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International Financial Reporting Standards

International Financial Reporting Standards (IFRS) the new avatar of International Accounting Standards (IAS) are issued by International Accounting Standards Board (IASB). This role was earlier discharged by International Accounting Standards Committee (IASC) f rom 1973 to 2000 . The International Accounting Standards Committee (IASC) Foundation, based in London, is the oversight body of the IASB and is governed by 22 trustees, chaired by former US Federal Reserve chairman Paul A Volcker. The IASC Foundation is funded by contributions from the major accounting firms, private financial Institutions and industrial companies throughout the world, central and development banks, and other International and professional organisations.

U pon its birth in 2001, IASB adopted all the existing IAS (numbered 1 to 41) issued by its predecessor and decided that all future standards issued by it will be called IRFS. IASB is reviewing the extant IASs and has amended as well as replaced some of them with new IFRS. Several interpretations of Standards have also been issued. Broadly, IFRSs refers to the entire body of IASB and IASC pronouncements.

Till sometime back, IFRS had no statutory binding and were used more as the benchmark for development of national accounting standards as well as being used directly by a number of organizations and corporations. It is to be noted that IASB also as no statutory authority to require compliance with IFRS. As of date, over 70 Countries have either approved or mandated application of IFRS for their domestic listed companies including Austria, Finland, France, Russia, Sweden, Germany, UK, Australia, Singapore, Taiwan, and Mauritius etc. With the symbolical disintegration of political boundaries and emergence of global financial markets, IFRS is increasingly becoming relevant and overshadowing regional accounting standards. Globalisation of IFRS is also necessitated as global financial markets are integrating and investors are looking for more consistency in the financial reporting of multinational corporations.

European Union (having 25 member countries) which is the second largest economic power after USA has recently adopted a proposal that all companies domiciled in the EU with publicly traded shares on a European exchange(s) must use IFRS for their financial reporting by December 31, 2005. This will affect some 7,000 European companies, including Non-European multinationals listed on EU exchanges. Non-compliance of IFRS may lead to delisting of shares from the stock exchange. Now that Europe is moving toward a common accounting standard, other countries which still are glued to their local accounting standards will find it difficult in coming days to deal with EU countries for non-adoption of IFRS.

In April 2005 top officials of the EU Commission and the US Securities & Exchange Commission (SEC), met for preparing a "roadmap" toward equivalence between IFRS and US Generally Accepted Accounting Principles (GAAP). It was agreed that SEC will take steps to eliminate the need for companies using IFRS to reconcile to US GAAP standards possibly as soon as 2007, but no later than 2009.

On this occasion, Mr. Charlie McCreevy, EU Commissioner responsible for Internal Market and Services stated “ We will work closely together to promote the closer alignment of IFRS and US GAAP and towards the elimination of US GAAP reconciliation requirements for foreign private issuers. These are major steps towards high-quality global accounting standards, which the European Union strongly supports. ”He also said “Clearly there is much to do all round, but the bandwagon has now started. International accounting standard setters, preparers, issuers, auditors and regulators must now accelerate their efforts to seize this unique opportunity. They must set clear goals and deliver the necessary convergence, consistency and enforcement required. I will be pressing all concerned in Europe to play their part.” His statements summarize the importance attached by EU to IFRS.

The Transition to IFRS is required to be made as per IFRS 1 effective from 1st January, 2005. This essentially means that the opening balance as on 1st Jan, 2005 will also have to be IFRS complaint, thus making the effective date of transaction as 1st Jan, 2004. Moreover, since this will be the first year of IFRS implementation, the Companies will also be required to prepare a reconciliation of IFRS Accounts with National Standards to provide explanation for any major difference.

Some of the implications arising out of mandatory implementation of IFRS are as follows:

  • Financial statements of different countries prepared under common standards are likely to bring in higher comparability and objectivity.
  • IAS or IFRS which have generally been free of criticism will be subjected to criticism once they become mandatory and subject to strict reviews of CFO.
  • The issues of national sovereignty may be raised by National Accounting standard setters in case any difficulty is faced in implementation.
  • Country specific interpretations may be issued to take care of views of National Accounting standard setters, regulatory authorities, trade Bodies and so on, thus jeopardizing the whole effort of harmonization.
  • Domestic reporting which may have been divorced from International Trends will be aligned with global practices may open up Pandora box and unearth many creative accounting under the guise of National Accounting,
  • There is also need to avoid temptation for interpreting IFRS in own way which will frustrate the very purpose of universal GAAP.
  • The regulatory or taxation authorities may not be fully prepared to take appropriate views in cases of deviation of profitability, under or over reporting of revenue on account of Transition.
  • Analysts, investors, Bankers, Auditors need to update themselves with the IFRS and the deviations with National Standards well in advance to take timely decisions on the Companies observed by them.
  • Non IFRS Companies are likely to be discriminated in EU Countries, which will force them for voluntary compliance.

Multinational Corporations operating in several countries across Globe are likely to face difficulties for preparing their financial Statement under yet another Accounting pronouncement which hitherto was not mandatory. Even example, an Indian Company listed in US Exchange and also an EU Exchange will have to prepare it financial statements under Indian Accounting Standards, US GAAP and also as per IFRS. Preparation of financial statements under multiple accounting standards is likely to cause headaches to CFO and also involve exorbitant cost .

The vision of having a common global accounting language may not be achieved so soon. It requires efforts by standard setting bodies across the globe and work in tandem with IASB to achieve the dream of a Global GAAP. One possibility for early achievement of this goal is for all countries to prepare a statement of divergence statement from IFRS and require companies to follow IFRS and include reconciliation with Divergence Statements. This way the Accounts will comply with Global GAAP and will also show results under National GAAP. The effort for Cohesive Global GAAP need to be complemented with stricter enforcement.

Annexure 1 : IAS



Issued/last revised


IAS 1: Presentation of Financial Statements

Dec 03


IAS 2: Inventories

Dec 03


IAS 7: Cash Flow Statements



IAS 8: Accounting Policy, Change in Accounting Estimates, Errors

Dec 03


IAS 10: Events After the Balance Sheet Date



IAS 11: Construction Contracts



IAS 12: Income Taxes



IAS 14: Segment Reporting



IAS 16: Property, Plant and Equipment

Dec 03


IAS 17: Leases

Dec 03


IIAS 18: Revenue



IAS 19: Employee Benefits

Dec 03


IAS 20: Accounting for Government Grants and Disclosure of Government Assistance



IAS 21: The Effects of Changes in Foreign Exchange Rates

Dec 03


IAS 23: Borrowing Costs



IAS 24: Related Party Disclosures

Dec 03


IAS 26: Accounting and Reporting by Retirement Benefit Plans



IAS 27: Consolidated Financial Statements

Dec 03


IAS 28: Investments in Associates

Dec 03


IAS 29: Financial Reporting in Hyperinflationary Economies



IAS 30: Disclosures in the Financial Statements of Banks .



IAS 31: Financial Reporting of Interests in Joint Ventures

Dec 03


IAS 32: Financial Instruments: Disclosure and Presentation

Dec 03


IAS 33: Earnings per Share

Dec 03


IAS 34: Interim Financial Reporting



IAS 36: Impairment of Assets

Mar 04


IAS 37: Provisions, Contingent Liabilities and Contingent Assets



AS 38: Intangible Assets

Mar ,04


IAS 39: Financial Instruments: Recognition and Measurement

July ,05


IAS 40: Investment Property

Mar ,04


IAS 41: Agriculture


Annexure 2 :



Last revised


IFRS 1 : First-time Adoption of International Financial Reporting Standards

June , 05


IFRS 2 : Share-based Payment



IFRS 3 : Business Combinations

March ,04


IFRS 4 : Insurance Contracts

Mar 04


IFRS 5 : Non-current Assets Held for Sale and Discontinued Operations

Mar 04

Published by

CA. Amit Daga
(Finance Controller, CA. CS. CFA. CIFRS. M.COM. )
Category Accounts   Report

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