International Financial Reporting Standards

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International Financial Reporting Standards (IFRS) are a set of accounting standards. Currently they are issued by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IASs).

IASs were issued between 1973 and 2001 by Board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IASs and continued the development, calling new standards IFRSs.

Although IASs are no longer produced, they are still in effect unless replaced by an IFRS, whether in its entirety or part of.

International Financial Reporting Standards in a broad sense comprise:

• Framework for the Preparation and Presentation of Financial Statements—stating basic principles and grounds of IFRS
• IAS—standards issued before 2001
• IFRS—standards issued after 2001
• SIC—interpretations of accounting standards, giving specific guidance on unclear issues
• IFRIC—newer interpretations, issued after 2001

Adoption of IFRS

IFRS are used in many parts of the world, including the European Union, Russia, South Africa, Hong Kong, Australia, and Singapore. For a current overview see IAS PLUS's list of all countries that have adopted IFRS.

Australia

The Australian Accounting standards, previous to 1 January 2005, were based around accounting standards developed by the Australian Accounting Standards Board (AASB). As a result of pressure towards international harmonisation, the AASB had been working towards a convergence between the Australian Standards and the IFRS. From 1 January 2005, the Australian equivalent of IFRS have been fully implemented as AASB 101 - 141. It is a requirement that all reporting entities adopt the standards as they have replaced the previous Australian generally accepted accounting principles.

Due to the accounting standards operating halfway through the year, the requirements can be summarised as follows:

• Year ended 30 June 2004—Prepare under pre IFRS standards and state in notes the expected effect of the adoption of IFRS
• Year ended 30 June 2005—Prepare under pre IFRS standards and prepare a reconciliation to IFRS standards
• Year ended 30 June 2005—Prepare under Australian Equivalents to IFRS standards

European Union

All publicly traded EU companies are to prepare their consolidated accounts using IFRS from 2005. Prior to 2005 there were around 350 publicly listed companies that used IFRS—in 2005 the figure will be around 7,000.

In order to be approved for use in the EU, standards must be endorsed by the Accounting Regulatory Committee (ARC), which includes representatives of member state governments and is advised by a group of accounting experts known as the European Financial Reporting Advisory Group.

Two sections of IAS 39: Financial Instruments: Recognition and Measurement have not been approved by the ARC and in this respect IFRS as applied in the EU differs from that used elsewhere. The IASB is working with the EU to find a way to an acceptable way to remove this anomaly.

As the standards are part of European law the approved standards and approved subsequent changes must be published in the Official Journal of the European Union. On October 13th 2003 the first publication of the standards was included in PB L 261. Changes to the earlier published IAS and IFRS can be monitored using the webpage of the Directorate Internal Market of the European Union on the implementation of the IAS in the European Union.

Russia

The government of Russia has been implementing a program to harmonize its national accounting standards with IFRS since 1998. Since then twenty new accounting standards were issued by the Ministery of Finance of Russian Federation aiming to align accounting practices with IFRS. Despite of these efforts essential differences between national accounting standards and IFRS remain. From 2004 all commercial banks are obliged to prepare financial statements in accordance with both national accounting standards and IFRS. Full transition to IFRS is delayed and is expected to take place from 2010.

Turkey

Turkish Accounting Standards Board translated IFRS into Turkish in 2006. As of 31 December 2006 Turkish companies listed in Istanbul Stock Exchange are required to prepare IFRS reports.

Convergence with US GAAP

The largest capital market remaining with its own standards is the US. The United States Securities and Exchange Commission requires all overseas companies listed in the US to prepare their results under US GAAP in addition to their local requirements and to reconcile the two results. This imposes considerable expense on companies which are listed on exchanges both in the US and another country.

In 2002 at a meeting at Norwalk, Connecticut, the IASB and the US Financial Accounting Standards Board agreed to harmonise their agenda and work towards reducing differences between the two sets of standards. The SEC has indicated it will remove the reconciliation requirement once it is satisfied that IFRS are of a sufficient standard.

Details

Every accounting standards start with its' own framework. The framework contains the basic accounting principles followed when developing accounting standards. The framework deals with the following issues:

• (a) the objective of financial statements;
• (b) the qualitative characteristics that determine the usefulness of information in financial statements;
• (c) the definition, recognition and measurement of the elements from which financial statements are constructed; and
• (d) concepts of capital and capital maintenance.

Framework for the Preparation and Presentation of Financial Statements is the framework used by IFRS.

IFRSs are considered a "principles-based" set of standards, in that they establish broad rules rather than dictating specific treatments. As of 2002 a number of IFRSs offer the preparer choices of treatments; the IASB's Improvements Project is seeking to reduce these choices.

International accounting standards currently in use are as follows:

• IFRS 1 First-time Adoption of International Financial Reporting Standards
• IFRS 2 Share-based Payment
• IFRS 3 Business Combinations
• IFRS 4 Insurance Contracts
• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
• IFRS 6 Exploration for and Evaluation of Mineral Resources
• IFRS 7 Financial Instruments: Disclosures

• IAS 1: Presentation of Financial Statements
• IAS 2: Inventories
• IAS 7: Cash Flow Statements
• IAS 8: Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Practices
• IAS 10: Events After the Balance Sheet Date
• IAS 11: Construction Contracts
• IAS 12: Income Taxes
• IAS 14: Segment Reporting
• IAS 15: Information Reflecting the Effects of Changing Prices
• IAS 16: Property, Plant and Equipment
• IAS 17: Leases
• IAS 18: Revenue
• IAS 19: Employee Benefits
• IAS 20: Accounting for Government Grants and Disclosure of Government Assistance
• IAS 21: The Effects of Changes in Foreign Exchange Rates
• IAS 22: Business Combinations
• IAS 23: Borrowing Costs
• IAS 24: Related Party Disclosures
• IAS 26: Accounting and Reporting by Retirement Benefit Plans
• IAS 27: Consolidated Financial Statements
• IAS 28: Investments in Associates
• IAS 29: Financial Reporting in Hyperinflationary Economies
• IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions
• IAS 31: Financial Reporting of Interests in Joint Ventures
• IAS 32: Financial Instruments: Disclosure and Presentation
• IAS 33: Earnings per Share
• IAS 34: Interim Financial Reporting
• IAS 35: Discontinuing Operations
• IAS 36: Impairment of Assets
• IAS 37: Provisions, Contingent Liabilities and Contingent Assets
• IAS 38: Intangible Assets
• IAS 39: Financial Instruments: Recognition and Measurement
• IAS 40: Investment Property
• IAS 41: Agriculture

References

• International Accounting Standards Board (2006): International Financial Reporting Standards (IFRSs®) 2006 (including International Accounting Standards (IASs™) and Interpretations as at 1st January 2006), LexisNexis, ISBN 3-89699-305-4.

• Original texts of IASs/IFRSs, SICs and IFRICs adopted by the Commission of the European Communities and published in Official Journal of the European Union http://ec.europa.eu/internal_market/accounting/ias_en.htm#adopted-commission

External links

• Discussion Forum IAS/IFRS

• Free 2006 IFRS Pocket Guide from IASPlus(Deloitte)

• Initial publication of the International Accounting Standards in the Official Journal of the European Union PB L 261 13-10-2003

• Directorate Internal Market of the European Union on the implementation of the IAS in the European Union

• Deloitte: An Overview of International Financial Reporting Standards