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Latest Developments in IFRS Latest Developments in IFRS ––Is the US Finally Ready to Is the US Finally Ready to
Move Forward?Move Forward?
Accounting Day Accounting Day 9:15am 9:15am –– 10:35am (Track A)10:35am (Track A)May 9, 2011May 9, 2011
Stephen G. Austin, CPA, MBAStephen G. Austin, CPA, MBAFirm Managing PartnerFirm Managing PartnerSwenson Advisors, LLPSwenson Advisors, LLP
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Stephen G. Austin, CPA, MBA
Over 35 years of public accounting experience as an Audit Partner with Price Waterhouse, McGladrey & Pullen, LLP, and Swenson Advisors, LLP
Certified Public Accountant - California and Georgia
Audit Committee Chairman - Avanir Pharmaceuticals, Rock Church, World Trade Center San Diego, and Santa Fe Christian Schools
Serves on twenty Boards and related Committees
Author of “Rise of the New Ethics Class”
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Swenson Advisors, LLPSwenson Advisors, LLPA Regional Accounting Firm with Global OutreachA Regional Accounting Firm with Global Outreach
■ PCAOB Registered Firm
■ Offices in San Diego, Riverside County, and Hong Kong
■ SEC/SOX - Audit, Tax, Compliance, Asia Pacific Compliance services, IFRS Consulting
■ SOX Consulting Services with SWENTRACKTM - Automated Web Based Solutions
■ Top #30 Accounting Firms in San Diego from 2009 – 2011
■ Second Largest Accounting Firm in Riverside County
■ Members of Integra International - 174 offices, 59 countries
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David TweedieIASB chairman said:
He wants to “stick to the June timeline to focus minds but there would not be compromise on quality.”
BREAKING NEWSBREAKING NEWS
“Global accounting rule setters urged to take time,” 4/1/11, H.Jones
IFRS and FASB Extend Convergence Timetable and Issue April, 2011 Progress Report
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“IASB and FASB Report Progress on Convergence”(Journal of Accountancy, 4/21/11)
■ On April 14, 2011, FASB and IASB have jointly announced a further delay to the convergence of IFRS
■ Announced that they would defer “by a few months” the timeline for:
■ Revenue recognition – End of 2011■ Leasing – End of 2011■ Financial instruments – End of 2011■ Insurance – First half of 2012
■ Boards expect to issue new standards on fair value measurements and presentations of other comprehensive income in the new few weeks.
■ April 21, 2011 – Progress Report
BREAKING NEWSBREAKING NEWS
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BREAKING NEWSBREAKING NEWS
Michel BarnierMember of Member of IASBIASB’’ss monitoring board:monitoring board:
"Convergence should not be at the expense of quality." "Convergence should not be at the expense of quality."
"It is essential that the IASB responds fully to concerns "It is essential that the IASB responds fully to concerns expressed by stakeholders, including additional expressed by stakeholders, including additional
fieldfield--testing of projects where needed.testing of projects where needed.””
““We should make use of the deadline set by the G20 We should make use of the deadline set by the G20 (Group of 20 leading economies) recently.(Group of 20 leading economies) recently.””
“Global accounting rule setters urged to take time,” 4/1/11, H.Jones
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Robert GlauberIASB Trustee:
“Convergence was moving forward and it still has some distance to go.”
"We continue to tell the monitoring board they should be totally assured we do not and shall not permit due process to be sacrificed to any kind of deadline."
BREAKING NEWSBREAKING NEWS
“Global accounting rule setters urged to take time,” 4/1/11, H.Jones
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Mary SchapiroChairman of US SEC:
“I think the rigour and timeliness of oversight is especially important.”
BREAKING NEWSBREAKING NEWS
“Global accounting rule setters urged to take time,” 4/1/11, H.Jones
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2001 Formation of the IASC Foundation and the IASB2002 EU passes regulation to adopt IFRS for listed entities in 2005
FASB and IASB sign ‘The Norwalk Agreement’ in which they commit to reduce differences between US GAAP and IFRS, initiating the conversion efforts
2005 Nearly 7,000 listed entities in Europe adopt IFRS2006 IASB announces ‘three years stable platform period’ - entities
that have already adopted IFRS do not need to implement new IFRS until 2009
2007 SEC removes reconciliation requirement for non-US entities reporting under IFRS
2008 SEC proposes roadmap for potential mandatory adoption of IFRS by US Filers
2009 New SEC Chairman Mary Shapiro is reluctant to fully support roadmap to IFRS. In April, the Group of Twenty supports IFRS as one important step towards reforming the Financial System
2010 SEC Work Plan2011 SEC – April Progress Report/July Roundtable
IFRS Timeline
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Why Global Accounting Standards?
■ Global Accounting Standards improve the functioning of global capital markets by providing better information to investors and other users of financial statements
Decrease the costs of preparing and interpreting financial statements
Decrease cost of capital
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IFRS for Small and Medium Enterprises
(SMEs/Private Entities)
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SME accounting standards response ‘bigger than expected’ (Accountancy Age, 5/3/11)
■ Stakeholders were first invited to comment on the Accounting Standards Board’s (UK ASB) consultation document in October 2010
■ “The Consultation” on IFRS for SMEs concluded on Saturday, April 30th with a response that exceeded expectations
■ Respondents’ main concerns have focused on efforts to simplify FRSME (the draft IFRS for SMEs) by removing some of the options available under full IFRS
■ The ASB board has begun working through the responses which will take until Fall with a Report to emerge in late 2011
BREAKING NEWSBREAKING NEWS
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Summary – IFRS for SMEs
Issued July 2009
Culmination of a five year project
Represents a stand alone set of
standards
Considerably shorter –
only 230 pages
35 chapters
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Small and medium-sized entities are entities that:
(a) Do not have public accountability, and
(b) Publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies
Definition of Users
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30+ Topics
Financial statement presentation
Four separate financial statements
Footnotes
Accounting policies
Inventory
Investment in associates and joint ventures
PP&E
Goodwill and intangibles
Leases
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30+ Topics, Continued
Reserves and contingencies
Revenues
Share-based payments
Impairments
Employee benefits
Taxes
Foreign currency translation
Hyper inflation
Related parties
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Key Differences Between Full IFRS and IFRS for SMEs
Jointly controlled entities - no proportional consolidation
Investment properties – no cost method allowed
PP&E / intangibles – no revaluation treatment
Employee benefits – no corridor method allowed
Intangibles – no capitalization of R&D costs
Borrowing costs – expense only
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Overview of Convergence Process
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MoU Process
First MoU – February 2006
Second MoU – 2008
Third MoU – 2009
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SEC Initial Work Plan (February 2010)
– Six Components1. Sufficient development and
application of IFRS for the US domestic reporting system
2. Independent Standard settings for the benefit of investor
3. Investor understanding and education regarding IFRS
4. Regulatory environment5. Impact of issuers6. Human capital readiness
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Subsequent Series of Progress and Work Plan Reports
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Recent Changes at the Top of theIASB and FASB and their Impact on the Timing of Convergence
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Transitional Times Tommaso Padoa-Schioppa – IFRS Foundation Chairman
• Dies of Heart Attack - Process for selecting a new Chairman will be published soon
Sir David Tweedie – IASB Chairman• Hans Hoogervorst will succeed Sir David Tweedie on his
retirement as chairman of the IASB – June 30, 2011 Robert Herz – FASB Chairman
• Leslie Seidman named FASB Chairman. Her appointment comes as FASB deals with an unprecedented workload to complete priority convergence projects with the IASB by June 30th
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2010-2011 New Pronouncements and Updates
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One new standard – IFRS 9 One revised standard – IAS 24 Amendments to IFRS that were issued as
separate documents Amendments to IFRS issued in the second
annual improvement projects Amendments to other IFRS resulting from those
revised or amended standards Two new interpretations – IFRIC 18 and 19
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IFRS 9 Financial Instruments
IAS 24 Related Party Disclosures
IFRIC 18 Transfers of Assets from Customers
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
New Pronouncements
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Amendments to IFRS Issued as Separate Documents
Amendments to IFRS 7
Amendments to IFRIC 9 and IAS 39
Annual improvements
Amendments to IFRS 2
Amendments to IFRS 1
Amendments to IAS 32
Amendments to IFRIC 14
Amendments to IAS 12
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Status of Convergence Work
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Overview of the New Revenue Recognition Model
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Work Plan for Remaining Priority Convergence Projects
Revenue recognition: The IASB and FASB published a joint discussion paper in December
2008 The project is critical to both the FASB and the IASB. US GAAP has
a wide range of very detailed industry-specific requirements The boards have been considering the feedback received from
comment letters and the boards’ extensive outreach activities and are close to completing their redeliberations
Draft of the new standard will be:a) Made generally available, via the boards’ websites, for interested parties to
review;b) Used as the basis for outreach with parties that are most affected by the
proposed new requirements; andc) Subjected to a detailed drafting review with selected parties, as part of the
fatal flaw review process each board is required to undertake The board will consider feedback that they received from these steps
to assess whether they can proceed to finalize the standards
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Exposure Draft Issued in June 2010
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Key Components :Revenue Recognition
Step 1 Identify the contracts with the customerStep 2 Identify the separate performance obligationsStep 3 Determine the transaction priceStep 4 Allocate the transaction price to the performance
obligationsStep 5 Recognize revenue when a performance
obligation is satisfied
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Expanded Footnote Disclosures
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Work Plan for Remaining Priority Convergence Projects
Leasing: The objective of this project is to improve financial reporting by
ensuring that all assets and liabilities arising from lease contracts are recognized in the statement of financial position
The boards published a joint exposure draft in August 2010 The boards have been considering the feedback received from
comment letters and the boards’ extensive outreach activities They intend to develop a draft of the new standard, which will be:
a) Made generally available, via the boards’ websites, for interested parties to review;
b) Used as the basis for outreach with parties that are most affected by the proposed new requirements; and
c) Subjected to a detailed drafting review with selected parties, as part of the fatal flaw review process each board is required to undertake
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Work Plan for Remaining Priority Convergence Projects
Financial instruments: Efforts to improve our requirements and to reach a
common solution have been complicated by differing imperatives that pushed our respective development timetables out of alignment
Strategy for addressing those differences remains the same – each board has been publishing its proposals while also soliciting comment on those of the other board, as a way of giving interested parties the opportunity to compare and assess the relative merits of both boards’proposals
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Top 10 Industrialized countries and their Use of IFRS
and
How they Have Implemented the New Standards
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Understanding the Differences between
“Adoption”and
“Adaptation”(=Adaption?)
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China Rules for Listed FilingsIs IFRS required for all listed companies?
No, however CAS (Chinese Accounting Standards) have “somewhat converged” with IFRS. It is not a direct translation of IFRS and several differences remain between CAS and IFRS. The Ministry ofFinance has plans to eliminate those differences. Version of IFRS is not applicable.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS or IFRS for SMEs are prohibited.Basically “stuck” in the 2006 version of IFRS.
IFRS adoption by country – www.pwc.com
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India Rules for Listed FilingsIs IFRS required for all listed companies?
No, Financial Statements must be prepared in accordance with Indian GAAP. Version of IFRS is not applicable.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS and IFRS for SMEs are prohibited. Financial Statements must be prepared in accordance with Indian GAAP.
Failed to meet the March, 2011 deadline.
IFRS adoption by country – www.pwc.com
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United Kingdom Rules for Listed FilingsIs IFRS required for all listed companies?
Required for consolidated financial statements. Permitted for standalone/separate financial statements.IFRS as adopted by EU.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
Permitted for standalone/separate financial statements. IFRS for SMEs is prohibited.Parent companies can choose to apply IFRS or UK GAAP.
IFRS adoption by country – www.pwc.com
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Germany Rules for Listed Filings
Is IFRS required for all listed companies?
Required for all consolidated financial statements.IFRS as adopted by EU.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
Permitted, for standalone financial statements as long as additionally, local GAAP (HGB) consolidated financial statements are prepared and filed.IFRS for SMEs is prohibited.
IFRS adoption by country – www.pwc.com
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FranceFrance Rules for Listed FilingsIs IFRS required for all listed companies?
Required for consolidated financial statements.IFRS as adopted by EU.
Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules?
Yes. Non-EU companies can apply Japanese, US or Canadian GAAP.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS and IFRS for SMEs are prohibited.
IFRS adoption by country – www.pwc.com
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Australia Rules for Listed FilingsIs IFRS required for all listed companies?
Required for consolidated financial statements. There is no longer a requirement to prepare separate standalone financial statements for the parent entity.IFRS as adopted using the Australian version of IFRS.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS is required for most consolidated and standalone/separate financial statements.IFRS for SMEs is prohibited.
IFRS adoption by country – www.pwc.com
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New Zealand Rules for Listed FilingsIs IFRS required for all listed companies?
Required for consolidated and standalone/separate financial statements. Like Australia, IFRS as adopted locally. All requirements of IFRS as published by IASB are retained, but also some additional requirements are included in New Zealand Equivalents to IFRS (NZ IFRS) (mainly in relation to public benefit entities, so these would not be relevant for listed entities).
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
NZ IFRS is required for some companies and IFRS for SMEs is prohibited.
IFRS adoption by country – www.pwc.com
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Japan Rules for Listed FilingsIs IFRS required for all listed companies?
Listed companies which meet certain requirements ("Specified Companies") are permitted to use IFRS for their consolidated financial statements ending on or after March 31, 2010.IFRS as adopted by the Financial Services Agency ("Designated IFRS’").The Commissioner of the Financial Services Agency of Japan will designate those IFRSs published by the IASB which are recognized as having been approved and issued through fair and reasonable due process and are expected to be considered as being fair and appropriate financial reporting standards from the viewpoint of investor protection and market integrity in Japan.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
Companies which file their consolidated financial statements under the Companies Act are permitted to use IFRS for the consolidated financial statements ending on or after March 31, 2010, if they are Specified Companies.
IFRS adoption by country – www.pwc.com
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Spain Rules for Listed FilingsIs IFRS required for all listed companies?
IFRS is required for consolidated financial statements for listed companies (other than financial institutions). Financial institutions must apply a local accounting plan that complies with IFRS although it is not called IFRS. Main differences are the elimination of the “non preferable accounting policies” when there are alternatives (i.e. the fair value model for IAS16 items is not permitted).IFRS as adopted by the EU.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS is permitted for consolidated financial statements. All other companies must use New Spanish GAAP (effective January 1, 2008), which is essentially IFRS based with some differences. IFRS for SMEs is prohibited.
IFRS adoption by country – www.pwc.com
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South Korea
Rules for Listed FilingsIs IFRS required for all listed companies?
Adoption of IFRS is required for all listed companies and certainunlisted financial institutions from 2011.IFRS as published by IASB and translated to Korean language word-for-word.
Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?
IFRS is permitted from 2009 for all statutory filers. In 2011, IFRS is a requirement for all listed statutory filers and certain unlistedfinancial institutions. IFRS for SME is prohibited for statutory filings.
IFRS adoption by country – www.pwc.com
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“Deep Dive” into the Progress Report (October 29, 2010)
on the SEC Work Plan and
Practical Issues Surrounding IFRS Adoption
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Progress Report on SEC Work PlanOctober 29, 2010
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SEC “Preliminary Observations”(October 2011)
Approaches to Incorporate IFRS into a Jurisdiction’sFinancial Reporting System
1. Use IFRS as issued by IASB
Very few follow!
2. Use IFRS after some form of national incorporation process
Leading to...
Convergence approachand/or
Endorsement approach
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Convergence Approach
China – Best Example Moving closer Not full incorporated Follow “ASBEs” – Accounting Standards for Business
Enterprises (Set by the Accounting Law of the PRC) Adopted 2006 standards in 2007 September 2009 – new Roadmap (exposure draft) In state of “lull”
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Endorsement Approach(Vast Majority Follow this Approach)
Degree of deviation varies by jurisdiction Translated into local language (not English) Modification based on “country specific issues” EU – largest example
Australia – 2nd largest example
New IFRS must go through multiple steps before its authorized by the “EFRAG” (European Financial Reporting Advisory Group)
and then “SARG” (Standards Advice Review Group) and then..
“ARC” (Accounting Regulatory Commission) and finally...
the European Parliament has three months to oppose endorsement
If not opposed published in the Office Journal of the EU
2006 ‐
Present
Must follow IAS adopted by European Commission for listed companies2005
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Other Critical SEC Observations and Concerns
Oversight of the IFRS Foundation? Composition of the IFRS Foundation and IASB Significant underfunding of the IFRS Foundation
• Operating deficits of $4 million• 75% of the countries do not help fund• United States accounts for about 25% of total
funding Many issues to resolve!!!
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Understanding the New Term“Condorsement”
(Convergence + Endorsement)and
What It Means to You!
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What to Expect from the SEC in the Next 30-60 Days
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SEC will sponsor a Roundtable in July to discuss benefits/challenges in potentially incorporating IFRS
into the financial reporting system for US issuers
The July 7 event will feature three panels representing –investors, smaller public companies, and regulators
SEC welcomes feedback on the topics to address at the roundtableand suggestions for potential roundtable participants
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SEC sent a letter to the Center for Audit Quality –acknowledging that it would be impossible for foreign private issuers,
or those who file their financial statements with the SEC following IFRS, to file in XBRL following SEC rules
On March 25, IFRS Foundation finalized the 2011 IFRS Taxonomy, however the SEC has not yet approved that taxonomy
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IFRS Foundation to Add Common-Practice Tags to IFRS Taxonomy
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What You and Your Team Should Be Doing Now
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PWC SurveyApril 2011
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642011 US GAAP Convergence & IFRS Survey, 4/11/11
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Some 43% respondents said the pace is too fast. 15% thought the pace was too slow.
2011 US GAAP Convergence & IFRS Survey, 4/11/11
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Predictive Timeline for 2011-2015?
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Personal Experience in 2011Teaching IFRS to the Chinese
at the MBA Level at Shanghai University
of Finance and Economics
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Thank You
Stephen G. Austin, MBA, [email protected]
www.SwensonAdvisors.comwww.swentrack.com
www.swensonforensic.com