Introduction to IAS/IFRS
Marco Venuti 2018
Risk and Accounting
The structure of IASB
The standard setting process
The introduction of IFRS in EU
Endorsement mechanism
The introduction of IAS/IFRS in Italy
The IASB – FASB convergence
The SME project
Agenda
Pagina 2
The International Accounting Standard Board (IASB)
• International Accounting Standards Board (IASB)– Independent, privately funded accounting standard setter
based in London– Responsibility to develop International Financial
Reporting Standards (IFRSs) (previously International Accounting Standards (IASs)
• The objectives are:– To develop a single set of accounting standards
» High quality, understandable, global and enforceable– To promote their use and rigorous application– To work actively with national standard setters
» To bring about convergence of national accounting standards and IFRSs
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The structure of IASB
The standard setting process
• Main steps1. Setting the agenda2. Planning the project3. Developing and publishing the Discussion Paper (DP)4. Developing and publishing the Exposure Draft (ED)5. Developing and publishing the Standard6. Process after the standard is issued
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The standard setting process
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Research
StandardSetter / EFRAG
DiscussionPaper (DP)
Exposure Draft (ED)
Others
Comment analysis
9‐15 months 9‐15 months
Comment analysis
EffectiveDate
12‐18 months
Feedbackstatement
IFRSpublished
Active Projects
Roundtable
Two year post implementation
review
Agenda decision
The standard setting process
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The standard setting process
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The standard setting process
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The introduction of IFRS in EU
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23 March 2002
Lisbona – The EuropeanCouncil decided to
accelerate the process ofharmonization of
Accounting rules and established the deadlineof 2005 for the adoptionof common accounting
principles
19 July 2002 2003 ‐ 2004 2005‐2006
The European Council of Ministers approved the
regulation that would require all EU companies listed on a
regulated market to prepare accounts in accordance with International Accounting
Standards for accounting periods beginning on or after 1 January
2005.(Regulation EU n. 1606/2002)
The EU Commissionendorses the International accounting Standards in
European Union.
All EU companies listed on regulated markets in the EU to use endorsed
IAS for consolidated accounts.
The introduction of IFRS in EU
IAS Regulation (1606/2002/EC)
• Directly applicable in all Member States• Fast , no national variations
• All EU companies listed on regulated markets in the EU to use endorsed IAS for consolidated accounts as from 2005
• Non-EU issuers outside the scope • (But: Equivalence under Prospectus and Transparency
Directives)
• Optional extension of the scope: – unlisted companies– individual accounts
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Endorsement mechanism
• “Objective is to get political and legal endorsement of IAS
• Criteria– IAS not contrary to “true and fair view” principle of Accounting
Directives– IAS must be conducive to public good (competitiveness and
convergence)– IAS must be understandable, relevant, reliable and comparable
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Endorsement mechanism
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EuropeanParlament
IASB
EFRAG
Interest GroupARC
European
Commission
Council
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Endorsement mechanism
Tempistica media della procedura di endorsement in Europa
Endorsement mechanism
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EFRAG
Endorsement mechanism
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The introduction of IFRS in Italy
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IAS Optional application
Listedcompany
Company withlisted financial
instrumentsbanks
ConsolidatedFS
IndividualFS
Company controlled by:- Listed company• banksCompanies withconsolidated financialstatement or controlledby a company with a consolidated financialstatement
Listed and notlisted insurance
companies
Excluded application
IASMandatory from 2006
Other companies
IAS Optional
application
Small companies(art. 2435-bis c.c.)
Excluded application
IASmandatory from
2005
In Italy the European Rule 1606/2002 have been effected through the emanation ofthe Legislative Decree n. 38/2005
IndividualFS
IndividualFS
IndividualFSConsolidated
FSConsolidated
FSIndividual
FS
IASmandatory
The Italian jurisdition Code civil: Limited Companies: Individual Financial Statements
(FS) Legislative Decree 127/1991: Limited Companies Consolidated FS
Reg. EC 1606/2002- Legislative Decree 38/2005imposing or permitting the application of the IAS/IFRS in relation to a large number of enterprises (publicly accountable enterprises and othes): Consolidated and/or Individual FS
Legislative Decree 173/1997: insurance companies: individual FS
Legislative Decree 87/1992: not regulated financial institutions: Consolidated and Individual FS.
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US GAAP – IFRS convergence
• 2007 SEC accepts filling from FPI’s without reconciliation to US GAAP
• 2008 – SEC announced a series of steps to potentially lead to the required use of IFRS by US issuers by 2014. Also announced that certain domestic large groups could use IFRS for their 2010 filings. Final decision on use of IFRS for all filers to be taken in 2011, possibly with a 2014 effective date
• 2010 – Update on ‘road map’ issued• 2012 – SEC decided to postpone the implementation of the ‘road map’
• The IASB and US FASB have an objective of convergence of IFRS and US GAAP
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US GAAP – IFRS convergence
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IAS/IFRS in the world
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The SME project
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The SME project• The FRS for Small and Medium-sized Entities (SMEs) is a set of
high quality financial reporting principles that is tailored for thecapabilities of smaller businesses and for the needs of those whouse non-publicly accountable enterprises financial statements.
Pros:• Improve access to credit
– supports lending based on financial statements– vendors evaluate finances of buyers– foreign loans and suppliers
• Improve access to equity capital– non-management investors– foreign venture capital
Cons:Complexity, administrative burden, similarity to full IFRS andsubstance and frequency of changing
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The SME project
Who is the standard aimed at?
Millions of companies (over 99%)!•The 52 largest stock exchanges in the world together have only around 45,000 listed companies globally•Europe has roughly 25 million private sector enterprises•USA has roughly 20 million private sector enterprises•UK alone has 4.7 million private sector enterprises–99.6% have fewer than 100 employees
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The SME project
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Who is planning to use it?