Rapid globalization of capital markets and growth in the number of multi-national businesses is driving the worldwide adoption of International Financial Reporting Standards (IFRS). More than 100 countries around the world—including many that are home to major financial capitals and/or major trade partners to the US—have adopted or are making plans to implement IFRS.
The US is among the last countries to adopt IFRS. There have been strong signals from the Securities and Exchange Commission (SEC) indicating the US acceptance of IFRS.
The principles-based approach of IFRS can have a great impact on companies in the energy industry. There are key differences in the ways companies must account for critical items such as exploration and production costs; depletion,
depreciation and amortization; inventory; joint ventures; and reserves. There are also significant variables in the way that financial instruments and pension plans are treated.
Given the global expected benefits of IFRS and what seems to be the inevitability of the guidelines’ adoption here in the US, it makes sense to begin studying and planning for the steps necessary to transition—while learning from the experiences of international companies that have already adopted the standards.
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