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My experience in my career as an external auditor, helping companies report and meeting many people who wanted answers to their questions on accounting standards, IFRS, the US GAAP and many more related things..This post has been written to provide anyone interested with the right information

The first part in this series would attempt to explain what accounting standards are, what the IFRS is, who makes these standards and how all this is relevant?

What are accounting standards/pronouncements?

Accounting Standards are set a rules/directives/principles setting forth ideal practices for accounting, financial reporting of the figures which have been accounted and disclosures to stakeholders which allow them to make sense of the financial data.

Here are a few examples to make this more easier to comprehend:

An organization holds inventory, how does it value the inventory? How does it disclose its value and what mandatory information is required to be disclosed?
How is depreciation on fixed assets calculated? How do we disclose it in the financial statements? 
When is revenue recognized? How do we decide when, a sale is complete?

 

What is IFRS?

IFRS (International financial Reporting Standards) which were earlier called IAS (international accounting standards) are accounting standards for accounting and financial reporting established by the institution named the International accounting standard board (IASB).

Other Accounting Standard Boards:

Different countries have set different standards for financial disclosure, reporting and accounting. These accounting standards have been established by the accounting bodies/institutions of each country. Few examples of these institutions are the Financial Accounting Standards Board of the US which lays down the US GAAP, Australian Accounting Standards Board, Accounting Standards Board of Japan, Council of the nstitute of Chartered Accountants of India etc.

Migration to IFRS

From the list of accounting standard boards which I have given above, it is easy to guess that each country had its on set of accounting standards governed by a countrywide institution. Now, though almost all of them borrow heavily from the IFRS/IAS, there is absolutely no standardization of accounting principles across borders. The absence of standardization, is a hindrance to comparability and consistency as always. To overcome this drawback, most countries now seek to mandate the shift from their accounting standards to IFRS. For any organization, this migration involves sizeable effort on the part of the accounting and non-accounting team. 

In the US, the SEC has proposed that mandatory adoption of IFRS should commence from 2014. Organisations which would plan and create an effective roadmap for change are clearly at an advantage over the others.

Migration to IFRS is predominantly covered by the first standard which deals with the first time preparation of IFRS compliant financial statements. But Migration involves the application of all of the IFRS which are relevant in the context of the enterprise. Compared to most of the standards which have been issued by some of the countries, IFRS is meant to be brief and tend to be more in the form of principles (which require application based on the circumstances) rather than being strict rules and rigid guidelines. This also accounts for the fact that the IFRS tends to be less voluminous compared to most of the standards issued by other countries. We would take a look at the first time preparation of IFRS in the next part of this series.

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4 Comments

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  1. Srivijaya Gutala
    Hello Rohit ,
    Though am not a functional consultant , i work for Treasury applications as a technical consultant where i come across terminology like GAAP , IFRS etc.. and i don’t find enough information about them in SDN.Iam glad to see blogs which focus on functionality.Looking forward to more from you.
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  2. J├╝rgen Meyer
    Hello Rohit – Hi all,
    Meanwhile I have done quite a lot of IFRS migrations in Germany, Belgium, Netherlands, France and Britain. So far only Britain has no differences between local GAAP and IFRS all others have at least small differences.
    The roadmap has to be triggered by auditors in the beginning. Changes in financial statement can be quite substantial so that top management needs to have a clear view on what a start of IFRS reporting means to the companies financial partners (shareholders, banks, financial market). As soon as a starting point has been decided technical realization is as important as the auditors input. Most companies wish to start in the past to have quite soon a chance to publish along IFRS guidelines. This means as most of the differences occur in asset management that asset values have to be doubled and calculated for IFRS in past years.
    As most of the clients did not have ECC 6.0 on when starting IFRS newGL and the ledger solution for parallel accounting was not a discussion point. Parallel accounting within the GL is the only way of working I came across. And it works smoothly when the accounts have understood how to post on enrichment accounts when posting on commonly used accounts, IFRS and local GAAP accounts. A validation to keep the account reporting groups separate is helpful.
    I’m ready for questions and answers on this and more.
    Kind regards Jürgen
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    1. Surabhi Mittal
      Hi All,

      It would be helpful if we could get some tips on asset migration…how to take care of retrospective entries, depreciation area for IFRS…what postings are done etc.

      I know it might be sounding very basic, but am quite new to the scenarion of migrating from local GAAP to IFRS..

      Thanks

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