International Financial Reporting

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International Financial Reporting

International Financial Reporting


International Financial Reporting Standards is a set of documents (standards and interpretations), the rules governing financial reporting, required for external users to make their economic decisions on the enterprise.

From 1973 to 2001 standards developed Committee on International Accounting Standards Board (Board of the International Accounting Standards committee) (IASC) and released them under the name of International Accounting Standards (IAS). In 2001, IASC was restructured into the Council on International Accounting Standards Board (IASB). In April 2001 the IASB adopted (adopted) existing IAS and continued to work, releasing the newly established standards called IFRS [1].

IFRS, in contrast to some national rules of reporting, are standards based on principles rather than hard-coded rules. The aim is that in any practical situation, the drafters could follow the spirit of the principles, rather than trying to find loopholes in clearly defined rules, which would circumvent any of the basic provisions. Among the principles: the principle of accrual (accrual basis), the principle of continuity (going concern), care (prudence), appropriateness (relevance) and several others. (Watts, 2000, pp. 23-30)

The Main Problems of Transition to IFRS

Transition to international financial reporting standards may entail both positive and negative consequences for companies. Among the positive aspects - increasing transparency, improving comparability and, consequently, increasing opportunities to analyze their activities, and facilitating access to international capital markets.

However, statements are not guarantees investment inflows. In addition, for example, the value of the net profit according to international standards can be significantly lower than in the Russian accounting. In addition, the transition to IFRS will require companies additional human and financial costs, and evaluate the positive economic effects of innovation at the initial stage will be quite difficult. (Oliver, 2003, pp. 55-60)

IFRS financial statements can be divided into three groups:

1. Working with foreign partners. If the company is actively cooperating with foreign partners, the statements have been prepared in plain language that they would be a big plus.

2. Need for credit resources. One of the main obstacles to the growth of Russian companies today is the shortage of capital. So now the most attractive western capital markets with a relatively lower interest rates and the availability of long-term loans. This category includes mainly capital-intensive enterprise that belongs to the fastest growing sector (leasing, commercial and industrial companies). (Solomons, 2008, pp 65-73)

3. Have a developed system of corporate culture.

Application of IFRS may be useful for those Russian companies that are not going to go until the Western financial markets. The effect is to provide managers with information that improves management efficiency and gives the ability to communicate with the market and shareholders, strengthens the system of corporate behavior, and hence the credibility of management. The most beneficial effect would be the use of IFRS for companies where the owner has no representatives in the management of the company and had to be satisfied with information received from the financial statements. (Zimmerman, 2008, pp 273-305)

Application of International Financial Reporting Standards

First task in April 2001 publication of international financial reporting standards, subject to the use of companies whose aim is profit, has moved from the Committee on International Accounting Standards Board (IASB) to the Fund Committee on International ...
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