ACCOUNTING STANDARDS IFRS

Accounting Standards IFRS

Accounting Standards IFRS

Chapter One: Introduction

Introduction

In 2002, the Financial Reporting Council (FRC) announced that Australia would adopt the accounting standards issued by the International Accounting Standards Board (IASB) from 2005(Baxter 2005). After the first of July 2005, the new standards (IFRS) start to use across national border. companies would be required to report current results under IFRS and restate recent results. They will also have to report their latest results under the old accounting standard, which should make comparing results on a like-for-like basis relatively straightforward. The purpose of this essay is going to give a general idea about advantages and disadvantage of IFRS, which has been widespread debate in the business community.

IFRS are produced by the International Accounting Standards Board (IASB) whose objective is to produce a single set of high quality accounting standards for use by participants in global capital markets and others. Alternative possible standards would be national (for example US GAAP) and reflect some issues and concerns specific to that country. Developing a specific EU set of standards would have seemed to ignore the increasingly global scale of operations by corporations and also of investment. IFRS are currently used as the benchmark for an increasing number of national accounting systems as well as being used directly by a number of organisations and corporations. They have been recognised by IOSCO - International Organisation of Securities Commissions - for cross-border listings.

Key Areas of Impact for UK Listed Companies

The effect of changing from UK standards to IFRS on the reported numbers is difficult to predict for any individual company. There are differences in wording and emphasis in the two sets of standards even when the overall treatment of items is broadly the same, and these differences can be significant in borderline decisions. The disclosures required are different in some cases. The most significant differences, however, in terms of broad treatments of items between UK GAAP and IFRS (as they are likely to be for the 2005 conversion) are likely to include the following areas:

Pension costs

Deferred tax (especially on revaluations and discounting of provisions)

Financial instruments (derivatives and investments at fair values)

Hedge accounting

Preference shares and convertible bonds

Merger accounting

Goodwill amortisation

Negative goodwill

Share option schemes

Investment properties (treatment of revaluations)

Proposed dividends

At a minimum all listed companies in the EU will need to make this change for their consolidated accounts.

Member states have the option to extend the impact either as a requirement or as an option to other sorts of company and accounts. In the UK, the Department of Trade & Industry has announced that:

Publicly traded companies in the UK will also be permitted to use IFRS in their individual accounts from the same date; and

Other companies and limited liability partnerships in the UK will be permitted to use IFRS in both their individual and consolidated accounts from the same date.

It likely that subsidiaries and associates of listed companies will need to supply consolidation information based on ...