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The Warsaw Voice » Other » April 16, 2008
XV ECONOMIC FORUM I TORUŃ
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IFRS: The Big (Global) Picture
April 16, 2008   
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As a result of financial reporting problems in the United States and Europe, Brussels took a stand to have its own common standards for the markets in the European Union. We have a common "passport" for companies wanting to list on any of the EU stock exchanges, the same standards for reporting the annual results (International Financial Reporting Standards-IFRS), and International Standards on Auditing (ISA) for ensuring compliance.

When asked by Brussels to prepare the EU GAAP (Generally Accepted Accounting Principles), the independent International Accounting Standards Board (IASB) rose to the challenge and did something that was thought impossible at the time-a global accounting standard for company financial reporting. Big business is global and therefore multinationals needed global, and not just EU, standards. More than 100 countries have adopted or are adopting IFRS. These include most of the countries that have a significant multinational company presence. There is an exception, the United States, but not for long. Its main neighbors and major trading partners have adopted IFRS.

It took the IASB time to change the International Accounting Standards (IAS) from what was a relatively thin volume. It had only areas of agreement (with many alternative treatments) and opted to stay virtually silent on debatable issues. IFRS covers the major issues and takes a firm stand on eliminating alternative treatments. Its success is not that everyone agrees with it, but because it paints a clear picture of the chosen route. Therefore if we are to adopt a global standard then IFRS is acceptable and transparent.

Late last year, the U.S. Securities and Exchange Commission (SEC) voted to allow foreign companies to file their results in IFRS without having to reconcile to U.S. GAAP. This is the measure of success as it indicates the high esteem that IFRS has gained in a short time. This year the U.S. SEC are debating whether to extend the choice of compliance to domestic multinationals. The success of the EU in adopting IFRS in only three years, coupled with the fact that many large U.S. corporations are adopting IFRS internally for their operations outside the United States, is putting pressure on the SEC for the U.S. to join the 100 club.

The IASB and the U.S. counterpart (Financial Accounting Standards Board-FASB) have been closely working together, with each having a representative on the other's board. They have produced their first joint standard last year. IASB, when upgrading the IAS into IFRS, naturally took the best out of U.S. GAAP. Therefore there are aspects in IFRS that are familiar to our American friends.

U.S. GAAP is an incorrect acronym; it should read U.S. GAAR-Generally Accepted Accounting Rules issued by FASB because it has about 25,000 pages of detailed rules. IFRS is 2,500 pages of principles. Changing from applying rules to judgment will be challenging to the Americans.

Joe Smoczyński
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