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  • International Financial Reporting Standards are designed as a common global language for

  • business affairs so that company accounts are understandable and comparable across international

  • boundaries. They are a consequence of growing international shareholding and trade and are

  • particularly important for companies that have dealings in several countries. They are

  • progressively replacing the many different national accounting standards. The rules to

  • be followed by accountants to maintain books of accounts which is comparable, understandable,

  • reliable and relevant as per the users internal or external.

  • IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and

  • IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in terms of the

  • historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the constant

  • purchasing power paradigm. IFRS began as an attempt to harmonize accounting

  • across the European Union but the value of harmonization quickly made the concept attractive

  • around the world. They are sometimes still called by the original name of International

  • Accounting Standards. IAS were issued between 1973 and 2001 by the Board of the International

  • Accounting Standards Committee. On 1 April 2001, the new International Accounting Standards

  • Board took over from the IASC the responsibility for setting International Accounting Standards.

  • During its first meeting the new Board adopted existing IAS and Standing Interpretations

  • Committee standards. The IASB has continued to develop standards calling the new standards

  • International Financial Reporting Standards.

  • In the absence of a Standard or an Interpretation that specifically applies to a transaction,

  • management must use its judgement in developing and applying an accounting policy that results

  • in information that is relevant and reliable. In making that judgement, IAS 8.11 requires

  • management to consider the definitions, recognition criteria, and measurement concepts for assets,

  • liabilities, income, and expenses in the Framework.

  • Criticisms of IFRS are that they are not being adopted in the US, a number of criticisms

  • from France and that IAS 29 Financial Reporting in Hyperinflationary Economies had no positive

  • effect at all during 6 years in Zimbabwe´s hyperinflationary economy. The IASB offered

  • responses to the first two criticisms, but has offered no response to the last criticism

  • while IAS 29 is currently being implemented in its original ineffective form in Venezuela

  • and Belarus.

  • Objective of financial statements Financial statements are a structured representation

  • of the financial position and financial performance of an entity. The objective of financial statements

  • is to provide information about the financial position, financial performance and cash flows

  • of an entity that is useful to a wide range of users in making economic decisions. Financial

  • statements also show the results of the management's stewardship of the resources entrusted to

  • it. To meet this objective, financial statements

  • provide information about an entity's: assets; liabilities; equity; income and expenses,

  • including gains and losses; contributions by and distributions to owners in their capacity

  • as owners; and cash flows. This information, along with other information in the notes,

  • assists users of financial statements in predicting the entity's future cash flows and, in particular,

  • their timing and certainty. The following are the general features in

  • IFRS: Fair presentation and compliance with IFRS:

  • Fair presentation requires the faithful representation of the effects of the transactions, other

  • events and conditions in accordance with the definitions and recognition criteria for assets,

  • liabilities, income and expenses set out in the Framework of IFRS.

  • Going concern: Financial statements are present on a going

  • concern basis unless management either intends to liquidate the entity or to cease trading,

  • or has no realistic alternative but to do so.

  • Accrual basis of accounting: An entity shall recognise items as assets,

  • liabilities, equity, income and expenses when they satisfy the definition and recognition

  • criteria for those elements in the Framework of IFRS.

  • Materiality and aggregation: Every material class of similar items has

  • to be presented separately. Items that are of a dissimilar nature or function shall be

  • presented separately unless they are immaterial. Offsetting

  • Offsetting is generally forbidden in IFRS. However certain standards require offsetting

  • when specific conditions are satisfied. Frequency of reporting:

  • IFRS requires that at least annually a complete set of financial statements is presented.

  • However listed companies generally also publish interim financial statementsfor which the

  • presentation is in accordance with IAS 34 Interim Financing Reporting.

  • Comparative information: IFRS requires entities to present comparative

  • information in respect of the preceding period for all amounts reported in the current period's

  • financial statements. In addition comparative information shall also be provided for narrative

  • and descriptive information if it is relevant to understanding the current period's financial

  • statements. The standard IAS 1 also requires an additional statement of financial position

  • when an entity applies an accounting policy retrospectively or makes a retrospective restatement

  • of items in its financial statements, or when it reclassifies items in its financial statements.

  • This for example occurred with the adoption of the revised standard IAS 19 or when the

  • new consolidation standards IFRS 10-11-12 were adopted.

  • Consistency of presentation: IFRS requires that the presentation and classification

  • of items in the financial statements is retained from one period to the next unless: it is

  • apparent, following a significant change in the nature of the entity's operations or a

  • review of its financial statements, that another presentation or classification would be more

  • appropriate having regard to the criteria for the selection and application of accounting

  • policies in IAS 8; or an IFRS standard requires a change in presentation.

  • Qualitative characteristics of financial statements Qualitative characteristics of financial statements

  • include: Relevance

  • Faithful representation Enhancing qualitative characteristics include:

  • Comparability Verifiability

  • Timeliness Understandability

  • Elements of financial statements The elements directly related to the measurement

  • of the statement of financial position include: Asset: An asset is a resource controlled by

  • the entity as a result of past events and from which future economic benefits are expected

  • to flow to the entity. Liability: A liability is a present obligation

  • of the entity arising from the past events, the settlement of which is expected to result

  • in an outflow from the entity of resources embodying economic benefits, i.e. assets.

  • Equity: Nominal equity is the nominal residual interest in the nominal assets of the entity

  • after deducting all its liabilities in nominal value.

  • The financial performance of an entity is presented in the statement of comprehensive

  • income, which consists of the income statement and the statement of other comprehensive income

  • . Financial performance includes the following elements:

  • Revenues: increases in economic benefit during an accounting period in the form of inflows

  • or enhancements of assets, or decrease of liabilities that result in increases in equity.

  • However, it does not include the contributions made by the equity participants.

  • Expenses: decreases in economic benefits during an accounting period in the form of outflows,

  • or depletions of assets or incurrences of liabilities that result in decreases in equity.

  • However, these don't include the distributions made to the equity participants.

  • Results recognised in other comprehensive income are limited to the following specific

  • circumstances: Remeasurements of defined benefit assets or

  • liabilities Increases or decreases in the fair value of

  • financial assets classified as available for sale(as defined in the standard IAS 39)

  • Increases or decreases resulting from the application of a revaluation of property,

  • plant and equipment or intangible assets Exchange differences resulting from the translation

  • of foreign operations according to the standard IAS 21

  • the portion of the gain or loss on the hedging instrument in a cash flow hedge that is determined

  • to be an effective hedge The statement of changes in equity consists

  • of a reconciliation of the changes in equity in which the following information is provided:

  • total comprehensive income for the period, showing separately the total amounts attributable

  • to owners of the parent and to non-controlling interests;

  • for each component of equity, the effects of retrospective application or retrospective

  • restatement recognised in accordance with IAS 8; and

  • for each component of equity, a reconciliation between the carrying amount at the beginning

  • and the end of the period, separately disclosing changes resulting from:

  • profit or loss; other comprehensive income; and

  • transactions with owners in their capacity as owners, showing separately contributions

  • by and distributions to owners and changes in ownership interests in subsidiaries that

  • do not result in a loss of control.

  • Statement of Cash Flows Operating cash flows: the principal revenue-producing

  • activities of the entity and are generally calculated by applying the indirect method,

  • whereby profit or loss is adjusted for the effects of transaction of a non-cash nature,

  • any deferrals or accruals of past or future cash receipts or payments, and items of income

  • or expense associated with investing or financing cash flows.

  • Investing cash flows: the acquisition and disposal of long-term assets and other investments

  • not included in cash equivalents. These represent the extent to which expenditures have been

  • made for resources intended to generate future income and cash flows. Only expenditures that

  • result in a recognised asset in the statement of financial position are eligible for classification

  • as investing activities. Financing cash flows: activities that result

  • in changes in the size and composition of the contributed equity and borrowings of the

  • entity. These are important because they are useful in predicting claims on future cash

  • flows by providers of capital to the entity. Notes to the Financial Statements: These shall

  • present information about the basis of preparation of the financial statements and the specific

  • accounting policies used;(b) disclose the information required by IFRSs that is not

  • presented elsewhere in the financial statements; and provide information that is not presented

  • elsewhere in the financial statements, but is relevant to an understanding of any of

  • them. 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.

  • the resource can be reliably measured In some cases specific standards add additional

  • conditions before recognition is possible or prohibit recognition all together.

  • An example is the recognition of internally generated brands, mastheads, publishing titles,

  • customer lists and items similar in substance, for which recognition is prohibited by IAS

  • 38. In addition research and development expenses can only be recognised as an intangible asset

  • if they cross the threshold of being classified as 'development cost'.

  • Whilst the standard on provisions, IAS 37, prohibits the recognition of a provision for

  • contingent liabilities, this prohibition is not applicable to the accounting for contingent

  • liabilities in a business combination. In that case the acquirer shall recognise a contingent

  • liability even if it is not probable that an outflow of reseources embodying economic

  • benefits will be required. Measurement of the elements of financial statements

  • Par. 99. 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. This involves the selection of the particular basis of measurement.

  • Par. 100. A number of different measurement bases are employed to different degrees and

  • in varying combinations in financial statements. They include the following:

  • (a) Historical cost. 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.

  • Liabilities are recorded at the amount of proceeds received in exchange for the obligation,

  • or in some circumstances, at the amounts of cash or cash equivalents expected to be paid

  • to satisfy the liability in the normal course of business.

  • (b) Current cost. 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. Liabilities

  • are carried at the undiscounted amount of cash or cash equivalents that would be required

  • to settle the obligation currently. (c) Realisable value. Assets are carried at

  • the amount of cash or cash equivalents that could currently be obtained by selling the

  • asset in an orderly disposal. 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 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.

  • Par. 101. The measurement basis most commonly adopted by entities in preparing their financial

  • statements is historical cost. This is usually combined with other measurement bases. For

  • example, inventories are usually carried at the lower of cost and net realisable value,

  • marketable securities may be carried at market value and pension liabilities are carried

  • at their present value. Furthermore, 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. Concepts of capital and capital maintenance

  • Concepts of capital Par. 102. A financial concept of capital is

  • adopted by most entities in preparing their financial statements. Under a financial concept

  • of capital, such as invested money or invested purchasing power, capital is synonymous with

  • the net assets or equity of the entity. Under a physical concept of capital, such as operating

  • capability, capital is regarded as the productive capacity of the entity based on, for example,

  • units of output per day. Par. 103. The selection of the appropriate

  • concept of capital by an entity should be based on the needs of the users of its financial

  • statements. Thus, 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. If, however, the main concern of users is

  • with the operating capability of the entity, a physical concept of capital should be used.

  • The concept chosen indicates the goal to be attained in determining profit, even though

  • there may be some measurement difficulties in making the concept operational.

  • Concepts of capital maintenance and the determination of profit

  • Par. 104. The concepts of capital in paragraph 102 give rise to the following two concepts

  • of capital maintenance: (a) Financial capital maintenance. Under this

  • concept a profit is earned only if the financial amount of the net assets at the end of the

  • period exceeds the financial amount of net assets at the beginning of the period, after

  • excluding any distributions to, and contributions from, owners during the period. Financial

  • capital maintenance can be measured in either nominal monetary units or units of constant

  • purchasing power. (b) Physical capital maintenance. Under this

  • concept a profit is earned only if the physical productive capacity of the entity at the end

  • of the period exceeds the physical productive capacity at the beginning of the period, after

  • excluding any distributions to, and contributions from, owners during the period.

  • The concepts of capital in paragraph 102 give rise to the following three concepts of capital

  • during low inflation and deflation: (A) Physical capital. See paragraph 102&103

  • (B) Nominal financial capital. See paragraph 104.

  • (C) Constant item purchasing power financial capital. See paragraph 104.

  • 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: optional

  • during low inflation and deflation. Current Cost Accounting model prescribed by IFRS.

  • See Par 106. (2) Financial capital maintenance in nominal

  • monetary units: authorized by IFRS but not prescribedoptional during low inflation

  • and deflation. See Par 104 Historical cost accounting. 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. (3) Financial capital maintenance in units

  • of constant purchasing power: authorized by IFRS but not prescribedoptional during

  • low inflation and deflation. See Par 104(a). Capital Maintenance in Units of Constant Purchasing

  • Power is prescribed during hyperinflation in IAS 29: i.e. the restatement of Historical

  • Cost or Current Cost period-end financial statements in terms of the period-end monthly

  • published Consumer Price Index. Only financial capital maintenance in units of constant purchasing

  • power in terms of a daily index 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 valueceteris paribusfor an indefinite period of time. 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. The calculation and

  • accounting of net monetary losses and gains during low inflation and deflation have thus

  • been authorized in IFRS since 1989. Par. 105. The concept of capital maintenance

  • is concerned with how an entity defines the capital that it seeks to maintain. 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; it is a prerequisite for distinguishing

  • between an entity's return on capital and its return of capital; only inflows of assets

  • in excess of amounts needed to maintain capital may be regarded as profit and therefore as

  • a return on capital. Hence, profit is the residual amount that remains after expenses

  • have been deducted from income. If expenses exceed income the residual amount is a loss.

  • Par. 106. The physical capital maintenance concept requires the adoption of the current

  • cost basis of measurement. The financial capital maintenance concept, however, does not require

  • the use of a particular basis of measurement. Selection of the basis under this concept

  • is dependent on the type of financial capital that the entity is seeking to maintain.

  • Par. 107. 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. In general terms, 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. Any amount over and above that

  • required to maintain the capital at the beginning of the period is profit.

  • Par. 108. Under the concept of financial capital maintenance where capital is defined in terms

  • of nominal monetary units, profit represents the increase in nominal money capital over

  • the period. Thus, increases in the prices of assets held over the period, conventionally

  • referred to as holding gains, are, conceptually, profits. They may not be recognised as such,

  • however, until the assets are disposed of in an exchange transaction. When the concept

  • of financial capital maintenance is defined in terms of constant purchasing power units,

  • profit represents the increase in invested purchasing power over the period. Thus, 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. The rest of the increase is treated as a capital

  • maintenance adjustment and, hence, as part of equity.

  • Par. 109. Under the concept of physical capital maintenance when capital is defined in terms

  • of the physical productive capacity, profit represents the increase in that capital over

  • the period. 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; hence,

  • they are treated as capital maintenance adjustments that are part of equity and not as profit.

  • Par. 110. The selection of the measurement bases and concept of capital maintenance will

  • determine the accounting model used in the preparation of the financial statements. Different

  • accounting models exhibit different degrees of relevance and reliability and, as in other

  • areas, management must seek a balance between relevance and reliability. 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. At the present time, it

  • is not the intention of the Board of IASC to prescribe a particular model other than

  • in exceptional circumstances, such as for those entities reporting in the currency of

  • a hyperinflationary economy. This intention will, however, be reviewed in the light of

  • world developments. Requirements

  • IFRS financial statements consist of a Statement of Financial Position

  • a Statement of Comprehensive Income separate statements comprising an Income Statement

  • and separately a Statement of Comprehensive Income, which reconciles Profit or Loss on

  • the Income statement to total comprehensive income

  • a Statement of Changes in Equity a Cash Flow Statement or Statement of Cash

  • Flows notes, including a summary of the significant

  • accounting policies Comparative information is required for the

  • prior reporting period. 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.

  • On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial Statements.

  • The main changes from the previous version are to require that an entity must:

  • present all non-owner changes in equity either in one Statement of comprehensive income or

  • in two statements. Components of comprehensive income may not be presented in the Statement

  • of changes in equity. present a statement of financial position

  • as at the beginning of the earliest comparative period in a complete set of financial statements

  • when the entity applies the new standard. present a statement of cash flow.

  • make necessary disclosure by the way of a note.

  • The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009.

  • Early adoption is permitted. Criticisms of IFRS

  • 1. The US Securities and Exchange Commission Staff issued a 127-page report stating reasons

  • why not to adopt IFRS in the United States. The staff of the IFRS Foundation provided

  • a detailed answer on the main criticisms in the SEC report.

  • 2. A number of criticisms were voiced in the beginning of 2013 in the French media to which

  • the IASB Board member Philippe DANJOU responded in his document 'AN UPDATE ON INTERNATIONAL

  • FINANCIAL REPORTING STANDARDS. 3. It is widely acknowledged that IAS 29 Financial

  • Reporting in Hyperinflationary Economies had no positive effect during the six years it

  • was implemented during hyperinflation in Zimbabwe. [5] This leads people to ask what the purpose

  • of IAS 29 is when it had no positive effect during hyperinflation in Zimbabwe. IAS 29

  • is currently being implemented in its original ineffective form in Venezuela and Belarus.

  • It was suggested to the IASB in 2012 that IAS 29 should be corrected to require daily

  • indexation which would result in effective Capital Maintenance in Units of Constant Purchasing

  • Power and would stabilize the non-monetary economy during hyperinflation. The IASB has

  • offered no response to date to this criticism and has not yet corrected IAS 29 to require

  • daily indexation. Adoption

  • IFRS are used in many parts of the world, including the European Union, India, Hong

  • Kong, Australia, Malaysia, Pakistan, GCC countries, Russia, Chile, South Africa, Singapore and

  • Turkey, but not in the United States. As of August 2008, more than 113 countries around

  • the world, including all of Europe, currently require or permit IFRS reporting and 85 require

  • IFRS reporting for all domestic, listed companies, according to the U.S. Securities and Exchange

  • Commission. It is generally expected that IFRS adoption

  • worldwide will be beneficial to investors and other users of financial statements, by

  • reducing the costs of comparing alternative investments and increasing the quality of

  • information. Companies are also expected to benefit, as investors will be more willing

  • to provide financing. Companies that have high levels of international activities are

  • among the group that would benefit from a switch to IFRS. Companies that are involved

  • in foreign activities and investing benefit from the switch due to the increased comparability

  • of a set accounting standard. However, Ray J. Ball has expressed some skepticism of the

  • overall cost of the international standard; he argues that the enforcement of the standards

  • could be lax, and the regional differences in accounting could become obscured behind

  • a label. He also expressed concerns about the fair value emphasis of IFRS and the influence

  • of accountants from non-common-law regions, where losses have been recognized in a less

  • timely manner. To assess progress towards the goal of a single

  • set global accounting standards, the IFRS Foundation has developed and posted profiles

  • about the use of IFRSs in individual jurisdictions. These were based on information from various

  • sources. The starting point was the responses provided by standard-setting and other relevant

  • bodies to a survey that the IFRS Foundation conducted. Currently, profiles are completed

  • for 124 jurisdictions, including all of the G20 jurisdictions plus 104 others. Eventually,

  • the plan is to have a profile for every jurisdiction that has adopted IFRSs, or is on a programme

  • toward adoption of IFRSs. Australia

  • The Australian Accounting Standards Board has issued 'Australian equivalents to IFRS',

  • numbering IFRS standards as AASB 1–8 and IAS standards as AASB 101–141. Australian

  • equivalents to SIC and IFRIC Interpretations have also been issued, along with a number

  • of 'domestic' standards and interpretations. These pronouncements replaced previous Australian

  • generally accepted accounting principles with effect from annual reporting periods beginning

  • on or after 1 January 2005. To this end, Australia, along with Europe and a few other countries,

  • was one of the initial adopters of IFRS for domestic purposes. It must be acknowledged,

  • however, 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.

  • The AASB has made certain amendments to the IASB pronouncements in making A-IFRS, however

  • these generally have the effect of eliminating an option under IFRS, introducing additional

  • disclosures or implementing requirements for not-for-profit entities, rather than departing

  • from IFRS for Australian entities. Accordingly, for-profit entities that prepare financial

  • statements in accordance with A-IFRS are able to make an unreserved statement of compliance

  • with IFRS. The AASB continues to mirror changes made

  • by the IASB as local pronouncements. In addition, over recent years, the AASB has issued so-called

  • 'Amending Standards' to reverse some of the initial changes made to the IFRS text for

  • local terminology differences, to reinstate options and eliminate some Australian-specific

  • disclosure. 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. This includes public companies

  • and other "profit-oriented enterprises that are responsible to large or diverse groups

  • of shareholders." European Union

  • In 2002 the European Union agreed that from 1 January 2005 International Accounting Standards

  • / International Financial Reporting Standards would apply for the consolidated accounts

  • of the EU listed companies. In order to be approved for use in the EU,

  • standards must be endorsed by the Accounting Regulatory Committee, which includes representatives

  • of member state governments and is advised by a group of accounting experts known as

  • the European Financial Reporting Advisory Group (fr). As a result IFRS as applied in

  • the EU may differ from that used elsewhere. Parts of the standard IAS 39: Financial Instruments:

  • Recognition and Measurement were not originally approved by the ARC. IAS 39 was subsequently

  • amended, removing the option to record financial liabilities at fair value, and the ARC approved

  • the amended version. The IASB is working with the EU to find an acceptable way to remove

  • a remaining anomaly in respect of hedge accounting. 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. Whilst the IASB set the effective dates for

  • the new consolidation standards IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements

  • and IFRS 12 Disclosure of Interests in Other Entities at the 1st of January 2013, the ARC

  • decided to delay the mandatory effective date for the companies listed in the European Union

  • by one year. The standards therefore only became effective on the 1st of January 2014.

  • The European Commission has launched a general analysis of the impacts of 8 years of use

  • of international financial reporting standards in the EU for preparers and users of financial

  • statements from the private sector. The study will include an overall assessment of whether

  • the Regulation 1606/2002 of the European Parliament and the Council has met the two-fold initial

  • objectives of ensuring a high degree of transparency and comparability of the financial statements

  • of European companies and an efficient functioning of the market, in comparison with the situation

  • before IFRS implementation in 2005. It will also include a cost-benefit analysis and an

  • assessment and analysis of the benefits and drawbacks brought by the IAS Regulation for

  • different stakeholder groups. India

  • The has announced that IFRS will be mandatory in India for financial statements for the

  • periods beginning on or after 1 April 2012, but this plan has been failed and IFRS/IND-AS

  • are still not applicable. There was a roadmap as given below but still Indian companies

  • are following old Indian GAAP. There is no clear new date of adoption of IFRS.

  • Reserve Bank of India has stated that financial statements of banks need to be IFRS-compliant

  • for periods beginning on or after 1 April 2011.

  • The ICAI has also stated that IFRS will be applied to companies above INR 1000 crore

  • from April 2011. Phase wise applicability details for different companies in India:

  • Phase 1: Opening balance sheet as at 1 April 2011*

  • i. Companies which are part of NSE IndexNifty 50

  • ii. Companies which are part of BSE IndexSensex 30

  • a. Companies whose shares or other securities are listed on a stock exchange outside India

  • b. Companies, whether listed or not, having net worth of more than INR 1000 crore

  • Phase 2: Opening balance sheet as at 1 April 2012*

  • Companies not covered in phase 1 and having net worth exceeding INR 500 crore

  • 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, then it shall prepare its opening balance sheet

  • at the commencement of immediately following financial year.

  • On 22 January 2010, the Ministry of Corporate Affairs issued the road map for transition

  • to IFRS. It is clear that India has deferred transition to IFRS by a year. In the first

  • phase, companies included in Nifty 50 or BSE Sensex, and companies whose securities are

  • listed on stock exchanges outside India and all other companies having net worth of INR

  • 10 billion will prepare and present financial statements using Indian Accounting Standards

  • converged with IFRS. According to the press note issued by the government, those companies

  • will convert their first balance sheet as at 1 April 2011, applying accounting standards

  • convergent with IFRS if the accounting year ends on 31 March. This implies that the transition

  • date will be 1 April 2011. According to the earlier plan, the transition date was fixed

  • at 1 April 2010. 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 deferment of the transition may make companies happy,

  • but it will undermine India's position. Presumably, lack of preparedness of Indian companies has

  • led to the decision to defer the adoption of IFRS for a year. This is unfortunate that

  • India, which boasts for its IT and accounting skills, could not prepare itself for the transition

  • to IFRS over last four years. But that might be the ground reality.

  • Transition in phases Companies, whether listed or not, having net

  • worth of more than INRbillion will convert their opening balance sheet as at 1 April

  • 2013. Listed companies having net worth of INRbillion or less will convert their

  • opening balance sheet as at 1 April 2014. Un-listed companies having net worth of Rsbillion

  • or less will continue to apply existing accounting standards, which might be modified from time

  • to time. Transition to IFRS in phases is a smart move.

  • 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. However, this will happen only if a significant number of large companies

  • engage Indian accounting firms to provide them support in their transition to IFRS.

  • If, most large companies, which will comply with Indian accounting standards convergent

  • with IFRS in the first phase, choose one of the international firms, Indian accounting

  • firms and smaller companies will not benefit from the learning in the first phase of the

  • transition to IFRS. It is likely that international firms widll

  • protect their learning to retain their competitive advantage. Therefore, 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. Public sector companies

  • should take the lead and the Institute of Chartered Accountants of India should develop

  • a clear strategy to diffuse the learning. Size of companies

  • The government has decided to measure the size of companies in terms of net worth. This

  • is not the ideal unit to measure the size of a company. Net worth in the balance sheet

  • is determined by accounting principles and methods. Therefore, it does not include the

  • value of intangible assets. Moreover, as most assets and liabilities are measured at historical

  • cost, the net worth does not reflect the current value of those assets and liabilities. Market

  • capitalisation is a better measure of the size of a company. But it is difficult to

  • estimate market capitalisation or fundamental value of unlisted companies. This might be

  • the reason that the government has decided to use 'net worth' to measure size of companies.

  • Some companies, which are large in terms of fundamental value or which intend to attract

  • foreign capital, might prefer to use Indian accounting standards convergent with IFRS

  • earlier than required under the road map presented by the government. The government should provide

  • that choice. 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; five to

  • seven years should be required for preparation if mandatory application is decided; and to

  • permit the use of U.S. GAAP beyond the fiscal year ending 31 March 2016.

  • Montenegro Montenegro gained independence from Serbia

  • in 2006. Its accounting standard setter is the Institute of Accountants and Auditors

  • of Montenegro. In 2005, IAAM adopted a revised version of the 2002 "Law on Accounting and

  • Auditing" which authorized the use of IFRS for all entities. IFRS is currently required

  • for all consolidated and standalone financial statements, however, enforcement is not effective

  • except in the banking sector. Financial statements for banks in Montenegro are, generally, of

  • high quality and can be compared to those of the European Union. Foreign companies listed

  • on Montenegro's two stock exchanges are also required to apply IFRS in their financial

  • statements. Montenegro does not have a national GAAP. Currently, no Montenegrin translation

  • of IFRS exists, and because of this Montenegro applies the Serbian translation from 2010.

  • IFRS for SMEs is not currently applied in Montenegro.

  • Pakistan All listed companies must follow all issued

  • IAS/IFRS except the following: IAS 39 and IAS 42: 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 1 January 2004. This IFRS is being

  • considered for adoption for all companies other than banks and DFIs.

  • IFRS-9: Under consideration of the relevant Committee of the Institutes. This IFRS will

  • be effective for the annual periods beginning on or after 1 January 2013.

  • Russia The government of Russia has been implementing

  • a program to harmonize its national accounting standards with IFRS since 1998. Since then

  • twenty new accounting standards were issued by the Ministry of Finance of the Russian

  • Federation aiming to align accounting practices with IFRS. Despite these efforts essential

  • differences between Russian accounting standards and IFRS remain. Since 2004 all commercial

  • banks have been obliged to prepare financial statements in accordance with both Russian

  • accounting standards and IFRS. Full transition to IFRS is delayed but starting 2012 new modifications

  • making Russian GAAP converging to IFRS have been made. They notably include the booking

  • of reserves for bad debts and contingent liabilities and the devaluation of inventory and financial

  • assets. Still, several differences between the two

  • sets of account still remain. Major reasons for deviation between Russian GAAP and IFRS

  • / US-GAAP are the following: 1) Booking of payables in the General Ledger

  • according to national accounting standards can only be made upon receipt of the actual

  • acceptance protocol. Indeed in Russia, in contrast to IFRS and US-GAAP, the invoice

  • is not an official tax or accounting document and does not trigger any boolking. There is

  • also no provision to book in the General Ledger any expense for goods and services that according

  • to a contract are effectively received but for whom documents are still not exchanged.

  • 2) There is no possibility under Russian GAAP to recognise the good-will as an intangible

  • asset in the balance sheet of a company. This has a major consequence when a company in

  • sold. Indeed, if a company is sold at a higher value than its book value, the selling party

  • need to pay tax at the relevant profit tax rate on the difference in value between selling

  • and accounting value and the buyer has no possibility to ammortize the cost and deduct

  • it from present and future revenues. 3) There is no equivalent of IAS 37 in the

  • Russian GAAP. Loans and monetary securities are not discounted, so the present value of

  • such financial assets is not discounted for the relevant interest rates at the different

  • maturities of the loans. Singapore

  • In Singapore the Accounting Standards Committee is in charge of standard setting. Singapore

  • closely models its Financial Reporting Standards according to the IFRS, with appropriate changes

  • made to suit the Singapore context. Before a standard is enacted, consultations with

  • the IASB are made to ensure consistency of core principles.

  • 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. The IFRS for SMEs may be applied by 'limited

  • interest companies', as defined in the South African Corporate Laws Amendment Act of 2006,

  • if they do not have public accountability. Alternatively, the company may choose to apply

  • full South African Statements of GAAP or IFRS. South African Statements of GAAP are entirely

  • consistent with IFRS, although there may be a delay between issuance of an IFRS and the

  • equivalent SA Statement of GAAP. Taiwan

  • Adoption scope and timetable (1) Phase I companies: listed companies and

  • financial institutions supervised by the Financial Supervisory Commission, except for credit

  • cooperatives, credit card companies and insurance intermediaries:

  • A. They will be required to prepare financial statements in accordance with Taiwan-IFRS

  • starting from 1 January 2013. B. Early optional adoption: Firms that have

  • already issued securities overseas, or have registered an overseas securities issuance

  • with the FSC, or have a market capitalization of

  • greater than NT$10 billion, will be permitted to prepare additional consolidated financial

  • statements in accordance with Taiwan-IFRS starting from 1 January 2012. If a company

  • without subsidiaries is not required to prepare consolidated financial statements, it will

  • be permitted to prepare additional individual financial statements on the above conditions.

  • (2) Phase II companies: unlisted public companies, credit cooperatives and credit card companies:

  • A. They will be required to prepare financial statements in accordance with Taiwan-IFRS

  • starting from 1 January 2019 B. They will be permitted to apply Taiwan-IFRS

  • starting from 1 January 2013. (3) Pre-disclosure about the IFRS adoption

  • plan, and the impact of adoption To prepare properly for IFRS adoption, domestic

  • companies should propose an IFRS adoption plan and establish a specific taskforce. They

  • should also disclose the related information from 2 years prior to adoption, as follows:

  • A. Phase I companies: (A) They will be required to disclose the

  • adoption plan, and the impact of adoption, in 2011 annual financial statements, and in

  • 2012 interim and annual financial statements. (B) Early optional adoption:

  • a. Companies adopting IFRS early will be required to disclose the adoption plan, and the impact

  • of adoption, in 2010 annual financial statements, and in 2011 interim and annual financial statements.

  • b. If a company opts for early adoption of Taiwan-IFRS after 1 January 2011, it will

  • be required to disclose the adoption plan, and the impact of adoption, in 2011 interim

  • and annual financial statements commencing on the decision date.

  • B. Phase II companies will be required to disclose the related information from 2 years

  • prior to adoption, as stated above. ^ To maintain the consistency of information

  • declaration and supervision with other companies, the early adopted companies should still prepare

  • individual and consolidated financial statements in accordance with domestic accounting standards.

  • Year Work Plan 2008

  • Establishment of IFRS Taskforce 2009~2011

  • Acquisition of authorization to translate IFRS

  • Translation, review, and issuance of IFRS Analysis of possible IFRS implementation problems,

  • 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,

  • and resolution thereof Completion of amendments to the related regulations

  • and supervisory mechanisms Enhancement of the related publicity and training

  • activities 2013

  • Application of IFRS required for Phase I companies, and permitted for Phase II companies

  • Follow-up analysis of the status of IFRS adoption, and of the impact

  • 2014 Follow-up analysis of the status of IFRS adoption,

  • and of the impact 2015

  • Applications of IFRS required for Phase II companies

  • Expected benefits (1) More efficient formulation of domestic

  • accounting standards, improvement of their international image, and enhancement of the

  • global rankings and international competitiveness of our local capital markets;

  • (2) Better comparability between the financial statements of local and foreign companies;

  • (3) No need for restatement of financial statements when local companies wish to issue overseas

  • securities, resulting in reduction in the cost of raising capital overseas;

  • (4) For local companies with investments overseas, use of a single set of accounting standards

  • will reduce the cost of account conversions and improve corporate efficiency.

  • Above is quoted from Accounting Research and Development Foundation, with the original

  • here PDF (18.9 KB) . Turkey

  • Turkish Accounting Standards Board translated IFRS into Turkish in 2005. Since 2005 Turkish

  • companies listed in Istanbul Stock Exchange are required to prepare IFRS reports.

  • See also List of International Financial Reporting

  • Standards Chinese accounting standards

  • Philosophy of Accounting International Public Sector Accounting Standards

  • Indian Accounting Standards Generally Accepted Accounting Principles

  • Generally Accepted Accounting Principles Generally Accepted Accounting Principles

  • Generally Accepted Accounting Principles Philosophy of accounting

  • Capital Center for Audit Quality

  • Constant Purchasing Power Accounting References

  • Further reading International Accounting Standards Board:

  • International Financial Reporting Standards 2007) and Interpretations as at 1 January

  • 2007), LexisNexis, ISBN 1-4224-1813-8 Original texts of IAS/IFRS, SIC and IFRIC

  • adopted by the Commission of the European Communities and published in Official Journal

  • of the European Union http:ec.europa.euaccounting/ias_en.htm#adopted-commission Case studies of IFRS implementation in Brazil,

  • Germany, India, Jamaica, Kenya, Pakistan, South Africa and Turkey. Prepared by the United

  • Nations Intergovernmental Working Group of Experts on International Standards of Accounting

  • and Reporting. Wiley Guide to Fair Value Under IFRS [6],

  • John Wiley & Sons. External links

  • The International Accounting Standards BoardFree access to all IFRS standards, news and status

  • of projects in progress PwC IFRS page with news and downloadable documents

  • The latest IFRS news and resources from the Institute of Chartered Accountants in England

  • and Wales Initial publication of the International Accounting

  • Standards in the Official Journal of the European Union PB L 261 13-10-2003

  • Directorate Internal Market of the European Union on the implementation of the IAS in

  • the European Union Deloitte: An Overview of International Financial

  • Reporting Standards The American Institute of CPAs in partnership

  • with its marketing and technology subsidiary, CPA2Biz, has developed the IFRS.com web site.

  • RSM Richter IFRS page with news and downloadable documents related to IFRS Conversions in Canada

  • U.S. Securities and Exchange Commission Proposal for First-Time Application of International

  • Financial Reporting Standards by Foreign private issuers registered with the SEC

  • IFRS for SMEs Presented by Michael Wells, Director of the IFRS Education Initiative

  • at the IASC Foundation Educated Pakistan - Free IAS, International

  • Accounting Standards, Summaries Available IFRS Questions & Answers - IFRS Discussion

  • Forum What is IFRS Summary of IFRS

  • Pricewaterhousecoopers's map of countries that apply IFRS

International Financial Reporting Standards are designed as a common global language for

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