As we continue to keep a watchful eye on the progress of the IFRS convergence efforts, we must also focus on those regulations that will not be included in the overall IFRS convergence plan. We can and should act on these standards now. These are established requirements that will not be changing as a result of convergence. Companies should act now and get a head start on being prepared for compliance.
Two examples of standards that will not be included in the IFRS convergence plan are IAS 38 (Intangible Assets) and IAS 41 (Biological Assets). These standards pose new accounting challenges for companies across a diverse range of industries such as Consumer Products and Life Sciences (Biotech).
The first standard, IAS 38, is a guideline for capitalizing development costs as intangible assets. This affects every research organization in the U.S regardless of industry. Research and development costs will need to be captured separately, which is currently not common practice. And, once the decision is made to capitalize vs. expense, it cannot be reversed.
The second, IAS 41, is specific to the valuation of biological assets. As an asset grows, its change in value must be reflected on the financials. This regulation could impact raw materials such as agriculture or livestock in a Consumer Products company or laboratory animals used in a Life Sciences company.
Focusing on those standards outside of the IFRS convergence plan is a critical part of preparing for overall IFRS compliance. The attention given to these standards will shape an organization’s financial future. It is better for companies to act now and be prepared for compliance early.
Use this link to access a recent EcoHub recording which discusses IAS 38 and IAS 41. Learn why they are a concern and options companies can consider in addressing them now.