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International Financial Reporting Standards (IFRS) are Standards, Interpretations and the Framework adopted by the International Accounting Standards Board (IASB).
IFRSs are considered “principles based” set of standards in that they establish broad rules as well as dictating specific treatments.
International Financial Reporting Standards comprise:
* International Financial Reporting Standards (IFRS) – standards issued after 2001
* International Accounting Standards (IAS) – standards issued before 2001
* Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) – issued after 2001
* Standing Interpretations Committee (SIC) – issued before 2001
Objective of financial statements
A framework is the foundation of accounting standards. The framework states that the objective of financial statements is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions, and to provide the current financial status of the entity to its shareholders and public in general.
The SEC may decide soon whether and when U.S. companies will switch to international accounting standards. And it’s a good thing, as panic from not knowing the date is percolating.
The curtain has risen, the band is playing — but when, precisely, will international financial reporting standards (IFRS) take center stage?
That’s the question on the minds of companies, academics, audit firms, and virtually every other entity remotely connected with corporate finance. There is growing speculation that the Securities and Exchange Commission will set a date as early as mid-August, which many say is not a moment too soon.
The move from generally accepted accounting principles (GAAP) to IFRS not only seems to be a foregone conclusion but also appears to have been fast-tracked. Last month, Financial Accounting Standards Board member George Batavik said that several key FASB projects, including lease accounting, financial-statement presentation, and revenue-recognition guidelines, have undergone “dramatic scope change” — that is, a reduction — to ensure that they can be completed by 2011.
Many experts now believe that what was once billed as a “convergence” of U.S. GAAP and IFRS has become essentially a switch to the latter, with 2013 whispered as the likely implementation date.
Given the scope of anticipated changes, that date has touched off a keen sense of urgency. Sue Haka, president-elect of the American Accounting Association and a Michigan State University accounting professor, points out that the number of accounting instructors is dwindling even as the number of accounting majors increases. The availability of textbooks and changes to accounting exams are also key issues affected by a date for IFRS adoption, as is the retraining challenge that audit firms will confront.
And, of course, companies of all sizes will face the same challenge in extremis. “I just can’t imagine the amount of money that’s going to be spent retraining everybody,” says Larry Levine, head of business valuation and corporate finance at RSM McGladrey. “Everybody who touches finance and accounting is going to have to have some kind of reeducation and training.”
Is that a clock ticking, or something more ominous?
After years of resistance to a global accounting overhaul, American companies are rapidly coming around to the idea of adopting international financial reporting standards, a new Deloitte survey of finance executives suggests.
Polling executives at 200 companies, Deloitte found that 30 percent of CFOs and other finance officials would consider adopting IFRS within the next three years if given the option by the Securities and Exchange Commission.
The SEC’s decision to accept IFRS filings from foreign companies, and its signaling that the principles-based standards used in much of the world are likely to take hold here, were factors in the change, the accountancy suggested. Now, U.S. firms are busy considering what this will mean for them.