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Why IFRS

Gholamhossein Davani Member of New York State Society of Certified Public Accountants(NYSSCPA) Member of Iranian Association of Certified Public Accountants(IACPA) November 2009

Coming Soon !! 
Market forces have underlined the logic behind the globalization of accounting standards. The goaf is to create one single set of accounting standards that can be applied anywhere in the world, saving millions for firms with more than one listing and allowing investors to compare the performance of businesses across geographic boundaries for the first time.  The move towards a single set of high-quality global accounting standards is not simply a question of changing accounting I methods. It is a change that has important practical implications and benefits for all stakeholders.

What is the philosophy of accounting
the conceptual framework for the professional preparation and auditing of financial statements and accounts. The issues which arise include the difficulty of establishing a true and fair value of an enterprise and its assets; the moral basis of disclosure and discretion; the standards and laws required to satisfy the political needs of investors, employees and other stakeholders.

What is the IASB?
The IASB is an independent accounting standard-setting body, based in London. It consists of 14 members from nine countries, including the United States. The IASB began operations in 2001 when it succeeded the International Accounting Standards Committee. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world. While the AICPA was a founding member of the International Accounting Standards Committee, the IASB's predecessor organization, it is not affiliated with the IASB. The IASB neither sponsors nor endorses the AICPA's IFRS resources website (www.IFRS.com).

Why is it Important to Understand the IFRS? 
Current investors and finance professionals need to understand IFRS because certain foreign companies traded on the US Stock markets report using IFRS instead of US GAAP. Unlike other foreign accounting standards, the SEC does not require a footnote reconciliation of IFRS Earnings to US GAAP earnings. This means that investors and financial professionals may have difficulties comparing the earnings and expenses of American companies to those of foreign companies reporting under US GAAP.  It is important that a savvy investor and any competent financial professional needs to understand the basic differences in US GAAP and IFRS in order to make informed decisions  the SEC has made a push for American companies to report using IFRS instead of the customary US GAAP (United States Generally Accepted Accounting Principles)

How widespread is the adoption of IFRS around the world?
More than 12,000 companies in approximately 113 nations have adopted IFRS, including listed companies in the European Union. Other countries, including Canada and India, are expected to transition to IFRS by 2011. Mexico plans to adopt IFRS for all listed companies starting in 2012. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. Japan has introduced a roadmap for adoption that it will decide on in 2012 (with adoption planned for 2016). Still other countries have plans to converge (eliminate significant differences) their national standards with IFRS.

IASB, IASCF, and IASC Defined 
The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards. The IASB operates under the oversight of the International Accounting Standards Committee Foundation. The IASB was formed in 2001 to replace the International Accounting Standards Committee.  The International Accounting Standards Committee Foundation (IASCF) is the independent, non-profit foundation, created in 2000 to oversee the IASB.  The International Accounting Standards Committee (IASC)  From 1973 until a comprehensive reorganization in 2000, the structure for setting International Accounting Standards was known as the International Accounting Standards Committee. There was no actual "committee" of that name. The standard-setting board was known as the IASC Board.

Definition of IFRSs
IAS 1.14 states:  "An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs."  When a Standard or an Interpretation specifically applies to a transaction, other event, or condition, the accounting policy or policies applied to that item shall be determined by applying the Standard or Interpretation and considering any relevant Implementation Guidance issued by the IASB for the Standard or Interpretation. [IAS 8.7]  If a Standard or Interpretation does not address a specific transaction, event, or condition explicitly, IAS 8.10-12 require

Why are the IASB and IFRS Important? 
The International Accounting Standards Board (IASB) and the International Financial Reporting Standards (IFRS) that they issue are very important for the future of accounting. With businesses turning global, it is important that investors are able to compare companies under similar standards. Likewise, it is important for businesses operating in multiple countries to be able to create financial statements that are understandable in all of the countries they operate in.  Eventually, International Accounting Standards Board (IASB) and other accounting organizations hope to see a convergence of all accounting standards throughout the world. This type of convergence, would allow for the best of circumstances for investors and other interested parties to be able to examine and compare companies in a transparent and equal way. With the coordination of the International Financial Reporting Standards (IFRS) with other accounting standards from around the globe, this goal of convergence may not be as far-fetched as it may sound.

What are the advantages of converting to IFRS?
By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.

Back ground
IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS.

What are IFRS? International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.

Structure of IFRS(1) 
IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments.  International Financial Reporting Standards comprise:  International Financial Reporting Standards (IFRS) standards issued after 2001  International Accounting Standards (IAS) - standards issued before 2001  Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001  Standing Interpretations Committee (SIC) - issued before 2001

Structure of IFRS(2)
There is also a Framework for the Preparation and Presentation of Financial Statements which describes the principles underlying IFRS...& IAS 8 Par. 11 "In making the judgment described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order: 1- the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and 2- the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework."

List of IFRS statements 
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

List of IAS (1) 
IAS 1: Presentation of Financial Statements.  AS 2: Inventories  IAS 7: Cash Flow Statements  IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors  IAS 10: Events After the Balance Sheet Date  IAS 11: Construction Contracts  IAS 12: Income Taxes  IAS 14: Segment Reporting (superseded by IFRS 8 on 1 January 2008)  IAS 16: Property, Plant and Equipment  IAS 17: Leases

List of IAS (2) 
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 23: Borrowing Costs  IAS 24: Related Party Disclosures  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 31: Interests in Joint Ventures

List of IAS (3)
‡ 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 36: Impairment of Assets ‡ IAS 37: Provisions, Contingent Liabilities and Contingent Assets ‡ IAS 38: Intangible Assets (summary) ‡ IAS 39: Financial Instruments: Recognition and Measurement ‡ IAS 40: Investment Property ‡ IAS 41: Agriculture

List of International Financial Reporting Interpretations (IFRIC) 
IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities (Updated to January 2006)  IFRIC 7 Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (Issued February 2006)  IFRIC 8 Scope of IFRS 2 (Issued February 2006)- has been eliminated with Amendments issued to IFRS 2  IFRIC 9 Reassessment of Embedded Derivatives (Issued April 2006)  IFRIC 10 Interim Financial Reporting and Impairment (Issued November 2006)  IFRIC 11 IFRS 2-Group and Treasury Share Transactions (Issued November 2006) - has been eliminated with Amendments issued to IFRS 2  IFRIC 12 Service Concession Arrangements (Issued November 2006)  IFRIC 13 Customer Loyalty Programmes (Issued in June 2007)  IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (issued in July 2007)

List of SIC Final Interpretations
1. 2. 3. 5 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. SIC 1 Inventory SIC 2 Borrowing SIC 3 Associates SIC 5 Financial Instr. SIC 6 Software SIC 7 Euro SIC 8 First Time IAS SIC 9 Business Combinations SIC-10 Govt. Assistance SIC-11 Foreign Exchange SIC 12 SPEs SIC 13 Joint Control SIC 14 Property SIC 15 Operating Lease SIC 16 Treasury Shares SIC 17 Cost of Equity
18. SIC 18 Consistency 19. SIC 19 Reporting Currency 20. SIC 20 Equity Method 21. SIC 21 Income Taxes 22. SIC 22 Bus. Comb. Adjustments 23. SIC 23 Inspection/Overhaul 24. SIC 24 Earnings per Share 25. 27. 28. 29. 30. 31. 32. 33. SIC 25 Income Tax Status SIC 27 Lease-Leaseback SIC 28 Measurement of Shares SIC 29 Service Concessions SIC 30 Reporting Currency SIC 31 Barter Transactions SIC 32 Web Site Costs SIC 33 Potential Voting Rights

IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (IFRS FOR SMEs)
HISTORY OF THE IFRS FOR SMEs Project carried forward from predecessor IASC agenda

June 2004

Discussion Paper published for comment.

11 April 2005

Staff questionnaire on SME recognition and measurement issues for comment

13-14 October 2005

Public round-table meetings on possible recognition and measurement simplifications

15 February 2007

Exposure Draft of IFRS for SMEs

9 July 2009

Final IFRS for SMEs issued, effective immediately.

IFRS Circular

IFRS Timeline

What will happen

IFRS Solution

Why world going IFRS 
IFRS will integrate domestic businesses with the global investor Financial community so that there is no language gap and barrier  IFRS is acceptable globally and provides a common accounting/reporting language to the world

What are some of the most important specific differences between IFRS and U.S. GAAP? 
Because of longstanding convergence projects between the IASB and the FASB, the extent of the specific differences between IFRS and GAAP has been shrinking. Yet significant differences do remain, most any one of which can result in significantly different reported results, depending on a company's industry and individual facts and circumstances. For example: IFRS does not permit Last In, First Out (LIFO). IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely. IFRS has a different probability threshold and measurement objective for contingencies. IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date.

Sources
1-NYSCPA.org 2-aicpa.org 3-IFRS.org 4-iasb.org 5-Wikipedia.org 6-CFO.org