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Why IFRS

Gholamhossein Davani

Member of New York State Society of

Certified Public Accountants(NYSSCPA)Member of Iranian Association of

Certified Public Accountants(IACPA)

November 2009

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Coming Soon !!

Market forces have underlined the logic behind theglobalization of accounting standards. The goaf is tocreate one single set of accounting standards that canbe applied anywhere in the world, saving millions for

firms with more than one listing and allowing investorsto compare the performance of businesses acrossgeographic boundaries for the first time.

The move towards a single set of high-quality globalaccounting standards is not simply a question of

changing accounting I methods. It is a change that hasimportant practical implications and benefits for allstakeholders.

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What is the philosophy of accounting

the conceptual framework for the professional

preparation and auditing of financial

statements and accounts. The issues which

arise include the difficulty of establishing a

true and fairvalue of an enterprise and its

assets; the moral basis of disclosure and

discretion; the standards and laws required tosatisfy the political needs of investors,

employees and other stakeholders.

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What is the IASB?

The IASB is an independent accounting standard-setting body,based in London. It consists of 14 members from ninecountries, including the United States. The IASB beganoperations in 2001 when it succeeded the InternationalAccounting Standards Committee. It is funded bycontributions from major accounting firms, private financialinstitutions and industrial companies, central anddevelopment banks, and other international and professionalorganizations throughout the world. While the AICPA was a

founding member of the International Accounting StandardsCommittee, the IASB's predecessor organization, it is notaffiliated with the IASB. The IASB neither sponsors norendorses the AICPA's IFRS resources website (www.IFRS.com).

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Why is it Important to Understand the

IFRS?

Current investors and finance professionals need to understandIFRS because certain foreign companies traded on the US Stockmarkets report using IFRS instead of US GAAP. Unlike other foreignaccounting standards, the SEC does not require a footnotereconciliation of IFRS Earnings to US GAAP earnings. This means

that investors and financial professionals may have difficultiescomparing the earnings and expenses of American companies tothose of foreign companies reporting under US GAAP.

It is important that a savvy investor and any competent financialprofessional needs to understand the basic differences in US GAAPand IFRS in order to make informed decisions

the SEC has made a push for American companies to report usingIFRS instead of the customary US GAAP (United States GenerallyAccepted Accounting Principles)

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How widespread is the adoption of

IFRS around the world?

More than 12,000 companies in approximately 113 nationshave adopted IFRS, including listed companies in the

European Union. Other countries, including Canada andIndia, are expected to transition to IFRS by 2011. Mexicoplans to adopt IFRS for all listed companies starting in 2012.Some estimate that the number of countries requiring oraccepting IFRS could grow to 150 in the next few years.Japan has introduced a roadmap for adoption that it will

decide on in 2012 (with adoption planned for 2016). Stillother countries have plans to converge (eliminatesignificant differences) their national standards with IFRS.

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IASB, IASCF, and IASC Defined

The International Accounting Standards Board(IASB) is anindependent, private-sector body that develops and approvesInternational Financial Reporting Standards. The IASB operatesunder the oversight of the International Accounting StandardsCommittee Foundation. The IASB was formed in 2001 to replace the

International Accounting Standards Committee. The International Accounting Standards Committee Foundation

(IASCF) is the independent, non-profit foundation, created in 2000to oversee the IASB.

The International Accounting Standards Committee (IASC)

From 1973 until a comprehensive reorganization in 2000, thestructure for setting International Accounting Standards was knownas the International Accounting Standards Committee. There wasno actual "committee" of that name. The standard-setting boardwas known as the IASC Board.

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Definition of IFRSs

IAS 1.14 states:

"An entity whose financial statements comply with IFRSs shall makean explicit and unreserved statement of such compliance in thenotes. Financial statements shall not be described as complyingwith IFRSs unless they comply with all the requirements of IFRSs."

When a Standard or an Interpretation specifically applies to atransaction, other event, or condition, the accounting policy orpolicies applied to that item shall be determined by applying theStandard or Interpretation and considering any relevantImplementation Guidance issued by the IASB for the Standard orInterpretation. [IAS 8.7]

If a Standard or Interpretation does not address a specifictransaction, event, or condition explicitly, IAS 8.10-12 require

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Why are the IASB and IFRS

Important?

The International Accounting Standards Board (IASB) and the International

Financial Reporting Standards (IFRS) that they issue are very important for

the future of accounting. With businesses turning global, it is important

that investors are able to compare companies under similar standards.

Likewise, it is important for businesses operating in multiple countries tobe able to create financial statements that are understandable in all of the

countries they operate in.

Eventually, International Accounting Standards Board (IASB) and other

accounting organizations hope to see a convergence of all accounting

standards throughout the world. This type of convergence, would allow for

the best of circumstances for investors and other interested parties to be

able to examine and compare companies in a transparent and equal way.

With the coordination of the International Financial Reporting Standards

(IFRS) with other accounting standards from around the globe, this goal of

convergence may not be as far-fetched as it may sound.

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What are the advantages of

converting to IFRS?

By adopting IFRS, a business can present its financialstatements on the same basis as its foreign

competitors, making comparisons easier. Furthermore,companies with subsidiaries in countries that requireor permit IFRS may be able to use one accountinglanguage company-wide. Companies also may need toconvert to IFRS if they are a subsidiary of a foreign

company that must use IFRS, or if they have a foreigninvestor that must use IFRS. Companies may alsobenefit by using IFRS if they wish to raise capitalabroad.

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Back ground

IAS were issued between 1973 and 2001 by the

Board of the International Accounting

Standards Committee (IASC). On 1 April 2001,

the new IASB took over from the IASC the

responsibility for setting International

Accounting Standards. During its first meeting

the new Board adopted existing IAS and SICs.The IASB has continued to develop standards

calling the new standards IFRS.

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What are IFRS?

International Financial ReportingStandards (IFRS) are a set of

accounting standards developedby the International AccountingStandards Board (IASB) that is

becoming the global standard forthe preparation of publiccompany financial statements.

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Structure of IFRS(1)

IFRS are considered a "principles based" set of standards inthat they establish broad rules as well as dictating specifictreatments.

International Financial Reporting Standards comprise:

International Financial Reporting Standards (IFRS) -standards issued after 2001

International Accounting Standards (IAS) - standards issuedbefore 2001

Interpretations originated from the International Financial

Reporting Interpretations Committee (IFRIC) - issued after2001

Standing Interpretations Committee (SIC) - issued before2001

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Structure of IFRS(2)

There is also a Framework for the Preparation andPresentation of Financial Statements which describes theprinciples underlying IFRS...& IAS 8 Par. 11

"In making the judgment described in paragraph 10,

management shallrefer to, and consider the applicabilityof, the following sources in descending order:

1- the requirements and guidance in Standards andInterpretations dealing with similar and related issues; and

2- the definitions, recognition criteria and measurement

concepts for assets, liabilities, income and expenses in theFramework."

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List of IFRS statements

IFRS 1 First time Adoption of International FinancialReporting Standards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations

IFRS 6 Exploration for and Evaluation of Mineral

Resources IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments

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List of IAS (1)

IAS 1: Presentation of Financial Statements.

AS 2: Inventories

IAS 7: Cash Flow Statements

IAS 8: Accounting Policies, Changes in Accounting Estimatesand Errors

IAS 10: Events After the Balance Sheet Date

IAS 11: Construction Contracts

IAS 12: Income Taxes

IAS 14: Segment Reporting (superseded by IFRS 8 on 1January 2008)

IAS 16: Property, Plant and Equipment

IAS 17: Leases

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List of IAS (2)

IAS 18: Revenue

IAS 19: Employee Benefits

IAS 20: Accounting for Government Grants and Disclosure of

Government Assistance IAS 21: The Effects of Changes in Foreign Exchange Rates

IAS 23: Borrowing Costs

IAS 24: Related Party Disclosures

IAS 26: Accounting and Reporting by Retirement Benefit Plans

IAS 27: Consolidated Financial Statements

IAS 28: Investments in Associates

IAS 29: Financial Reporting in Hyperinflationary Economies

IAS 31: Interests in Joint Ventures

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List of IAS (3)

IAS 32: Financial Instruments: Presentation (Financial instrumentsdisclosures are in IFRS 7 Financial Instruments: Disclosures, and nolonger in IAS 32

IAS 33: Earnings Per Share

IAS 34: Interim Financial Reporting

IAS 36: Impairment of Assets

IAS 37: Provisions, Contingent Liabilities and Contingent Assets

IAS 38: Intangible Assets (summary)

IAS 39: Financial Instruments: Recognition and Measurement

IAS 40: Investment Property

IAS 41: Agriculture

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List of International Financial

Reporting Interpretations (IFRIC) IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar

Liabilities (Updated to January 2006)

IFRIC 7 Approach under IAS 29 Financial Reporting in HyperinflationaryEconomies (Issued February 2006)

IFRIC 8 Scope of IFRS 2 (Issued February 2006)- has been eliminated with

Amendments issued to IFRS 2 IFRIC 9 Reassessment of Embedded Derivatives (Issued April 2006)

IFRIC 10 Interim Financial Reporting and Impairment (Issued November2006)

IFRIC 11 IFRS 2-Group and Treasury Share Transactions (Issued November2006) - has been eliminated with Amendments issued to IFRS 2

IFRIC 12 Service Concession Arrangements (Issued November 2006) IFRIC 13 Customer Loyalty Programmes (Issued in June 2007)

IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction (issued in July 2007)

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List of SIC Final Interpretations

1. SIC 1 Inventory

2. SIC 2 Borrowing

3. SIC 3 Associates

5 SIC 5 Financial Instr.

6. SIC 6 Software

7. SIC 7 Euro8. SIC 8 First Time IAS

9. SIC 9 Business Combinations

10. SIC-10 Govt. Assistance

11. SIC-11 Foreign Exchange

12. SIC 12 SPEs

13. SIC 13 Joint Control

14. SIC 14 Property15. SIC 15 Operating Lease

16. SIC 16 Treasury Shares

17. SIC 17 Cost of Equity

18. SIC 18 Consistency

19. SIC 19 Reporting Currency

20. SIC 20 Equity Method

21. SIC 21 Income Taxes

22. SIC 22 Bus. Comb. Adjustments

23. SIC 23 Inspection/Overhaul

24. SIC 24 Earnings per Share

25. SIC 25 Income Tax Status

27. SIC 27 Lease-Leaseback

28. SIC 28 Measurement of Shares29. SIC 29 Service Concessions

30. SIC 30 Reporting Currency

31. SIC 31 Barter Transactions

32. SIC 32 Web Site Costs

33. SIC 33 Potential Voting Rights

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IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (IFRS FOR SMEs)

HISTORY OF THE IFRS FOR SMEs

Project carried forward from predecessor IASC agenda

June 2004 Discussion Paper published for comment.

11 April 2005Staff questionnaire on SMErecognition and measurement

issues for comment

13-14 October 2005Public round-table meetings on possible recognition and

measurement simplifications

15 February 2007 Exposure Draft of IFRS for SMEs

9 July 2009 Final IFRS for SMEs issued, effective immediately.

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IFRS Circular

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IFRS Timeline

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What will happen

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IFRS Solution

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Why world going IFRS

IFRS will integrate domestic businesses

with the global investor

Financial community so that there isno language gap and barrier

IFRS is acceptable globally

and provides a commonaccounting/reporting language to the

world

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What are some of the most important specific

differences between IFRS and U.S. GAAP?

Because of longstanding convergence projects between the IASB and

the FASB, the extent of the specific differences between IFRS and GAAP

has been shrinking. Yet significant differences do remain, most any one

of which can result in significantly different reported results, depending

on a company's industry and individual facts and circumstances. Forexample:

IFRS does not permit Last In, First Out (LIFO).

IFRS uses a single-step method for impairment write-downs rather

than the two-step method used in U.S. GAAP, making write-downs more

likely.

IFRS has a different probability threshold and measurement objective

for contingencies.

IFRS does not permit debt for which a covenant violation has occurred

to be classified as non-current unless a lender waiver is obtained before

the balance sheet date.

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Sources

1-NYSCPA.org

2-aicpa.org3-IFRS.org

4-iasb.org

5-Wikipedia.org6-CFO.org