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.