IFRS

International financial
reporting standards

What is IFRS?
IFRS stands for International Financial Reporting
Standards.
As indicated within the title, these standards are aimed at
a global practice.
Ultimately, the goal is to achieve a single set of highquality, common accounting standards used around the
world.
These standards are the result of a convergence of
international viewpoints.
These standards are for publicly accountable entities.
Small and medium-sized entities (SMEs) that do not
have public accountability may use a simplified version
of IFRS known as IFRS for SMEs.
IFRS for SMEs has recently been accepted for non-SEC
registrants by the AICPA as an acceptable alternative
reporting standard to US GAAP; however, it is not yet
common practice.

Why is it important to learn about

IFRS today?
Under IFRS 1, First-time Adoption of International
Financial Reporting Standards, there is a variety of
exemptions and options that the preparer may elect to
utilize in the adoption process that need to be assessed
to best position the company.
The IFRS adoption and convergence efforts impact
much more than just the accounting function.
Additional functions that are impacted include the
following:

Information systems
Tax
Treasury
Investor relations
Sales
Human resources
Mergers and acquisitions

Contd.
Knowledge of IFRS provides an ability to
practice accounting in the global marketplace.
Through convergence efforts, US GAAP
continues to become more aligned with IFRS.
US practice of IFRS currently exists in the
following ways:

Foreign multinationals that report using IFRS have US

operations. While some of these entities file IFRS
financials with regulators of foreign exchanges, some
file with the SEC as foreign private investors (FPIs)
under IFRS as well.
US multinational companies have foreign operations
that are required to report using IFRS.
Many US companies are making assessments of the
potential impact of adopting IFRS and IFRS
convergence efforts on their current operations.

Contd.
Given the level of IFRS
knowledge expected by US
practitioners today, the AICPA is
including IFRS in the content
specifications for the Certified
Public Accountant exam
beginning January 1, 2011.

Who are the international

standard setters?
International Accounting Standards
Board (IASB):
The IASB develops IFRS.
TheIASB is an independent group of
15 full-time members.
The board intends to expand to 16
members by 2012.
These members are appointed by
the trustees.

Challenges of IFRSs
Economic Environment
Some IFRSs require fair value approach to be followed,
examples include:
IAS 39, Financial Instruments: Recognition and Measurement
IAS 41, Agriculture

The markets of many economies such as India normally

do not have adequate depth and breadth for reliable
determination of fair values.
With a view to provide further guidance on the use of fair
value approach, the IASB is developing a document.
Till date, no viable solution of objective fair value
measures is available.

Contd.
SME concerns
SMEs face problems in implementing IFRSs
because of:
Scarcity of resources and expertise with the SMEs to
achieve compliance
Cost of compliance not commensurate with the
expected benefits

Keeping in view the difficulties faced by the

SMEs, the IASB is developing an IFRS for
SMEs.

Training to Preparers
Some IFRSs are complex.
There is lack of adequate skills amongst the preparers
and users of Financial Statements to apply IFRSs.
Proper implementation of such IFRSs requires extensive
education of preparers

Interpretation
A large number of application issues arise while applying
IFRSs.
There is a need to have a forum which may address the
application issues in specific cases.

Convergence with IFRSs:

Indian Perspective
Indian Accounting Standards (ASs) are
formulated on the basis of the IFRSs.
While formulating ASs, the endeavor of the
ICAI remains to converge with the IFRSs.
The ICAI has till date issued 29 ASs
corresponding to IFRSs.
Some recent ASs, issued by the ICAI, are
totally at par with the corresponding IFRSs,
e.g., the Standards on Impairment of Assets
and Construction Contracts.

IFRSs: Indian perspective (contd. )

While
formulating
Indian
Accounting
Standards, changes from the corresponding
IAS/ IFRS are made only in those cases
where these are unavoidable considering:
Legal and/ or regulatory framework prevailing in the
country.
To reduce or eliminate the alternatives so as to
ensure comparability.
State of economic environment in the country
Level of preparedness of various interest groups
involved in implementing the accounting standards.