“International Financial Reporting Standards IFRS”

Master of Commerce (M.Com-I) Semester II (2012-13)

Submitted by Yasser Rajwani

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (W) MUMBAI-50

“International Financial Reporting Standards IFRS”

Master of Commerce (M.Com-I) Semester II (2012-13)

Submitted In Partial Fulfillment of the requirements For the Award of Degree of Master of Commerce (Part-I)

By Yasser Rajwani

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (W) MUMBAI-50

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS BANDRA (W) MUMBAI-50

CERTIFICATE (2012 – 2013) This is to certify that Yasser Rajwani of M.com (I) Semester I (2012-13) has successfully completed the project on “International Financial Reporting Standards IFRS” under the guidance of Mr. Banerjee. Date:Place:-

(Prof. Mrs. Megha Somani) Course Co-ordinator

(Dr. Ashok Vanjani) Principal

(Prof. Mr. Banerjee) Project Guide External Examiner

Mr.DECLARATION Date:- I. Yasser Rajwani the student of M. The information submitted is true and original to the best of my knowledge. Yours faithfully. Yasser Rajwani . Thank you.Com (I) Semester II (2012-13) hereby declare that I have completed the project on “International Financial Reporting Standards IFRS” successfully.

Finally.M. College. Yasser Rajwani . The desire of completing this dissertation was given a way by my guide Mr. I am very much thankful to him for the guidance.ACKNOWLEDGEMENT At the beginning. ASHOK VANJANI. My sincere thanks to Prof. I would fail in my duty if I don‘t thank my parents who are pillars of my life. Banerjee. I would express my gratitude to all those persons who directly and indirectly helped me in completing dissertation. Banerjee who always motivated and provided a helping hand for conceiving higher education. support and for sparing his precious time from a busy and hectic schedule. I am thankful to Dr. I would like to thank Almighty God for his shower of blessing.M. Principal of Smt.K.

DECLARATION Date:- I the undersigned Mr. Banerjee. Yours faithfully. declared that information provided in this project is true as per the best of my knowledge. have guided Yasser Rajwani for his project. Banerjee. I hereby. Thank you. . he has completed the project ―International Financial Reporting Standards IFRS” successfully.

They are sometimes still called by the original name of International Accounting Standards (IAS). understandable. 2001. each country has its own set of rules. IFRS are sometimes confused with International Accounting Standards (IAS). . For example.'International Financial Reporting Standards .IFRS' A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements IFRS are issued by the International Accounting Standards Board.) The goal with IFRS is to make international comparisons as easy as possible.IFRS International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are progressively replacing the many different national accounting standards. Framework The Conceptual Framework for Financial Reporting states basic principles for IFRS. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.The rules to be followed by accountants to maintain books of accounts which is comparable. The Joint Conceptual Framework project aims to update and refine the existing concepts to reflect the changes in markets. Definition of 'International Financial Reporting Standards . During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). (IAS were issued from 1973 to 2000.S. business practices and the economic environment that have occurred in the two or more decades since the concepts were first developed. which are the older standards that IFRS replaced. U. The IASB has continued to develop standards calling the new standards International Financial Reporting Standards (IFRS). On April 1. The IASB and FASB Frameworks are in the process of being updated and converged. GAAP are different from Canadian GAAP. This is difficult because. the new International Accounting Standards Board took over from the IASC the responsibility for setting International Accounting Standards. to a large extent. IFRS began as an attempt to harmonise accounting across the European Union but the value of harmonisation quickly made the concept attractive around the world. reliable and relevant as per the users internal or external. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries.

59 (a)] under the Capital Maintenance in Units of Constant Purchasing Power paradigm and Constant Purchasing Power Accounting – CPPA – (see IAS 29) during hyperinflation under the Historical Cost paradigm. liabilities. and expenses in the Framework. Going concern: an entity will continue for the foreseeable future under the Historical Cost paradigm as well as under the Capital Maintenance in Units of Constant Purchasing Power paradigm.59 (b).e. IAS 8. Current Cost Accounting. IFRS authorize three basic accounting models: I.) II. Constant Item Purchasing Power Accounting[5] – CIPPA – in terms of a Daily Consumer Price Index or daily rate at all levels of inflation and deflation (see the original Framework (1989).e.. i. income. In making that judgement. globally implemented Historical cost accounting during low inflation and deflation only under the traditional Historical Cost paradigm.. Par. and measurement concepts for assets.11 requires management to consider the definitions. they need to reflect true view of the financial position of the organization. i. 4. Financial capital maintenance in units of constant purchasing power.Role of framework Deloitte states: In the absence of a Standard or an Interpretation that specifically applies to a transaction. (See the Conceptual Framework. Par 104 (a)) [now Conceptual Framework (2010). . As statements are used by various constituents of the society / regulators. The following are the three underlying assumptions in IFRS:  1. under Physical Capital Maintenance at all levels of inflation and deflation under the Historical Cost paradigm as well as the Capital Maintenance in Units of Constant Purchasing Power paradigm. management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. Financial capital maintenance in nominal monetary units. III.[1] Objective of financial statements A financial statement should reflect true and fair view of the business affairs of the organization. recognition criteria. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8. and it is very helpful to check the financial position of the business for a specific period. Par. 4.

fees. all taxes receivable. etc.       2. Inflation and deflation have no effect on the real value of non-monetary items. i. dividends payable. share premium accounts. Stable measuring unit assumption: financial capital maintenance in • nominal monetary units or traditional Historical cost accounting only under the traditional Historical Cost paradigm. revaluation surpluses. provisions. deferred tax assets. All constant real value non-monetary items are always and everywhere measured in units of constant purchasing power at all levels of inflation and deflation under CIPPA in terms of a Daily CPI or daily rate under the Capital Maintenance in Units of . Par.e. all other items in shareholders´ equity. interest paid. retained earnings. 4. accountants consider changes in the purchasing power of the functional currency up to but excluding 26% per annum for three years in a row (which would be 100% cumulative inflation over three years or hyperinflation as defined in IAS 29) as immaterial or not sufficiently important for them to choose Capital Maintenance in units of constant purchasing power in terms of a Daily Consumer Price Index or daily rate Constant Item Purchasing Power Accounting at all levels of inflation and deflation as authorized in IFRS in the original Framework(1989). trade creditors. interest received.59 (a)]. 3. bank charges. share discount accounts. all other non-monetary receivables.e.e. all accounted profits and losses. See The Framework (1989). salaries. wages.. 4.59 (a)]. all taxes payable.remedies for an indefinite period of time the erosion caused by Historical Cost Accounting of the real values of constant real value non-monetary items never maintained constant as a result of the implementation of the stable measuring unit assumption at all levels of inflation and deflation under HCA. all other non-monetary payables. Par 104 (a) [now Conceptual Framework (2010). Units of constant purchasing power: capital maintenance in units of constant purchasing power at all levels of inflation and deflation in terms of a Daily Consumer Price Index or daily rate (Constant Item Purchasing Power Accounting)[6] only under the Capital Maintenance in Units of Constant Purchasing Power paradigm. royalties. Capital maintenance in units of constant purchasing power under Constant Item Purchasing Power Accounting in terms of a Daily Consumer Price Index or daily rate of all constant real value non-monetary items in all entities that at least break even in real value at all levels of inflation and deflation ceteris paribus . i. all other income statement items. capital reserves. Paragraph 104 (a) [now Conceptual Framework (2010). traditional HCA which erodes the real value of constant real value non-monetary items never maintained constant in a double entry basic accounting model. retained losses. trade debtors. It is not inflation doing the eroding. dividends receivable. comprehensive income.[2] It is the implementation of the stable measuring unit assumption. Examples include borrowing costs. short term employee benefits. the total rejection of the stable measuring unit assumption at all levels of inflation and deflation. deferred tax liabilities. issued share capital. rentals. pensions. i. Par. Accountants implementing the stable measuring unit assumption (traditional Historical Cost Accounting) during annual inflation of 25% for 3 years in a row would erode 100% of the real value of all constant real value non-monetary items not maintained constant under the Historical Cost paradigm.. Constant real value non-monetary items are non-monetary items with constant real values over time whose values within an entity are not generally determined in a market on a daily basis.

notes payable. Variable real value non-monetary items are non-monetary items with variable real values over time. Monetary items are units of money held and items with an underlying monetary nature which are substitutes for units of money held.          Constant Purchasing Power paradigm. etc. inventory. equipment and investment property after recognition under the Capital Maintenance in Units of Constant Purchasing Power paradigm. student loans. when these items are not in the form of money held. foreign exchange. credit card loans. The constant item gain or loss is calculated when current period constant items are not measured in units of constant purchasing power. property. The net monetary loss or gain as defined in IAS 29 is required to be calculated and accounted when they are not inflation-adjusted on a daily basis during the current financial period. home loans. commercial and government bonds. finished goods. e. Under the Capital Maintenance in Units of Constant Purchasing Power paradigm daily measurement is required of all items in terms of (a) a Daily Consumer Price Index or monetized daily indexed unit of account. car loans. Examples of units of money held are bank notes and coins of the fiat currency created within an economy by means of fractional reserve banking. All accounted losses and profits are constant real value non-monetary items. consumer loans. Current period variable real value non-monetary items are required to be measured on a daily basis in terms of IFRS excluding the stable measuring unit assumption and the cost model in the valuation of property. Qualitative characteristics of financial statements Qualitative characteristics of financial statements include: • Relevance (Materiality) • Faithful representation . etc. plant. Examples of items with an underlying monetary nature which are substitutes of money held include the capital amount of: bank loans. 26 per cent annual inflation for three years in a row. raw material. bank savings. plant. Hyperinflation is defined in IAS 29 as cumulative inflation being equal to or approaching 100 per cent over three years. When they are not valued on a daily basis. high inflation and deflation and (b) in terms of a relatively stable foreign currency parallel rate (normally the US Dollar daily parallel rate) or a Brazilian-style Unidade Real de Valor daily index during hyperinflation. Current period impairment losses in variable real value non-monetary items are required to be treated in terms of IFRS.g. Inflation-adjusting the total money supply (excluding bank notes and coins of the fiat functional currency created by means of fractional reserve banking within an economy) in terms of a daily index or rate under complete co-ordination would result in zero cost of inflation (not zero inflation) in only the entire money supply (as qualified) in an economy. goodwill. Historic and current period monetary items are required to be inflation-adjusted on a daily basis in terms of a daily index or rate under the Capital Maintenance in Units of Constant Purchasing Power paradigm. the Unidad de Fomento in Chile. notes receivable. during low inflation. all capital and money market investments. They are constant real value non-monetary items once they are accounted. then they as well as historic variable real value non-monetary items are required to be updated daily in terms of a daily rate as indicated above. equipment. intellectual property. Examples include quoted and unquoted shares. Treasury Bills. i.e.

etc. Liability: A liability is a present obligation of the enterprise arising from the past events. • the resource can be reliably measured – otherwise the stable measuring unit assumption is applied under the Historical Cost Accounting model: i. Under the Units of Constant Purchasing Power model. which are inflation-adjusted annually).e. it is assumed that the monetary unit of account (the functional currency) is perfectly stable (zero inflation or deflation).e.. it is simply assumed that there is no inflation or deflation ever..e. • The financial performance of an enterprise is primarily provided in the Statement of Comprehensive Income (income statement or profit and loss account). i. retained earnings. all constant real value nonmonetary items are inflation-adjusted during low inflation and deflation. partners and shareholders. all items . i. Revenues and expenses are measured in nominal monetary units under the Historical Cost Accounting model and in units of constant purchasing power (inflation-adjusted) under the Units of Constant Purchasing Power model. proprietor.e. it does not include the contributions made by the equity participants. the settlement of which is expected to result in an outflow from the enterprise' resources. and items are stated at their original nominal Historical Cost from any prior date: 1 month.. etc. rentals. 10 or 100 or 200 or more years before. or decrease of liabilities that result in increases in equity. However. i. capital reserves. The elements of an income statement or the elements that measure the financial performance are as follows: Revenues: increases in economic benefit during an accounting period in the form of inflows or enhancements of assets. i. 1 year. • Statement of Changes in Equity • Statement of Cash Flows • Notes to the Financial Statements Recognition of elements of financial statements An item is recognized in the financial statements when: • it is probable future economic benefit will flow to or from an entity. Equity: Equity is the residual interest in the assets of the enterprise after deducting all the liabilities under the Historical Cost Accounting model.e. wages. The elements include: Asset: An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise. the stable measuring unit assumption is applied to items such as issued share capital. all items in the Statement of Comprehensive Income (except salaries. Expenses: decreases in economic benefits during an accounting period in the form of outflows. Equity is also known as owner's equity. all other items in shareholders´ equity. assets. or depletions of assets or incurrences of liabilities that result in decreases in equity. Under the units of constant purchasing power model equity is the constant real value of shareholders´ equity.           Enhancing qualitative characteristics include: • Comparability • Verifiability • Timeliness • Understandability Elements of financial statements (IAS 1 article 10) • The financial position of an enterprise is primarily provided in the Statement of Financial Position.

in the Statement of Comprehensive Income. Concepts of capital Par. etc. income taxes). marketable securities may be carried at market value and pension liabilities are carried at their present value. Under a financial concept of capital. US GAAP does not recognize the third concept of capital and capital maintenance during low inflation and deflation. Concepts of capital and capital maintenance A major difference between US GAAP and IFRS is the fact that three fundamentally different concepts of capital and capital maintenance are authorized in IFRS while US GAAP only authorize two capital and capital maintenance concepts during low inflation and deflation: (1) physical capital maintenance and (2) financial capital maintenance in nominal monetary units (traditional Historical Cost Accounting) as stated in Par 45 to 48 in the FASB Conceptual Satement Nº 5. Par. Accounts Payables.         Measurement of the elements of financial statements Par. such as . Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business. or in some circumstances (for example. 100. capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital. They include the following: (a) Historical cost. provisions. This is usually combined with other measurement bases. all nonmonetary receivables. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. namely. such as invested money or invested purchasing power. (b) Current cost. Par 104 (a) in 1989. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are recorded at the amount of proceeds received in exchange for the obligation. For example. This involves the selection of the particular basis of measurement. 101. some entities use the current cost basis as a response to the inability of the historical cost accounting model to deal with the effects of changing prices of non-monetary assets. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. The measurement basis most commonly adopted by entities in preparing their financial statements is historical cost. at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. inventories are usually carried at the lower of cost and net realisable value. Accounts Receivables. financial capital maintenance in units of constant purchasing power as authorized in IFRS in the Framework. Par. 102. all non-monetary payables. Furthermore. (c) Realisable (settlement) value. Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement. 99. A financial concept of capital is adopted by most entities in preparing their financial statements. A number of different measurement bases are employed to different degrees and in varying combinations in financial statements. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently. all items in shareholders´ equity.

the main concern of users is with the operating capability of the entity. IAS 29 is prescribed [7] during hyperinflation: i.[5] The concepts of capital in paragraph 102 give rise to the following three concepts of capital maintenance during low inflation and deflation: • (1) Physical capital maintenance[3]: optional during low inflation and deflation. Current Cost Accounting model prescribed by IFRS. Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power. See Par 106. owners during the period. Financial capital maintenance in nominal monetary units per se during inflation and deflation is a fallacy: it is impossible to maintain the real value of financial capital constant with measurement in nominal monetary units per se during inflation and deflation. however. If. even though there may be some measurement difficulties in making the concept operational. • (3) Financial capital maintenance in units of constant purchasing power[3] (Constant Item Purchasing Power Accounting)[6]: authorized by IFRS but not prescribed—optional during low inflation and deflation. • (2) Financial capital maintenance in nominal monetary units (Historical cost accounting)[3]: authorized by IFRS but not prescribed—optional during low inflation and deflation. units of output per day. for example. after excluding any distributions to. a financial concept of capital should be adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital. a physical concept of capital should be used. capital is regarded as the productive capacity of the entity based on.[3] See paragraph 102&103 • (B) Nominal financial capital. The concepts of capital in paragraph 102 give rise to the following two concepts of capital maintenance: (a) Financial capital maintenance. and contributions from.        Par. and contributions from. See Par 104 (a) Historical cost accounting. The concepts of capital in paragraph 102 give rise to the following three concepts of capital during low inflation and deflation: • (A) Physical capital.operating capability. Concepts of capital maintenance and the determination of profit Par. 104. owners during the period. Thus. See Par 104(a). the restatement of Historical Cost or Current Cost period-end financial statements in terms of the period- . (b) Physical capital maintenance.[3] See paragraph 104. The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements. 103. Under this concept a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period.[4] • (C) Constant purchasing power financial capital. The concept chosen indicates the goal to be attained in determining profit. after excluding any distributions to.[3] See paragraph 104.e.

106. it is a prerequisite for distinguishing between an entity's return on capital and its return of capital. It provides the linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured. does not require the use of a particular basis of measurement. This would happen whether these entities own revaluable fixed assets or not and without the requirement of more capital or additional retained profits to simply maintain the existing constant real value of existing shareholders´ equity constant. Financial capital maintenance in units of constant purchasing power requires the calculation and accounting of net monetary losses and gains from holding monetary items during low inflation and deflation. Thus. The concept of capital maintenance is concerned with how an entity defines the capital that it seeks to maintain. The selection of the measurement bases and concept of capital maintenance will determine the accounting model used in the preparation of the financial . profit represents the increase in that capital over the period. Par.      end monthly published Consumer Price Index. only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital. In general terms. hence. profit is the residual amount that remains after expenses (including capital maintenance adjustments. increases in the prices of assets held over the period. only that part of the increase in the prices of assets that exceeds the increase in the general level of prices is regarded as profit. however. as part of equity. If expenses exceed income the residual amount is a loss. The calculation and accounting of net monetary losses and gains during low inflation and deflation have thus been authorized in IFRS since 1989. The physical capital maintenance concept requires the adoption of the current cost basis of measurement. profits. conventionally referred to as holding gains. conceptually. Any amount over and above that required to maintain the capital at the beginning of the period is profit. they are treated as capital maintenance adjustments that are part of equity and not as profit. Under the concept of physical capital maintenance when capital is defined in terms of the physical productive capacity. Par. Thus. The principal difference between the two concepts of capital maintenance is the treatment of the effects of changes in the prices of assets and liabilities of the entity. Hence. however. Par. 110. are. Par. until the assets are disposed of in an exchange transaction. profit represents the increase in invested purchasing power over the period.[8] Only financial capital maintenance in units of constant purchasing power (CIPPA) per se can automatically maintain the real value of financial capital constant at all levels of inflation and deflation in all entities that at least break even in real value— ceteris paribus—for an indefinite period of time. hence. When the concept of financial capital maintenance is defined in terms of constant purchasing power units. where appropriate) have been deducted from income. Selection of the basis under this concept is dependent on the type of financial capital that the entity is seeking to maintain. an entity has maintained its capital if it has as much capital at the end of the period as it had at the beginning of the period. Par. The financial capital maintenance concept. 109. Par. 107. 108. profit represents the increase in nominal money capital over the period. The rest of the increase is treated as a capital maintenance adjustment and. Under the concept of financial capital maintenance where capital is defined in terms of nominal monetary units. 105. All price changes affecting the assets and liabilities of the entity are viewed as changes in the measurement of the physical productive capacity of the entity. They may not be recognised as such.

more than 113 countries around the world. • present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies the new standard. Pakistan. GCC countries. At the present time. On 6 September 2007. This intention will. however. Australia. The main changes from the previous version are to require that an entity must: • present all non-owner changes in equity (that is. Securities and Exchange Commission. Russia.statements. It is generally expected that IFRS adoption worldwide will be beneficial to investors and other users of financial statements.36). be reviewed in the light of world developments. 'comprehensive income' ) either in one Statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). including the European Union. listed companies.S.7). by reducing the costs of comparing alternative . India. As of August 2008. The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009. currently require or permit IFRS reporting and 85 require IFRS reporting for all domestic. including all of Europe. Adoption of IFRS IFRS are used in many parts of the world. management must seek a balance between relevance and reliability. including a summary of the significant accounting policies Comparative information is required for the prior reporting period (IAS 1. This Framework is applicable to a range of accounting models and provides guidance on preparing and presenting the financial statements constructed under the chosen model. it is not the intention of the Board of IASC to prescribe a particular model other than in exceptional circumstances. Early adoption is permitted. Hong Kong. according to the U. Malaysia. the IASB issued a revised IAS 1 Presentation of Financial Statements. South Africa. • present a statement of cash flow. • make necessary disclosure by the way of a note. which reconciles Profit or Loss on the Income statement to total comprehensive income • a Statement of Changes in Equity (SOCE) • a Cash Flow Statement or Statement of Cash Flows • notes.8) • a Statement of Financial Position • a Statement of Comprehensive Income separate statements comprising an Income Statement and separately a Statement of Comprehensive Income. as in other areas. Singapore and Turkey. Components of comprehensive income may not be presented in the Statement of changes in equity. such as for those entities reporting in the currency of a hyperinflationary economy. IFRS financial statements consist of (IAS1. Different accounting models exhibit different degrees of relevance and reliability and.         Requirements of IFRS See Requirements of IFRS. An entity preparing IFRS accounts for the first time must apply IFRS in full for the current and comparative period although there are transitional exemptions (IFRS1.

To this end. Australia The Australian Accounting Standards Board (AASB) has issued 'Australian equivalents to IFRS' (A-IFRS). In addition. The AASB continues to mirror changes made by the IASB as local pronouncements. Australian equivalents to SIC and IFRIC Interpretations have also been issued. however. numbering IFRS standards as AASB 1–8 and IAS standards as AASB 101–141. however these generally have the effect of eliminating an option under IFRS. over recent years. Companies are also expected to benefit. There are some calls for Australia to simply adopt IFRS without 'Australianising' them and this has resulted in the AASB itself looking at alternative ways of adopting IFRS in Australia Canada The use of IFRS became a requirement for Canadian publicly accountable profit-oriented enterprises for financial periods beginning on or after 1 January 2011. Companies that have high levels of international activities are among the group that would benefit from a switch to IFRS.e. standards must be endorsed by the Accounting Regulatory Committee (ARC). These pronouncements replaced previous Australian generally accepted accounting principles with effect from annual reporting periods beginning on or after 1 January 2005 (i. which includes representatives of member state governments and is advised by a group of accounting experts known as the European Financial Reporting Advisory Group.‖ European Union All listed EU companies have been required to use IFRS since 2005. It must be acknowledged. This includes public companies and other "profit-oriented enterprises that are responsible to large or diverse groups of shareholders. He also expressed concerns about the fair value emphasis of IFRS and the influence of accountants from non-common-law regions. forprofit entities that prepare financial statements in accordance with A-IFRS are able to make an unreserved statement of compliance with IFRS. introducing additional disclosures or implementing requirements for not-for-profit entities. As a result IFRS as applied in the EU may differ from that used elsewhere. the AASB has issued so-called 'Amending Standards' to reverse some of the initial changes made to the IFRS text for local terminology differences. he argues that the enforcement of the standards could be lax. rather than departing from IFRS for Australian entities. Companies that are involved in foreign activities and investing benefit from the switch due to the increased comparability of a set accounting standard.       investments and increasing the quality of information. as investors will be more willing to provide financing. along with Europe and a few other countries. Ball has expressed some skepticism of the overall cost of the international standard. where losses have been recognized in a less timely manner. was one of the initial adopters of IFRS for domestic purposes (in the developed world). that IFRS and primarily IAS have been part and parcel of accounting standard package in the developing world for many years since the relevant accounting bodies were more open to adoption of international standards for many reasons including that of capability. to reinstate options and eliminate some Australian-specific disclosure. Ray J. For a current overview see PwC's map of countries that apply IFRS. and the regional differences in accounting could become obscured behind a label. . Accordingly. However. In order to be approved for use in the EU. along with a number of 'domestic' standards and interpretations. The AASB has made certain amendments to the IASB pronouncements in making AIFRS. 30 June 2006 was the first report prepared under IFRSequivalent standards for June year ends). Australia.

The press note does not clarify whether the full set of financial statements for the year 2011–12 will be prepared by applying accounting standards convergent with IFRS. the transition date was fixed at April 1. but it will undermine . having net worth of more than INR 1000 crore (INR 10 billion) Phase 2: Opening balance sheet as at 1 April 2012* Companies not covered in phase 1 and having net worth exceeding INR 500 crore (INR 5 billion) Phase 3: Opening balance sheet as at 1 April 2014* Listed companies not covered in the earlier phases * If the financial year of a company commences at a date other than 1 April. In the first phase. According to the earlier plan. Parts of the standard IAS 39: Financial Instruments: Recognition and Measurement were not originally approved by the ARC. Reserve Bank of India has stated that financial statements of banks need to be IFRScompliant for periods beginning on or after 1 April 2011. The IASB is working with the EU to find an acceptable way to remove a remaining anomaly in respect of hedge accounting. the Ministry of Corporate Affairs issued the road map for transition to IFRS. those companies will convert their first balance sheet as at April 1. then it shall prepare its opening balance sheet at the commencement of immediately following financial year. whether listed or not. 2010.               India The Institute of Chartered Accountants of India (ICAI) has announced that IFRS will be mandatory in India for financial statements for the periods beginning on or after 1 April 2012. Phase wise applicability details for different companies in India: Phase 1: Opening balance sheet as at 1 April 2011* i. companies included in Nifty 50 or BSE Sensex. Companies whose shares or other securities are listed on a stock exchange outside India b. This implies that the transition date will be April 1. removing the option to record financial liabilities at fair value. IAS 39 was subsequently amended. The ICAI has also stated that IFRS will be applied to companies above INR 1000 crore (INR 10 billion) from April 2011. On January 22. Companies which are part of NSE Index – Nifty 50 ii. According to the press note issued by the government. applying accounting standards convergent with IFRS if the accounting year ends on March 31. and companies whose securities are listed on stock exchanges outside India and all other companies having net worth of INR 1000 crore will prepare and present financial statements using Indian Accounting Standards converged with IFRS. This will be done by revising existing accounting standards to make them compatible with IFRS. The deferment of the transition may make companies happy. The World Bank Centre for Financial Reporting Reform is working with countries in the ECA region to facilitate the adoption of IFRS and IFRS for SMEs. Companies which are part of BSE Sensex – BSE 30 a. 2010. 2011. It is clear that India has deferred transition to IFRS by a year. Companies. 2011. and the ARC approved the amended version.

Foreign companies listed on Montenegro's two stock exchanges (Montenegro Stock Exchange and NEX Stock Exchange) are also required to apply IFRS in their financial statements. could not prepare itself for the transition to IFRS over last four years. Therefore. whether listed or not. Transition to IFRS in phases is a smart move. lack of preparedness of Indian companies has led to the decision to defer the adoption of IFRS for a year. Japan The minister for Financial Services in Japan announced in late June 2011 that mandatory application of the IFRS should not take place from fiscal year-ending March 2015. generally. Indian accounting firms and smaller companies will not benefit from the learning in the first phase of the transition to IFRS.S. five to seven years should be required for preparation if mandatory application is decided. Its accounting standard setter is the Institute of Accountants and Auditors of Montenegro (IAAM). no . enforcement is not effective except in the banking sector. Moreover. Listed companies having net worth of INR 500 crore or less will convert their opening balance sheet as at April 1. IAAM adopted a revised version of the 2002 "Law on Accounting and Auditing" which authorized the use of IFRS for all entities. Net worth in the balance sheet is determined by accounting principles and methods. IFRS is currently required for all consolidated and standalone financial statements. But it is difficult to estimate market capitalisation or fundamental value of unlisted companies. the net worth does not reflect the current value of those assets and liabilities. Montenegro Montenegro gained independence from Serbia in 2006. This is not the ideal unit to measure the size of a company.  India's position. of high quality and can be compared to those of the European Union. Transition in phases Companies. Some companies. it does not include the value of intangible assets. having net worth of more than INR 500 crore will convert their opening balance sheet as at April 1. as most assets and liabilities are measured at historical cost. choose one of the international firms. 2013. In 2005. If. most large companies. Presumably. which boasts for its IT and accounting skills. Un-listed companies having net worth of Rs 500 crore or less will continue to apply existing accounting standards. which might be modified from time to time. which are large in terms of fundamental value or which intend to attract foreign capital. 2016. However. Market capitalisation is a better measure of the size of a company. Financial statements for banks in Montenegro are. The transition cost for smaller companies will be much lower because large companies will bear the initial cost of learning and smaller companies will not be required to reinvent the wheel. and to permit the use of U. This might be the reason that the government has decided to use 'net worth' to measure size of companies. Currently. this will happen only if a significant number of large companies engage Indian accounting firms to provide them support in their transition to IFRS. The government should provide that choice. Therefore. might prefer to use Indian accounting standards convergent with IFRS earlier than required under the road map presented by the government. 2014. Montenegro does not have a national GAAP. Size of companies The government has decided to measure the size of companies in terms of net worth. But that might be the ground reality. Public sector companies should take the lead and the Institute of Chartered Accountants of India (ICAI) should develop a clear strategy to diffuse the learning. It is likely that international firms will protect their learning to retain their competitive advantage. however. it is for the benefit of the country that each company makes judicious choice of the accounting firm as its partner without limiting its choice to international accounting firms. This is unfortunate that India. GAAP beyond the fiscal year ending March 31. which will comply with Indian accounting standards convergent with IFRS in the first phase.

Early optional adoption: Firms that have already issued securities overseas.            Montenegrin translation of IFRS exists. IFRS-9: Under consideration of the relevant Committee of the Institutes (ICAP & ICMAP). The IFRS for SMEs may be applied by 'limited interest companies'. Since then twenty new accounting standards were issued by the Ministry of Finance of the Russian Federation aiming to align accounting practices with IFRS. Singapore closely models its Financial Reporting Standards (FRS) according to the IFRS. South African Statements of GAAP are entirely consistent with IFRS. it will be permitted to prepare additional individual financial statements on the above conditions. or have a market capitalization of greater than NT$10 billion. with appropriate changes made to suit the Singapore context. Alternatively. 2013. 2012. Despite these efforts essential differences between Russian accounting standards and IFRS remain. Before a standard is enacted. This IFRS is being considered for adoption for all companies other than banks and DFIs. They will be required to prepare financial statements in accordance with TaiwanIFRS starting from January 1. and because of this Montenegro applies the Serbian translation from 2010. (2) Phase II companies: unlisted public companies. If a company without subsidiaries is not required to prepare consolidated financial statements. This IFRS will be effective for the annual periods beginning on or after 1 January 2013. the company may choose to apply full South African Statements of GAAP or IFRS. Since 2004 all commercial banks have been obliged to prepare financial statements in accordance with both Russian accounting standards and IFRS. credit cooperatives and credit card companies: . Singapore In Singapore the Accounting Standards Committee (ASC) is in charge of standard setting. 2004. they are not 'widely held'). as defined in the South African Corporate Laws Amendment Act of 2006 (that is. not listed and not a financial institution). Adoption scope and timetable (1) Phase I companies: listed companies and financial institutions supervised by the FSC. IFRS for SMEs is not currently applied in Montenegro. although there may be a delay between issuance of an IFRS and the equivalent SA Statement of GAAP (can affect voluntary early adoption). consultations with the IASB are made to ensure consistency of core principles. Pakistan All listed companies must follow all issued IAS/IFRS except the following: IAS 39 and IAS 40: Implementation of these standards has been held in abeyance by State Bank of Pakistan for Banks and DFIs IFRS-1: Effective for the annual periods beginning on or after January 1. if they do not have public accountability (that is. will be permitted to prepare additional consolidated financial statements1 in accordance with Taiwan-IFRS starting from January 1. or have registered an overseas securities issuance with the FSC. B. credit card companies and insurance intermediaries: A. except for credit cooperatives. Russia The government of Russia has been implementing a program to harmonize its national accounting standards with IFRS since 1998. South Africa All companies listed on the Johannesburg Stock Exchange have been required to comply with the requirements of International Financial Reporting Standards since 1 January 2005. Full transition to IFRS is delayed.

2011. domestic companies should propose an IFRS adoption plan and establish a specific taskforce. 1. Companies adopting IFRS early will be required to disclose the adoption plan. 2019 B. They will be permitted to apply Taiwan-IFRS starting from January. (3) Pre-disclosure about the IFRS adoption plan. Year Work Plan 2008 Establishment of IFRS Taskforce 2009~2011 • • • • • Acquisition of authorization to translate IFRS Translation. in 2011 annual financial statements. it will be required to disclose the adoption plan. and the impact of adoption. Phase I companies: (A) They will be required to disclose the adoption plan. 2013.  A. They should also disclose the related information from 2 years prior to adoption. and the impact of adoption To prepare properly for IFRS adoption. in 2010 annual financial statements. and the impact of adoption. If a company opts for early adoption of Taiwan-IFRS after January 1. They will be required to prepare financial statements in accordance with TaiwanIFRS starting from January 1. and issuance of IFRS Analysis of possible IFRS implementation problems. and in 2012 interim and annual financial statements. b. in 2011 interim and annual financial statements commencing on the decision date. Phase II companies will be required to disclose the related information from 2 years prior to adoption.B. and the impact of adoption.and resolution thereof Completion of amendments to the related regulations and supervisory mechanisms Enhancement of the related publicity and training activities . review. as follows:  A. (B) Early optional adoption: a. as stated above. and in 2011 interim and annual financial statements.and resolution thereof Proposal for modification of the related regulations and supervisory mechanisms Enhancement of related publicity and training activities 2012 • • • • IFRS application permitted for Phase I companies Study on possible IFRS implementation problems.

The following IFRS statements are currently issued:                           IFRS 1 First time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 1 Presentation of Financial Statements. effective 1 January 1997. Changes in Accounting Estimates and Errors IAS 9 Accounting for Research and Development Activities – Superseded by IAS 38 effective 1.and of the impact 2014 • Follow-up analysis of the status of IFRS adoption.and of the impact 2015 8Applications of IFRS required for Phase II companies .2013 • Application of IFRS required for Phase I companies. all of which were issued or revised in 1998 IAS 5 Information to Be Disclosed in Financial Statements Originally issued October 1976. IAS 2 Inventories IAS 3 Consolidated Financial Statements Originally issued 1976. Superseded in 1989 by IAS 27 and IAS 28 IAS 4 Depreciation Accounting Withdrawn in 1999.99 IAS 10 Events After the Balance Sheet Date IAS 11 Construction Contracts IAS 12 Income Taxes IAS 13 Presentation of Current Assets and Current Liabilities – Superseded by IAS 1. and 38. . which was withdrawn December 2003 IAS 7 Cash Flow Statements IAS 8 Accounting Policies.and permitted for Phase II companies • Follow-up analysis of the status of IFRS adoption. List of International Financial Reporting Standards. effective 1 Jan 1977. 22. replaced by IAS 16.7. Superseded by IAS 1 in 1997 IAS 6 Accounting Responses to Changing PricesSuperseded by IAS 15.

                            IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008) IAS 15 Information Reflecting the Effects of Changing Prices – Withdrawn December 2003 IAS 16 Property. Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property IAS 41 Agriculture . Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 22 Business Combinations – Superseded by IFRS 3 effective 31 March 2004 IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 25 Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001 IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated Financial Statements IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinflationary Economies IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions – Superseded by IFRS 7 effective 2007 IAS 31 Interests in Joint Ventures IAS 32 Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures. and no longer in IAS 32) IAS 33 Earnings Per Share IAS 34 Interim Financial Reporting IAS 35 Discontinuing Operations – Superseded by IFRS 5 effective 2005 IAS 36 Impairment of Assets IAS 37 Provisions.

including the United States. streamlined standards. The GAAP consists of a complex set of guidelines attempting to establish rules and criteria for any contingency. the SEC adoption of international standards. The main difference between the GAAP and the IFRS is the approach each takes to the standards. and the standards convergence of the U. investors. The change will afford corporate management the opportunity to . accounting professionals and accounting standards setters and agencies. the convergence of accounting standards is changing the attitudes of CPAs and CFOs toward the harmonization of international accounting. affecting the quality of the International Accounting Standards and the efforts made toward the goal of convergence of GAAP and IFRS standards. investors. Generally Accepted Accounting Principles (GAAP). The International Accounting Standards Board (IASB) seeks a workable solution to alleviate the existing complexity. rules and practices that apply to all countries and are followed worldwide. This problem becomes more prevalent for investors trying to identify accounting reporting differences when they are considering providing funding to capital-seeking companies that follow the accounting standards and financial reporting of the country in which they are doing business.    The Impact Of Combining The U. while the IFRS begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation.S. The Consequences of Initiatives on Worldwide Accounting DiversityThe convergence and subsequent change of accounting and reporting standards at the international level impact a number of constituents. Impact on Corporate Management Corporate management will benefit from simpler. Financial Reporting Financial reporting standards and requirements vary by country. which creates inconsistencies in financial reporting. the Sarbanes-Oxley Act. conflict and confusion created by inconsistency and the lack of streamlined accounting standards in financial reporting. and the economic and financial meltdown in recent years have been exerting pressure on a number of countries. including corporate management. GAAP along with the IFRS largely impacts corporate management.S. The GAAP is rules-based while the IFRS is a principles-based methodology. GAAP And IFRS Globalization. Additionally. stock markets. stock markets. accounting professionals and accounting standards setters. Such initiatives have consequences on the world of accounting diversity. to eliminate the gap between the International Financial Reporting Standards (IFRS) and the U.S.

Hosted Private Cloud Arguments for and Against the Convergence of International Accounting Standards Arguments for the convergence are (a) renewed clarity. timely. Further. (b) possible simplification. the actual process of developing and implementing new international standards will be simpler and will eliminate the reliance on agencies to develop and ratify a decision on any specific standard. beliefs. political systems. new safeguards will be in place to prevent another national or international economic and financial meltdown. and will lead to consistency in accounting practices. comparable and reliable. and IFRS standards. types of economies. which will further reduce interest rates and lead to economic growth for a specific nation and the firms with which the country conducts business.   Arguments against accounting standards convergence are (a) the unwillingness of the different nations involved in the process to collaborate based on different cultures. Impact on Accounting Standards Setters The development of standards involves a number of boards and entities that make the process longer. At the same time. Once standards have converged.    Impact on Accounting Professionals The shift and convergence of the current standards to internationally accepted ones will force accounting professionals to learn the new standard. . Impact on Stock Markets Stock markets will see a reduction in the costs that accompany entering foreign exchanges. and (b) the time it will take to implement a new system of accounting rules and standards across the board. standards.S. (c) transparency and (d) comparability between different countries on accounting and financial reporting. This will result in an increase of capital flow and international investments. liquid and efficient capital markets. One of the ways the SEC has pursued these goals is by upholding the domestic quality of financial reporting as well as encouraging the convergence of the U. and preconceived notions for specific countries. thus providing investors with information that is accurate. more time consuming and frustrating for all parties involved. Impact on Investors Investors will have to re-educate themselves in reading and understanding accounting reports and financial statements following the new internationally accepted standards. systems and religions. ethics. Additionally. The Quality of International Accounting Standards The Securities and Exchange Commission's (SEC) goals and efforts both domestically and internationally have been to consistently pursue the achievement of fair. the process will provide for more credible information and will be simplified without the need for conversion to the standards of the country. the new standards will increase the international flow of capital. Timeliness and the availability of uniform information to all concerned stakeholders will also conceptually make for a smoother and more time-efficient process.  raise capital via lower interest rates while lowering risk and the cost of doing business. and all markets adhering to the same rules and standards will further allow markets to compete internationally for global investment opportunities.

they consist of the following: 1. while the last two relate to the measurement and disclosure of accounting information at a country level.S. There are various reasons for such resistance to change. such as a value system . CPAs' Attitudes Toward Harmonization of International Accounting Some reasons for the U.a broad tendency to prefer certain states of affairs over others . Therefore. Conservatism versus optimism 4. a lower frequency of small positive income. Secrecy versus transparency  The first two relate to authority and enforcement of accounting practice at a country level. the mission has been enhanced to include the convergence and harmonization of U.S. Uniformity versus conformity 3.) and corporations' top management (CFOs. a significantly lower negative correlation between accruals and cash flows. The accounting value dimensions used to define a country's accounting system are based on the country's culture. GAAP and standards for accounting and financial reporting. There is some opposition to the convergence from all stakeholders involved. some to corporate management and some are shared by both. Examining those dimensions and factors that impact an accounting system. and a lack of good understanding of the international principles. however. the inability or low ability to culturally relate to other countries' accounting systems. these firms have less earnings management. CEOs). Research indicates that firms that apply the international standards show the following: a higher variance of net income changes.S. a higher change in cash flows. a higher frequency of large negative income and a higher value relevance in accounting amounts. Additionally. not embracing the standards convergence are: U. and some are pertinent to the accounting profession.S.S. Culture in this context is defined by the FASB as "the collective programming of the mind which distinguishes the members of one human group from another. firms adhering to the IFRS generally exhibit higher accounting quality than when they previously followed the GAAP." Each nation and culture shares its own societal norms consisting of common characteristics. and it should also ensure broad acceptance.which is adopted by the majority of constituents. The new set of standards that will be adapted will need to provide transparency and full disclosure similar to the U. Professionalism versus statutory control 2. firms are already familiar with the existing standards. standards with international ones (IFRS). Standards.) firms following the GAAP. more timely loss recognition and more value relevance in accounting amounts compared to domestic (U. auditors etc. including accounting professionals (CPAs.     FASB's original mission has always been to establish the U.S. it becomes evident that cultural differences have a strong impact .

and this is the knowledge that accounting professionals are familiar with. Another reason why U. thus complicating the standards convergence. GAAP shows them as net income. new common standards that improve the financial information reported to stakeholders should be developed. the converged international accounting standards should provide for less complexity. As previously mentioned.S. accounting professionals and corporate management perceive the IFRS to be lower quality than the GAAP. which most people would be resistant to. companies are resistant to converging the GAAP with the IFRS is that there is a prevailing opinion that the IFRS lacks guidance compared to the U. common standards and (b) eliminating standards on either side is counterproductive.      CFOs' Attitudes Toward Harmonization of International Accounting CFOs are not embracing this change because of the costs involved. A convergence would require learning a new system. this has posed a challenge in areas such as consolidation. Company boards. the earnings-per-share calculation and development costs. inventory.S. The convergence is based is on the following beliefs: (a) the convergence of accounting standards can best be achieved over time through the development of high quality. in an effort to best serve their investors' needs. and (d) encourage their respective interpretative bodies to coordinate their activities FASB 3 states that the Sarbanes Oxley Act's requirement of the SEC to investigate the feasibility of implementing a more principles-based approach to accounting means . IFRS capitalizes them if certain criteria are met while the U. GAAP does. It has been agreed to "(a) undertake a short-term project aimed at removing a variety of individual differences between U.based and the other being principles-based. GAAP prefers a risks-and-reward model.S. should contribute to the convergence process by replacing old standards with the new jointly developed ones.S. IFRS favors a control model whereas the U. U. and. GAAP and International Financial Reporting Standards' (IFRS). on the accounting standards of another nation. instead. the major difference between GAAP and IFRS comes down to one being rules.S. There are specifically two areas that are directly impacted: a company's financial reporting and its internal control systems. IFRS does not allow LIFO for inventory valuation whereas the U. which is created by the inconsistency and lack of streamlining that exists with two different accounting systems. average cost or FIFO. Another cost involved in the transition and change to the IFRS is the public's perception of the integrity of the new converged set of standards. The SEC reporting requirements will also have to be adjusted to reflect changes of the converged system. IASs).S. The GAAP have been adhered to for years.S.S. Standards are rules-based while the IFRS methodology is principles-based. the income statement. IFRS does not segregate extraordinary items in the income statement. (b) remove other differences between IFRSs and U. GAAP through coordination of their future work programs. which include International Accounting Standards. (c) continue progress on the joint projects that they are undertaking.S. Under the IFRS the EPS calculation does not average the individual interim period calculations. In consolidation. GAAP provides the option of either LIFO. With all of this said. GAAP considers them expenses. but U.S. Standards because the U. conflict and confusion.S. Regarding developmental costs. but the U.

sloppily .and long-term convergence projects. now the International Accounting Standards Board. and compare those results with figures from competitors in China. to make "apples-to-apples" comparisons of financial numbers produced by corporations.particularly outside the major industrialized countries . Further. A solution may be that the IFRS should accept some FASB standards to accommodate the needs of the U. as well as the inclusion of any significant judgments and changes in judgments made in applying the proposed standard to those contracts. Maybe the answer lies in the need to consider a more in-depth study and an examination of the factors influencing the molding or development of a country's accounting system International Reporting Standards Gain Global Recognition Consider it a gift to global investors . As of July 2008. Many investors simply decided that only the most sophisticated analysts around the world were capable of making those comparisons and deciding who was cooking the books. The IFRS is more dynamic and is continuously being revised in response to an ever-changing financial environment. there is a doubt and concern from the FASB regarding the application and implementation of principle-based standards in the U. Could a potential stakeholder examine the financial results of a major clothing manufacturer in the United States or Canada.S. no matter where they're headquartered.with some or much skepticism. From a legal perspective. constituents and stakeholders. These standards will be recognized globally and will be set for organizations large and small. This article will cover how IFRS stand to alter global accounting procedures and what their adoption means for financial statement analysis Setting the Stage for IFRS The "coming of age" of IFRS is no yawn: in the past.S. the FASB provides clarification on the GAAP by categorizing in descending order of authority as shown in FASB No 5. including a maturity analysis for contracts extending beyond a year.) The answer: Not necessarily. and question the veracity of those numbers. the standards will be a global reality. including 20 reporting areas where differences have been resolved and completed. companies will be required to disclose qualitative and quantitative information about contracts with customers. That's what the International Financial Reporting Standards (IFRS) aim to accomplish. it appears that the main issues lie with the difference in the approach of the U.        Despite the convergence efforts made on financial performance reporting. investors had to look at financials produced by companies worldwide . The Bottom Line Despite documented research indicating a higher accounting quality experienced by firms that either follow the IFRS or switched to the IFRS from the GAAP. was established. Thailand or Brazil to decide which organization truly represents a better investment? (For related reading.S.the ability. for instance. for the first time ever.S. see Advanced Financial Statement Analysis. GAAP and IFRS. and only with great difficulty. for the first time since 1973 when the London-based International Accounting Standards Committee (IASC) .S. It's anyone's guess how this convergence will evolve and impact the accounting profession in the U.  that the U. needs to continue its compliance with the SOX as part of the process of the convergence of the GAAP and IFRS standards. Both FASB and IFRS have identified short.

check out Policing The Securities Market: An Overview Of The SEC and How The Wild West Markets Were Tamed. investors generally chose to put their money in companies and countries where they would be most comfortable with truthfulness in accounting practices and systems and the sign-off of accounting firms standing behind those numbers. securities marketplace. issuers. either in conjunction with or instead of U. see Re-evaluating Emerging Markets.without being asked for their views or input .S. cross-border investments were curtailed. particularly in emergingmarket countries. to prepare their financial statements in IFRS. the SEC proposed eliminating the requirement that foreign private issuers using IFRS reconcile statements to U. including investment companies.. generally accepted accounting principles (GAAP). A number of SEC commissioners have embraced IFRS. That requirement is part of the European Union's decision that stated that some 7.-based and overseas companies alike. 39 had a formal plan to do so.S. As a result. 95% of 59 countries surveyed said they had adopted international standards or expected to. Just as important U. confident that they will never replace U. as was the growth of the overall global economy. and because of the SEC's reputation as a fierce enforcer of securities regulations in the U. corporate executives have largely remained ignorant of their years-long evolution. a report from the International Forum on Accountancy Development. or was deemed possible. should be permitted to use IFRS.S. Because of the depth and breadth of the U. (For related reading.S. In July 2007. "Today. appears set to endorse the use of IFRS by both U. companies .S.000 publicly-held European companies had to report in IFRS by 2005.S. according to GAAP Convergence 2000. In fact. With the implementation of IFRS. one of the greatest challenges facing global securities agencies is how to enforce IFRS around the world. companies. nearly 100 countries require or allow the use of IFRS.) SEC Gets With the Program Dramatically greater transparency appears within reach as IFRS is implemented. U. We will be soliciting public comment … on whether U. According to a survey completed in 2007 by accounting firm Grant Thornton LLP: .S.) Corporate Executives Ignore the Trend While the SEC moves toward adopting IFRS. GAAP." SEC Chairman Christopher Cox said in a public statement in July 2007. like many of their competitors around the world. (For background reading on the SEC. the world's largest. an endorsement that appears to the stanards' success. true transparency in numbers among companies worldwide simply did not exist. Secured Servers Lower Outlet Prices A month before that decision.S. Before IFRS. GAAP. this is set to change.S.           managing numbers or misrepresenting the relationship between theoretically privately held companies and the governments in the countries where those companies are based. "Having a set of globally accepted accounting standards is critical to the rapidly accelerating global integration of the world's capital markets. a group representing the world's six largest accounting firms. the SEC's support and endorsement of the IFRS standards is key to ensuring that these standards become even more widespread. the SEC voted to publish a concept release for public comment on allowing U." In 2000. That's because the Securities and Exchange Commission (SEC) in the U.S.are increasingly being required to use IFRS when reporting the financial results for their European-based subsidiaries and certain other foreign operations.S. In the past.

"         Adds Ken Kelly.so that accounting principles regarding derivatives. when the IASC was established in London. virtually guaranteeing global acceptance." Historically. depending on the specific issue. individual countries have established their own versions of GAAP.since the early 1970s. Financial Accounting Standards Board (FASB) in a process known as "convergence.S." Evolution Toward IFRS IFRS have been in development for decades . In most cases. particularly those in emerging market countries . As a result. stock and barrel. The IASB is charged with the development of IFRS. the International Accounting Standards Board (IASB). Principles Vs..S. World capital markets are moving closer together with electronics and the pace of global business.. What gave a great boost to the continuing development of IFRS. ‗I don't need to look at this.S. French GAAP and so on. 67. there has been Japanese GAAP. but piecemeal .adding to investor confusion. was a mandate from the European Union that companies in all member countries must report in IFRS by 2005. The study suggests that an overwhelming number of U. have had almost no similarity to the accounting principles for the same issues in Europe. "Several years ago I would have said. they've adopted an accounting regime (or parts of an accounting regime) from an industrialized country. for instance. but in many cases extraordinarily . Asia or elsewhere.in part because many haven't had the financial wherewithal or sophisticated home-grown accounting professions capable of putting together their own accounting regimes. a common way of talking to each other about financial statements.S. executives to become involved with IFRS from the get-go. GAAP. "For that reason we're enormously excited about having to learn only one set of standards. the largest U. however.5% said they would prefer dealing with a principles-based accounting system (which IFRS is supposed to be) over the more rules-based approach of U.S. The group was replaced in March 2001 by a more robust agency. That's because the IASB . vice president and controller at General Electric and one of the few U.S. also established in London.' but the pace of change has been quick. corporate executives tend to turn a blind eye to IFRS. those systems haven't been adopted lock. Rules While some might consider the introduction of IFRS to be just another dull accounting concern. vice president and controller of spice producer McCormick & Co.S." said Phil Ameen. probably standards worldwide are lagging behind what the global corporate community is doing. The problem with all of these varying generally accepted accounting principles is that they have differed not just in nuance. and almost 50% opposed letting U.S. GAAP. and has worked closely with national accounting standards-setting agencies like the U. implementation may be anything but.    More than 55% of those polled disagreed with the SEC's proposal to let foreign firms file financial statements in IFRS. insurance or pension treatment in the U. Not all countries have had their own GAAP. "One of the friction points [in global accounting] is that we currently don't have a lingua franca. however.-based companies have spoken out in favor of these accounting principles. The IASC was started with the goal of providing a robust accounting system for countries that don't have one of their own or lack the immediate ability to develop one. firms with extensive overseas operations adopt IFRS instead of using U.

giving accounting professionals far more leeway regarding how to interpret the standard. It's Not Too Early To Learn . once a new rule is put on the table. Loretta V. the introduction of individual IFRS is being done by consensus.of an asset and liability. a rule on the same issue may need no more than a handful of pages. abuse-prone. elsewhere. Other key issues of disagreement: When to mark to market assets and liabilities. Take sharp viewpoints like these. the project manager for the IASB." she said.S. doesn't have the power to force adoption of IFRS by fiat: No country is under any requirement to use these standards. for fear of lawsuits. un-auditable. representationally unfaithful. transparent market mechanism for doing so (for instance. and companies have liked the idea of having specific accounting rules to refer to in court to back up their accounting treatment decisions if they're sued. for instance). in New York called IAS 37 "non-operational. which is to govern contingent assets and liabilities. the gap between the expected and actual quality of financial statements will grow in a manner that will not be cured. In an October 2005 letter to Henry Rees.S. vice president of Pfizer Inc.the true market value . Consider some of the notes that the IASB received when it issued a request for comment on an exposure draft for International Accounting Standard (IAS) 37. it calls for having a specific accounting rule for each and every accounting eventuality that may come along. The U. even with extensive disclosure and information. that means that a single U.           In Europe and elsewhere. and the difficulty of achieving quick consensus on any single standard quickly becomes all too obvious." The rules-based approach often is favored by U. In practical terms. The process can take years." Other corporate executives were just as unhappy. companies all over the world are concerned with enormous volatility being introduced to their balance sheets depending when and how mark-to-market accounting is applied How to estimate the fair value . Cangialosi. is generally far more litigious in the corporate world than any other country. accounting rule can be more than a hundred pages long (the case with derivatives accounting. a "request for comment" is issued globally before it becomes adopted by the IASB. One of the continuing points of contention surrounding IFRS is whether the principles should be more "rules-based" or "principles-based. accounting pronouncements have been much more principles-based. today's value of a stock or heavily-traded commodity) Corporate Criticism Just how contentious can these discussions be? Very. with accounting professionals from a broad array of countries and companies participating in discussions as each new specific accounting rule is proposed.S.-based corporations and accounting experts. costly and of limited (and perhaps negative) shareholder value. Indeed. "And worse. by contrast." "We believe that if this standard is issued in its current form. For Stakeholders. particularly in the absence of a well-known. the deterioration might be visible for years. where corporate litigation is far more the exception than the norm.

and the major accounting firms are just beginning to set up IFRS practices.will recognize that. . Deloitte's IFRS PLUS is one of the best-known of such publications. "It's time for all of us to grit our teeth and dig in.particularly in the U.S.educating corporate financial executives is taking precedence over educating stakeholders. and many are establishing their own newsletters/websites on the issues. Conclusion  Savvy investment professionals . the Big Four are training their corporate clients. "Like them or not. That's partly because ." says McCormick's Kelly. . these won't become effective until 2012 to 2015.   In many countries that are moving toward adopting IFRS. doing so may give them a leg up early on. But as the European experience demonstrates. Nevertheless. there's no turning back. it's never too early to jump in. even though there's no hurry to get caught up on IFRS. as well as detailed information about specific IAS rules and where they are in the development process. there aren't a lot of places investors and stakeholders can go for information. One problem: Outside the EU.and investors . which includes a bevy of information on how the IASB is structured.

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