain them to the markets and the analysts well in advance so that they are ready for the sort of changes that will happen.

The U.S. has not yet decided whether to adopt the IFRS or not. Do you think it will take the plunge?

A month ago, the Securities and Exchange Commission set out a work plan that would lead to them being able to make a decision next year on whether America should move to IFRS. At present, 117 countries use our standard.

Next year, the big Asian economies are moving to use it: Korea, India, Japan. There will be only one major economy that is not using our standard, and that is the United States.

There are several reasons that make me think that the U.S. will set a date next year for the American adoption of IFRS. Firstly, by mid-next year, a work program that we have with the American standard setters will lead to differences between IFRS and US GAAP [the American accounting standard] being very small.

Secondly, the U.S.’s economic power is diminishing. When we started [working with the U.S. on the introduction of IFRS] in 2001, American capitalization amounted to 52 percent of the world capitalization. In 2008, it was 35 percent, and a rise was being seen in Asia.

America can see the prospect of diminishing economic influence coupled with the fact that if it does not accept our standard next year, we may have to move on without the United States and leave them out. That just means that their influence over developing these new global standards will be very limited.

There’s another reason. Many of the major American companies have subsidiaries all over the world who are already using IFRS. And therefore, they’d have to change them all back to US GAAP. That would a very, very expensive process.

Some are concerned that Korean accounting firms are not ready to adopt IFRS yet. Do you think they will be ready by the deadline?

The answer would be yes, you will be ready, and the reason is that accounting firms are international. They have been auditing IFRS for five years; they have extensive training materials and courses.

So firms are very well equipped. I don’t think it would be a problem.


By Jung Jae-yoon [jyj222@joongang.co.kr]

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