CHAPTER 4-IFRS & IAS Adoption

Advantages of IFRS Adoption

1) Creates a single set of accounting standards across the world
2) Reduces the time and effort of preparing financial reports.
3) Monitoring and control of subsidiaries from foreign countries become easier
4) It follows the same process that many American Agencies already follow
5) It offers flexibility in the accounting practice
6) It makes it easier for entities to do business in foreign countries
7) It helps to streamline the system by creating a controllable authoritative board (IASB)
8) It improves the rate of foreign direct investments around the world
9) It is helpful to potential and current investors
Disadvantages of IFRS Adoption
1) Increases the cost of implementation for small businesses
2) It leads to more requirements in preparation and presentation
3) It increases the amount of work placed on Accountants
4) It creates and adjustment period
5) It requires changes in technology and infrastructure
6) It helps to reduce the alternative treatments of transactions no matter how good these are
to the reporting entity
IFRS Impacts
1) Reporting and disclosure
IFRS impose more requirements for the preparation and presentation of an entity’s statement
of cash flows and statement of financial position items should be disclosed as either current or
non current
Cash generated from operating, investing and financing activities should be disclosed separately
2) Assets and liabilities
Inventories should be presented using either FIFO or average weighted cost.
PPE must be based on the historical cost and depreciation must be in a systematic manner

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An impairment loss must be recognized, where the carrying amount exceeds the recoverable
amount
3) Foreign currency
The rate at the time of transaction must be used in the financial statements for entities doing
business in foreign countries. There must be a system in place to capture the differences in
exchange rates
4) Revenue Recognition
Revenue is the income from the core business of an entity and is determined by the nature of
business and the revenue must be recognized at fair value as per the 5 step revenue model of
IFRS 15 which is as follows:
-Identify the contract with a customer
-Identify the performance obligations in the contract
-Determine the transaction price
-Allocate the transaction price to the performance obligations
-Recognize revenue when the entity satisfies the performance obligations
IFRS Adoption Process
1) IFRS specific skills by employees
2) Training for adjustment
3) Financial Management-Require changes in accounts structures, analysis codes and financial
reporting
4) Communication-Internal and external
5) Supporting technology
6) Delivery