CPAs are expected to help their employers and clients assess the impacts of these requirements on their companies. These practitioners are required to offer sufficient explanation to their companies’ management of the effects of the IFRSs on their overall financial reporting obligations. Most jurisdictions require their public companies to comply with these standards for the purposes of stock-exchange listing. Additionally, insurance companies, stock brokerages, and banks use them in the preparation of statutory reports. The IFRSs use is not the preserve of public companies or financial reporting. Many lenders and governments as well as regulatory bodies expect the IFRSs to adhere to the nations’ financial reporting standards.
IFRS implementation has impacts on companies in both the private and public sector. The Financial Accounting Standards Board (FASB) is known among the CPAs as the most respected designated accounting reporting organization within the expansive private sector. It establishes financial reporting and accounting standards. Conversely, the International Accounting Standard Board (IASB) is a privately funded and independent standard setter that is committed to the development of high quality, enforceable, and understandable worldwide accounting standards with the public interests at heart. It is especially so in the preparation of comparable and transparent comparable information for general-purpose financial statements. IASB cooperates with nations’ accounting and reporting standard setters, including the FASB to attain convergence of the GAAPS and the IFRSs. The implementation of the IFRSs has affected the preparation of companies’ financial statements in the sense that they must adhere and conform to certain set international standards.
IFRSs have harmonized accounting standards across the EU countries and gradually become widespread across the world and thus affecting financial statements for companies. The international Accounting Standard Board (IASB) continues to develop new-fangled IFRSs. Companies are expected to prepare their financial statements in a manner that demonstrates their financial performance and financial position. The aim of these financial statements is the provision of information regarding entity’s cash flows, financial position, and financial performance to enable the users’ economic decision-making. Financial statements demonstrate management’s stewardship in terms of utilizing the resources at their disposal. To accomplish this chief objective, an company is supposed to provide information concerning its liabilities, assets, expenses, and income, including losses and gains, equity, cash flows, contributions by owners, and distribution of dividends or profits to the owners.
The implementation of the IFRSs requires companies to prepare their financial statements in compliance with these standards showing a fair representation of these records. The IFRSs provide a framework that defines and recognizes a universally acceptable meaning of expenses, incomes, liabilities, and assets. In furtherance of these objectives, companies are expected to present financial statements according to the going concern principle lest the management intends to wind up the entity or even cease trading. Accounting should be done on accrual basis so that the entity recognizes items such as equity, expenses, income, liabilities, and assets to satisfy the IFRS recognition criteria and definition. Again, companies implementing the IFRSs are expected to prepare similar items separately according to the materiality concept. All items in the same category, if material, should be aggregated together.
The IFRSs forbid offsetting. However, companies implementing the IFRSs are supposed to adhere to set standards when offsetting. It is so in case of the International Accounting Standard (IAS) 19 that relates to the accounting of benefit liabilities. The IAS 12 regulates deferred tax assets and liabilities net presentation. Companies are required to prepare financial statements at least once annually. However, the IAS 34 that relates to financial reporting in an interim period requires that listed companies prepare and publish interim statements. The IFRSs require companies to provide comparative information. This is so for trend analysis. The IAS 1 requires that an extra balance sheet is prepared when a company either applies its accounting policies retrospectively or makes retrospective items restatement. Classification and presentation of financial statements should be retained from one particular period to the other. This is unless it is so apparent that due to an important and substantial change in the operations of a company or a review of the financial statements demonstrates that a dissimilar classification or presentation is more appropriate.
Companies implementing the standards are supposed to ensure that their financial statements provide faithful representation and relevance (materiality). These salient features should be further enhanced by qualitative characteristics such as comparability, comprehensibility, timeliness, and verifiability. Companies in most countries like Hong Kong, Malaysia, Russia, India, South Africa, Pakistan, Turkey, Singapore, Chile, and other GCC and EU countries are expected to comply with the IFRSs. By August 2008, over 113 countries across the world, including all European countries, permit or require the IFRS reporting. About 85 of them require the IFRS reporting in the listed and all domestic companies. The IFRS adoption across the world will benefit users of financial statements and investors and thus reduce comparison costs for alternative investments and bolster information quality. Companies will benefit in the sense that they will receive funding from investors. In addition, companies with higher international activities levels will benefit from a switch towards the use of the IFRSs. Moreover, companies involved in numerous foreign activities stand a chance of benefiting from investments due to enhanced comparability of financial statements.
The implementation of the IFRSs will have costs since their implementation may be lax. Further, accounting regional dissimilarities may equally become obscure behind labels. The emphasis on fair value, as well as influencing non-common law area accountants is also a point of concern for companies implementing the IFRSs. Losses in such regions may be recognized in a not-so-timely manner. To check the progress of the IFRSs, the IFRS Foundation has sought to develop and post profiles regarding the IFRSs use in specific jurisdictions. Today, over 124 jurisdictions’ profiles are complete. This includes all G20 jurisdictions and over 104 others. The adoption of the IFRSs has drastically changed the manner and way in which the financial statements for companies are presented, prepared, and reported since capital markets globalization require unified global accountancy and disclosure standards. This is due to increased cross-border flows of capital.
IFRS 1 guides companies adopting the IFRSs for the first time. IFRS 2 regulate share-based payments, IFRS 3 relates to business combinations, IFRS 4 to insurance contracts, while IFRS 5 regulates non-current assets that are held as well as discontinued operations. IFRS 6 was adopted in July 2009 and seeks to regulate exploration and evaluation for companies dealing with mineral resources. IFRS 7 deals with financial instruments disclosures, IFRS 8 works with operating segments, and lastly IFRS 9 relates to financial instruments. Companies will add extra financial personnel familiar with the IFRSs. In the globalization era, businesses’ national identity will be lost. It is evident that the implementation of the IFRSs has and will continue to affect the financial statements for companies. The IFRSs adoption will result in transparent, comparable, and high quality financial statements. If a company is to adopt the IFRSs, it can enjoy the benefits of getting capitals from abroad.
Every nation is moving towards the adoption of the IFRSs. The EU requires the member states to conform to the IFRSs, while Canada and the US are conforming their Financial Reporting Standards (FRSs) and GAAPs versions to the IFRSs. Elsewhere, companies in other countries are accepting these IFRSs voluntarily. The IFRSs adoption will enable companies to present high quality financial statements as well as conform to global standards. This is because most countries’ GAAPs are not satisfactorily lucid and comprehensible. Additionally, comparison becomes easier when companies have foreign competitors.
Companies with subsidiaries in countries permitting the IFRSs can use a single accounting language that is possible companywide. This essay has shown that adoption of the IFRSs will enable investors to make informed investment decisions and bolster financial statements comparability. National accounting boards will alert and educate local companies on the best IFRSs for enhanced financial reporting practices. This breeds improved and higher standards of financial disclosures. Further, it attracts and monitors listings of foreign companies.