INTERNATIONAL FINANCIAL REPORTING STANDARDS (IRFS)-GLIMPSE
Dilip K Raina
With the opening of world economies and cross border investments the need for adoption of uniform accounting standards while preparing financial statements was felt prompting various accounting bodies to setup a board to produce accounting standards. The primary object of setting such board was to create accounting standards and to encourage national accounting standard committees of different countries for their adoption to be practiced while preparing financial statements. The purpose of creating such standards was like creating one language to be used world over to facilitate better communication ultimately resulting in better understanding of the facts to help in quick and effective decision making. The adoption of uniform accounting standards while preparing financial statements with quality, transparent and comparable information is what is required by the investment community, business community, banks and financial institutions. It was in the year 1973 that accounting bodies of nine countries by mutual consent created International Accounting Standards Committee (IASC) with an object to create and publish accounting standards to be followed worldwide while presenting financial statements. International Federation of Accountants representing 100 countries became members of IASC from 1982.The new agenda for IASC was not only to produce accounting standards but also to persuade governments, standard setting bodies, regulatory authorities and business community to follow International Accounting Standards (IAS) while preparing financial statements. Initially the IASC produced some basic accounting standards which were worded broadly and having different alternative treatments to accommodate the existence of different accounting practices around the world. Due to criticism of world community and non adoption of these standards for their ineffectiveness in fulfilling the basic object of bringing uniformity in financial statements a new project was started in the year 1987 by IASC to reproduce improved standards to deal with different situations in a strict manner and without many choices to deal with. The work thus carried was so effective and appreciated by the world community prompting worldwide securities regulatory bodies to come forward and take active interest in accounting standards-setting process.
IASC and the International Organization of Securities Commission (IOSCO) worked together from 1990 onwards and in the year 1993 the technical committee of IOSCO endorsed IASC standards for cross-border listing and capital-raising purposes around the world and identified certain standards required to be completed by IASC. IASC during its existence issued forty one standards commonly known as International Accounting Standards (IAS) along with Framework for the Preparation and Presentation of Financial Statements. Out of these forty one standards few were withdrawn and the rest are still in force. In addition to these standards some interpretations issued by IASC’s Standing Interpretation committee (SIC) are still in force.
Year 2001, saw a complete overhauling of international accounting standard-setting process by making it more independent, legitimate to come out with improved and quality standards. IASC board was replaced by the International Accounting Standards Board (IASB) to achieve the desired objectives. IASB adopted all the outstanding IAS issued by IASC as it own standards. These standards continued to remain in force unless amended or withdrawn by IASB. IASB came out with additional standards commonly known as International Financial Reporting Standards (IFRS).
The main objectives of IASB were to identify opportunities to improve the present set of standards by adding explanatory guidance and eliminate inconsistencies and choices.
The major challenge ahead of us at the time of convergence to IFRS from Ist April 2011 will be to have in-depth knowledge of all IFRS. Since there is a little or no scope for diversion to present financial statements by covering the same in the explanatory notes thus any material departure may be viewed seriously. No matter the fundamentals of the book writing and drawing of the financial statements are the same but alternatives which we use to follow are either gone or reduced to almost none. Any material departure from the IFRS will have to be explained by the management with its impact on the financial statements.
The basic assumptions being followed by IFRS while presenting financial statements are:-
Ø Financial statements have been drawn on Accrual Basis.
Ø The concept of Going Concern has been followed.
Ø Qualitative Characteristics of Financial Statements have been maintained e.g.
Ø Elements of Financial Statements
Ø Concept of Capital and Capital Maintenance.
Dilip K Raina
Chartered Accountant & Microsoft Certified Professional –Navision & Axapta.