Is IFRS good for anything? Many companies see IFRS as an additional burden to other reporting obligations. But is it so? The main IFRS benefit is compatibility and comparability of the financial statements among various different countries. Even within 1 multinational corporation the benefit is obvious – if every branch in every country reports under the same set of rules, then there are no additional costs attached to preparation of consolidated financial statements. Although the adoption of IFRS might initially trigger some costs, future cost savings will be much higher due to less work involved in the accounting and financial reporting. Then, reporting under IFRS might ease the access to international capital – whether to international loan financing or entering into international stock exchange. Further benefits are: easier cross-border acquisitions, easier implementation of integrated IT systems, easier global education and training, etc. Will there be more accounting fraud under IFRS? Some opponents of IFRS say that because IFRS does not contain precise rules (just principles), there will be more room to involve in “creative accounting” practices, chaos and accounting scandals. However, let me remind you the following US GAAP accounting scandals: Enron, Tyco, Worldcom, K-mart, and many others. Therefore, not even rules-based US GAAP can prevent all accounting frauds. On the other hand, many proponents of IFRS say that exact principles make IFRS more rigorous, as it is more difficult to justify evasion of a principle than evasion of a rigid rule. Will IFRS affect my company? It depends on what your company does and how big it is. IFRS will affect mostly the following businesses: publicly traded companies (need to submit IFRS financial statements to stock exchange) multinationals with many foreign branches who need to consolidate the financial statements other companies who wish to access international financing (need to submit IFRS financial statements to international banks or financing institutions) However, most of the businesses are small- or medium-sized enterprises with less than 300 employees. It is very likely that IFRS has no impact on them (at least not on their daily activities). What does IFRS look like? IFRS consists of the following components: The Conceptual Framework for the Financial Reporting The Framework states the basic principles for the financial reporting in line with IFRS. It is not a standard itself; rather it represents a solid base for further standards. International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) These standards prescribe rules or accounting treatments for various individual items or elements of financial statements. IASs are the standards issued before 2001 and IFRSs are the standards issued after. Standing Interpretations Committee (SIC) and Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) SICs and IFRICs are interpretations that supplement IAS / IFRS standards and deal with more specific issues than those covered by IFRS or IAS. SIC were issued before 2001 and IFRIC were issued after 2001.
Posted on: Mon, 28 Oct 2013 18:09:28 +0000
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