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International Financial Reporting Standards

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International Financial Reporting Standards

Ever since the incorporation of International Financial Reporting Standards (IRS) in accounting discipline, this switch of standards for the corporate has been something like walking on a double-edged sword. The confusion still prevails among investors, analysts and corporate in understanding the new numbers. In spite of various doubts, the IFRS was genuinely accepted first by European Union (EU) countries on January 1, 2005 followed by hundred plus other countries. Since then these standards which are published by International Accounting Standards Board (IASB) have earned the status of the new global standards replacing the US Generally Accepted Accounting Principles (GAAP).

Along with European Union, countries like Japan, Australia, Russia, China, India and several Middle East and African countries are required to converge or in the process of converging their standards in accordance with the IFRS. The credit for such expansion of their IFRS brief period of existence goes to the IASB’s dedicated team which produces and presents high quality, transparent and comparable accounting standards. However, the new global standards bring both opportunities and challenges. The opportunities that the corporate get by using the single global standards case the access to global capital markets enable peer group comparison, cross-border transactions, among others. The challenges are definitely in implementation of these new principle-based standards, in training current professionals for adequate usage and compatibility with the tax regime. Till date, the conversion results of such fundamental changes are surprisingly going more or less smoothly. Even the Securities Exchange Commission (SEC), the US accounting regulator accepted the importance of IRS on November 15, 2007 and allowed the Foreign Private Issuer’s (FPI’s) to use IFRS for their reconciliation of financial statements.

Undoubtedly, the IFRS have added greater comparability and consistency in the corporate reports across the borders. However, these fundamental changes are on relative terms as reporting in each country still bears the characteristic of its previous GAAP. In fact various observations have revealed that IFRS have brought significant amount of complexities into financial accounts. The change towards greater degree and complexity of disclosures has resulted in annual reports becoming largely unmanageable, which needs highly trained users to understand them. However, a few of these complexities are inevitable as the transaction of today’s business world have also become complex. Further, one must understand that the degree of such changes should ultimately serve the needs of the shareholders and the analysts’ communities who are the ultimate beneficiaries of any improvement in financial reporting. Thus the entire reporting community such as regulators, analysts, auditors, preparers should find ways which lessen such complexities and ensure sound principle based reporting rather than narrow rules-driven approach. The future much depends upon the developments of convergence among the US GAAP and IFRS. Thus the journey of IFRS towards a truly global financial language is entering into a crucial stage. The key will be to produce shorter version of standards based upon principles due to which financial reports will be more useful and comparable.


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